By Murray Matheson, Principal at Efficio
Reducing third-party costs remains a key focus for executives, with finance and procurement teams taking the lead in uncovering and capitalising on savings opportunities. However, the critical role of the CFO and their executive peers in setting the stage for successful cost saving initiatives is often overlooked.
While procurement teams generally handle the technical aspects of identifying cost reduction opportunities, it is the responsibility of senior business leaders to ensure the organisation is properly prepared to assess and effectively implement the identified opportunities.
When opportunity assessments are managed effectively and fully supported by senior leadership, the rate of a successful outcome increases by 40%.
Setting the stage for success requires ambition and preparation
When approaching an opportunity assessment, senior business leaders should consider the critical actions below:
- Define scope and targets: The focus of the opportunity assessment should be clearly defined – whether that be addressing a full scope of spend, targeting specific areas like indirect procurement, or aiming for additional objectives such as Working Capital. Establish clear parameters, including timelines and concrete targets with anticipated bottom-line impact and ROI. The assessment requires a clear direction to yield meaningful results.
- Secure executive commitment: Gaining commitment from executive peers is essential. Executive buy-in and accountability are key to building the momentum needed for successful programmes. If other pressing initiatives will limit their availability, it may be wise to reassess the timing or scope of the assessment.
- Encourage “blue sky” thinking: Foster an open-minded approach where all ideas are welcomed. This includes revisiting previously rejected ideas and considering those that require investments to unlock savings. In the beginning, make room for thinking that isn’t constrained by existing capability or resources; this can be refined later on in the process.
- Establish strong governance and decision-making processes: Implement robust governance to ensure opportunities are reviewed in an open forum, allowing decisions to be made based on a solid business case rather than prematurely dismissing options without proper assessment.
Timing and context are key to impact
Certain scenarios can make opportunity assessment particularly valuable. These include:
- Budget planning: Aligning the opportunity assessment with your budgeting process allows for the smooth integration of identified opportunities into financial planning.
- Market changes: Inflationary pressures may create additional reasons to revisit supplier relationships to maintain margins.
- Company performance: If the cost base shows continued year-on-year growth, an opportunity assessment can help identify and address the underlying issue.
- Company Changes: An opportunity assessment can help organisations prepare themselves for an acquisition, private sale or an IPO.
Maximising data
Lack of spend visibility limits the organisational focus to a budget level, restricting the ability to consolidate cross-functional spending and maximise value. This is where CFOs can play a pivotal role by aligning stakeholders across the organisation and identifying synergies to maximise impact.
By creating a comprehensive, organisation-wide spend cube upfront, with clear visibility into costs across business units and spend categories, CFOs can ask the right questions and ground the assessment in a realistic view of current operations.
Turning plans into action
Identifying opportunities is only the first step. To turn those findings into tangible results, CFOs and senior leaders must ensure that the right commitment, resources, and capabilities are in place. Key actions include:
- Focus on key initiatives: Momentum is essential. Concentrate on core initiatives that align with available resource levels and organisational goals. It’s often better to build momentum through smaller focused efforts than launch too broad a programme.
- Engage the wider executive team: Achieving stretch targets will require significant time investment from various parts of the organisation. Building executive awareness and securing senior sponsorship is key to realising savings. This may involve high-level executive discussions and aligning budget targets with the developed initiatives.
- Assess Procurement’s ability to deliver sustained results: Evaluate whether the procurement function can deliver on the identified opportunities by considering the following:
- Does Procurement’s remit cover the entire spend targeted by the programme?
- Does Procurement have the skills and capacity to deliver results?
- Is Procurement aligned with key company goals?
- Can existing employees be upskilled, or should temporary resources be brought in to meet a specific, time-bound need?
- Should the business invest in more senior procurement resources to lead the transformation programme?
Are you ready for an opportunity assessment?
If your organisation is approaching a budgeting cycle, facing cost pressures, or preparing for a significant transition, an opportunity assessment could be the key to unlocking meaningful change. CFOs and senior leaders should ask themselves:
- Are you approaching a new budget cycle and suspect there are cost savings available, but don’t know where to start?
- Are you preparing for a major financial or strategic event?
- Are you facing market pressures that demand a re-evaluation of your cost structure?
If you answered yes to any of these, now may be the time to explore how an opportunity assessment can help you to unlock value.