In my last post I described the three levels of category management—Basic, Enhanced, and Transformative. In this post I’ll review the 7 characteristics used to assess a company’s readiness to embark on enhanced or transformative category management.
Assessing a company for the 7 characteristics correlates with the business-readiness to embrace and support change. Assessing the company culture and strategic practices are atypical areas for procurement to assess, however, the ultimate success of category management is predicated upon business strategy alignment and leadership support. The result of these assessments is a frank, open dialogue between procurement and business leaders. The rationale is simple—how companies spend money reflects the culture, policies, and practices currently in place. To embrace enhanced or transformative category management is to expressly choose to review and improve policies, practices, and business strategies and thereby change and improve the culture and results of the company.
- Business Strategy – The extent to which the organization follows a defined strategy to create marketplace success. Rationale—companies with undefined or implied status quo-based strategies are much less supportive of category management than companies driving innovation and marketplace differentiation strategies.
- Market Urgency – The effects of outside forces on the culture and behavior of the business leaders and employees. Rationale—companies without market pressures resist category management while companies with profound market pressures actively seek the results that category management can unlock.
- R & D / Innovation Strategy – The ongoing plans and methods to sustain unique market offerings. Rationale—companies with no innovation strategy typically remain at the basic category management level. Companies with extensive in-house-based innovation strategies require careful governance alignment to consider and align with category management. Companies with externally based innovation strategies actively seek category management.
- Spend Governance – The degree to which spend control is viewed as a ‘power’ requirement versus a commercial opportunity. Rationale—decentralized companies with decentralized functions resist category management at levels above their respective P & Ls. This makes supply market leverage very difficult. Conversely, companies with centralized functions (direct, indirect, and R & D) and defined financial policies and procedures readily leverage category management to build their supply market-facing strategies.
- Leadership & Culture – The degree to which leaders drive collaboration inside the organization and address external competition. Rationale—company executives who actively collaborate internally to address external pressures create a positive, aligned culture. Where internal competition predominates, category management is not seen as value-added by executives. Where external competition is the over-riding concern and internal collaboration readily occurs, category management is embraced.
- Procurement Capability – The assessment of the function’s progress along the improvement journey. Rationale—many procurement functions are focused on transaction processing. These procurement organizations require substantial development before they are ready and able to support category management. Procurement organizations well-versed in the business priorities and embedded as members of the respective leadership teams quickly establish the credibility and capability to deliver on the category management value proposition.
- Supply Chain Integration – The role of internal and external supply chains. Rationale—disparate and separate supply chains by business unit with distinct heads of manufacturing, quality assurance, et cetera are much less receptive to category management. Integrated supply chains with aligned operations and functional leadership linked to customer demand are more receptive to category management.
Once you’ve conducted your assessment of the 7 characteristics assessment it is time to review the overall results and next steps:
- Largely positive—form a guiding coalition (John Kotter’s phrase) of senior leaders and chart the path forward. More on this in the next post.
- Tending negative with a few bright spots—focus your efforts on the bright spots and pilot the process. Once a few categories prove the value of the process widely disseminate the results. Make these pioneer stakeholders heroes in the organization.
- Largely negative—tread carefully and hesitantly. Executive support and stakeholder alignment are critical. If the prerequisites for success are not present, the efforts to advance enhanced and transformative category management will be frustrating.
Building on the cooking analogy from the prior post, if the 7 characteristics assessment results are low, the organization is likely expecting basic level procurement—focused on tactical buying and supply. It may be possible to convince a few stakeholders to try a higher level of category management, but bear in mind that someone looking for a prepared meal is unlikely to have the interest or patience to prepare and appreciate a fine meal nor will they fully value it. Conversely, if the results are high, the business likely expects enhanced and transformative category management—these are the diners who know a great meal and will not be satisfied with warmed up left-overs!
What’s your assessment of your company on the key characteristics? What’s the status of category management deployment and engagement in your company? Where is your procurement function on the development journey?
I received a related question from a former co-worker, Peter Cottis, regarding my prior post, “What’s Cooking? — Category Management”. His question – “Why, after decades of Category Management in procurement, the vast majority of businesses remain satisfied with the basic approach?”
My answer to Peter is as follows:
- Procurement historically performed the tactical roles of ‘order placer’ and ‘contract finalizer’ and ceded higher-level decisions of business requirements definition, supplier selection, and strategy development to stakeholders.
- Procurement often serves in the role of ‘price police’ and executes this role by treating suppliers as if they are “Leverage” suppliers (using the Kraljik matrix).
- Senior executives rarely view procurement as a strategic function to be optimized and fully used—it is instead viewed as a cost center to be minimized.
- Procurement does not demonstrate the category management value proposition to the business. What is clear to the business, however, is the amount of work and resources required to develop and implement a strategy, but the results are less clear, and the ROI may not be compelling.
If business leaders maintain these four perceptions, it is rational for them to accept ‘basic-level’ category management—why should they commit to anything more?
It is the role of procurement to teach stakeholders what world-class procurement can do and then to deliver it in practice. If, based on your assessments, the host company is not the right place to demonstrate value then either take the stakeholders on a visit to a company (non-competitive industry so the sharing can be more open) that is doing enhanced or transformative category management and/or bring them white papers and case studies demonstrating the value in practice. Your stakeholders may initially be uninformed about world-class procurement, but it is your role to educate them regarding what is possible.
In my next post I’ll address – Question #3 – Which categories are most in need of category management? Where this post was transparent about the underlying business limitations around category management, the next post will show a path forward using a thoughtful approach to the category selection and process deployment approach. Thank you for reading this post. I look forward to your comments and inputs.
In the meantime, if you’re looking for additional reading on these topics, I recommend you consider one or both of the following:
- For procurement vice-presidents and rising directors, The Global Procurement Leader’s Handbook.
- For category managers, rising procurement managers, or a leaders of category managers The Global Category Manager’s Handbook.