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Defining success

June 24, 2015

Success is defined as an accomplishment, or the meeting of an aim or objective. In a recent article, Jonathan Cooper-Bagnall of Proxima Group challenges Procurement to re-think its measures of success. He might have posed the same challenge to all those involved with forming or managing trading relationships.

To quote from Jonathan’s observations: “A study by Oxford Economics highlighted the significant disconnect between the measures for success (of executives versus Procurement practitioners). The survey of 500 C-suite executives and 500 procurement employees across the world showed that 72% of C-suite executives ranked cost savings and cost avoidance as their primary measure for procurement success. Inventory turnover was second with 50% and supplier performance came in just below that at 49%. Procurement practitioners however, have different priorities according to the results of the study. Around 56% of practitioners ranked touchless transactions as their premier performance indicator. Cost savings and order cycle time tied for second, with 52%.”

Based on this, Jonathan rightly highlights a growing disconnect between executive expectations and the value that Procurement delivers. He suggests that management is increasingly concerned about the damage to brand and reputation that results from high-profile supplier failures to perform. While I agree with his conclusion, it does not seem to me that it is supported by the Oxford Economics findings – and it is miles away from the direction that most Procurement groups appear to be taking. Again, however, I must observe that the problem of defining and measuring success is common to most commercial groups – buy and sell.

My perspective is that executives are indeed concerned about business performance in terms of revenue, profit, brand and reputation. Each of these items is a measurable outcome. In itself, none of the measures mentioned by Oxford Economics is an outcome – they are inputs which may or may not lead to a positive outcome.

And that is the core problem with the measurements used by Procurement, Legal and contracts / commercial staff. They have no real insight as to whether their actions in selecting suppliers, drafting or negotiating terms or managing contracts actually drive better business outcomes. They contribute to a process, they do not oversee or manage it. So Jonathan is right to call for change – but I suggest that cost savings and cost avoidance are ‘success indicators’ that have been tried, tested – and failed.

 

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