What is Value Procurement ?

“beauty is in the eye of the beholder”  Margaret Wolfe Hungerford stated in her book Molly Brown in 1878. 

Is value as subjective as beauty?

The classic failure to consider subjective value comes from Karl Marx the labor theory of value. Marx introduced the subjectivity of value from its objectivity based norm.

Wikapedia states that the subjective theory of value is a theory of value which advances the idea that the value of a good is not determined by any inherent property of the good, nor by the amount of labor necessary to produce the good, but instead value is determined by the importance an acting individual places on a good for the achievement of his desired ends.[1] The modern version of this theory was created independently and nearly simultaneously by William Stanley JevonsLéon Walras, and Carl Menger in the late 19th century.[2]

Value Definition

The holy grail and universal challenge is how to define value. Here are a couple of definitions to help us start to view value;

Value (noun)

  • the regard that something is held to deserve; the importance, worth, or usefulness of something
  • principles or standards of behaviour; one’s judgement of what is important in life

Value (verb)

  • estimate the monetary worth of
  • consider (someone or something) to be important or beneficial; have a high opinion of

Procurement Value

Michael Porter developed a model that is used throughout the procurement industry

He moved away from organisational departments focusing his value chain on systems, and how inputs are transformed into the outputs purchased by consumers.

Simply put, all the value that is created and captured from an organisation is described as the margin. This can be  defined in the following formula;

Value Created and Captured – Cost of creating that value = Margin   ( mindtools.com)

Building Consensus

Organisations are built up of formal and informal teams. Collaboration is key but how do you build consensus of what value is? The norm is to develop formulas and/or statements to enable the different groups to formulate a common understanding. Financial Management is full of formula to capture the common ground; Return on Investment (ROI), Return on Capital Employed (ROCE) to name a few ! All based on fiscal value.

However value can include, Social, Environmental, Economic , Ethical and Customer. How do we gather all these elements and deliver clarity and consensus?

There are many organisations offering tools and programs in building consensus. Below are a few examples should you want to take a further look;

Benefits Realisation

Benefits realisation management as defined by the Project Management Institute is;

a “Collective set of processes and practices for identifying benefits and aligning them with formal strategy, ensuring benefits are realized as project implementation progresses and finishes, and that the benefits are sustainable—and sustained—after project implementation is complete.”

Driven from finance departments this approach was to measure outcomes of the project investments made primarily at its evolution from Capital based projects.

The project requires needs and outcomes to be developed both tangible or intangible. Once documented through stakeholder consensus a set of measurements are determined. Projects are delivered. Post implementation reviews are designed to measure the outcomes and benefits derived through a post implementation review (hence benefits realisation)

Supplier Value

Value Procurement has been something I have been interested in for a long time.  I spent 4and a half years researching supplier value.

Aas stated previously in my blog on the future of procurement and supply chain 50-70% of an organisation spend is through third party suppliers. Extracting value from this relationship is key to business success.

My research was prompted by the need to understand if there is a common set of value characteristics chosen by organisations to determine key supplier status. My aim was to uncover (if applicable) correlation between countries, tenure within procurement and determine the importance of these characteristics when entering into key supplier relationships.

Could the determination of value be influenced by culture, the market dynamics, the economic environment, individual’s drivers and motivations or the organisations objectives?

I achieved something unique, consensus (correlation) between Australia and New Zealand Public Sector Procurement Professionals. After much testing, regression testing and statistical analysis ( thank you IBM SPS tool) here is the Value model I developed;

Figure 2  Public Sector Supplier Value characteristics

This model creates insight into suppliers and their propensity to deliver value prior to entering into a contractual relationship. A great tool to help give clarity for areas of due diligence for shortlisted suppliers. The key is in how you prepare the questions embedded within the tender documentation and extrapolate their responses.

This is only one of the possible elements that derives value proven through correlation of two jurisdictions.

Value Procurement

Porter developed a value chain methodology that is commonly used in procurement. There are many formulas that are associated with delivering value from the lens of the finance department. As illustrated with my supplier value model you can clearly see that defining value is complex.

Fundamentally Value is like beauty  “in the eye of the beholder!” Gaining consensus on any definition is the key element of capturing value.

To deliver Value Procurement it is mandatory that participation in setting strategic business plans within an organisation is a priority. Sitting on the side line is not appropriate – clear participation delivering input, ideas and design is.

Enabling value through developing trust within the whole executive team is a key skills for all procurement professionals.

A trusted advisor must deliver what the stakeholder requires. Being a friction free influencer is a priority competence, however that does not always mean doing everything the exec team think they need or want. A key part of Value procurement is an advisory that mitigates risk through ethical and transparent behaviour.

Emails and phones alone cannot build a trusting relationship. Face to face, time, consistency and delivering on expectations are key elements for building trust.

What rings true here is the old adage “People buy from people they like and trust.” So how are you liked and trusted within your organisation?

Procurement: is it time for a re-brand?

What’s in a name?

“A rose by any other name would smell as sweet” would Shakespeare’s sentiment apply to procurement. Procurement for many years has been challenged by a lack of executive advocacy, influence and inclusion in strategic plans. Why is that?

Theory and Context

Everyone has their own idea of what procurement means. Is this because we all have the ability to purchase and procure in our everyday life? Buying expensive goods and services, technology, motor vehicles, even complex purchases such as property are regular occurrences for most individuals today. Purchase to pay has been commoditised due to advanced ecosystems and self-service applications. On line catalogues have opened universal access to employees to procuring goods and services. So, has this attributed to commoditising the procurement brand?

For decades procurement had been the tool to make cost savings. Organisation structures have procurement reporting to the CFO attributing to the cost saving mantra.  I always attribute the CFO function and finance part of the business to the negative side of the balance sheet associated with cost containment and managing within or under budgets. How exciting would the role be if it was reporting to the Director of Sales or Marketing, responsible for revenue generation, value delivery and growth. A rarity I suspect!

The cost saving focus of the function has led to commoditisation and the misunderstanding of the role of procurement and the value it delivers as part of the organisations strategic positioning.

We are not alone!

Many other departments have had similar issues being recognised building executive advocacy, influence and being strategic. We are in the age of organisational transformation. Customer centricity has become the key focus for many organisations led by the private sector. The ability to deliver a point of difference in very competitive industries is a strategic advantage. We have even seen the emergence of the customer way (or should it be citizen) in many government agencies and departments.

Human resources have seen a massive transformation in its image and brand. A 2015 Bloomberg article cites some great examples of HR rebranding, such as Mailchimp, the email marketing service provider. The HR director assumed the title of “Chief Culture Officer.” Now, in addition to the daily operations of HR, Rebecca Greenfield and her team work on creating a culture of creativity and innovation. They utilize this new rebranding to focus on worker happiness and inclusivity, along with employee engagement and regular activities to engage workers. This a clear example of repositioning the role and function of HR.

Another example is taken from an article written by Kim, D. (2012). HR branding: How human resources can learn from product and service branding to improve attraction, selection, and retention. Cornell Hospitality Report states “HR branding can be used as a strategic tool to manage different aspects of the employment experience—from attraction, to selection, to retention—ultimately yielding higher quality and more motivated employees.

An article in the HR executive titled a “Change in the C suite” by Eva Sage-Gavin highlighted; Chief Leadership Officer and Chief Learning Officer have been in place for a while. We are seeing new roles like Chief Experience Officer and Chief Collaboration Officer emerge. Chief Culture Officer is particularly important. While some chief culture officers work within HR, others may report directly to the CEO. 

Customer Service has also seen a transformation and re-brand. Experience is seen as being the key differentiator and many organisations have transformed into focusing on customer experience. Shep Hyken in his article in Forbes Customer Experience Is the New Brand states that “the race to own customer experience is on! Companies are recognising the importance of delivering an experience that makes them stand out from their competition.” This concept is not new back in 2007 in the Harvard Business review Meyer and Schwager published a paper on Understanding Customer Experience stating, “although companies have zeroed in on customer experience many have been trying to measure customer satisfaction.” They looked at and measured Customer experience management versus customer relationship management and charted a risk matrix based on a sample of high-touch customers.

The focus on Customer Experience today has seen the whole Customer Service Sector move to a rebrand with a plethora of CX conferences, knowledge, publications and consultancies.

We can’t forget IT.  This sector has and still does have its challenges as technology has commoditised many of the functions. The drive for Big data (Data analytics) and the importance of decision making, and strategy being based on the insight from data has seen the traditional IT and ICT executive roles move to the title of Chief Information Officer. However today we see this at risk through the hunger to gain competitive advantage in the rapidly changing technology sectors. We now have the Internet of Things, Automated Intelligence, Robotics, Augmented Reality. The move from just technology and Infrastructure has been pervasive and so has the move to create new relevant executive roles and titles.

In March 2015 Mark Shapland in an article for the I-CIO magasine discussed the CDO v CIO (Chief Information Officer v Chief Digital Officer) landscape, commenting “As waves of digitization have swept through organizations, there has been a growing debate about the value of a new addition to the management mix: the chief digital officer (CDO)”.

Another great example of this is the overview from Gartners Partha Iyengar that the transformation owner in the enterprise is potentially moving from the traditional holders of technology.

Who is leading digital transformation — the CIO, CMO or CDO?

The right Brand

It is fair to say that procurement’s time is coming! With Countries adopting the Modern Slavery Act and the focus on the General Data Protection Regulation (GDPR); management of risk will be paramount for all organisations. Not only are there hefty fines but there is also the risk of demonstrable damage to brand and reputation.  If you combine this with social agenda and the rise of social procurement regulations, ethical, transparent procurement will be a strategic priority and will become one of the top 10 risks of many organisations.

Over the years I have seen many nuances on the naming and branding of procurement, here is a list for your edification;

Procurement, Procurement & Supply, Procurement & Supply Chain, Strategic Procurement, Strategic Sourcing, Strategic Sourcing & Supplier Management,

Commercial, Commercial Services, Commercial Procurement.


Do we need a name change or brand? (Procurious-Michael Page research in 2018 saw over 70% of CPO’s stating no). Does the capability of procurement practitioners constrain the opportunities and ability to gain advocacy and influence with executive leaders? For many years this has been the number one challenge for procurement. Our time in the sun is approaching, how do we as a profession grab this with both hands? Organisations such as CIPS (The Chartered Institute of Procurement and Supply) help to position our profession through a global standard and ethics charter. The chartered status ensures that you have the knowledge to assist with the strategic risks in complex supply, management of protecting people within the supply chain and mitigating risk of brand failure through unethical sourcing.

In looking for unconstrained and new branding here are just some limited ideas to wet the appetite;

Value & Acquisition, Strategic Acquisition, Ethical Sourcing, Ethical Acquisition, Value Securing, Acquisition Solutions, Social Sourcing, Strategic Supplier enablement. What do you think?