Sales Trend 11 from Barrett’s 12 Sales Trends for 2017 Report is about Procurement. Guest author Ben Shute, CEO of Comprara, shares his insights.
It was 1999 when De Vincentis and Rackham (of SPIN Selling fame) wrote ‘Rethinking the Sales Force’, a book describing how the rise and rise of procurement challenged sales professionals about how best to organise business-to-business sales teams. Fast forward to 2016 and there are 15,000 people working full time in procurement in Australia, and the proportion of sales revenue that is won through competitive processes is rising year on year. So what are the key factors affecting procurement practitioners, and how will that affect you as a sales professional?
Banking on savings
Expectations about the contribution of the procurement process to business priorities have rarely been higher for a variety of reasons. Many organisations have invested in people, processes and technology:
- Procurement people have been recruited, trained and developed, and the proportion of practitioners who claim procurement as their full-time job has increased.
- Governance has supported formal procurement processes, resulting in more of the spend portfolio being subject to a procurement process.
- Many organisations have invested in procure-to-pay systems, with business cases predicated upon significant cash-releasing savings from improved deals.
For all these reasons, the pressure upon procurement teams to deliver measurable results has rarely been greater.
Deliver on the promise
The challenge for procurement practitioners is that they now have to deliver on the promise, and this means that for business-to-business sales teams the sales process will continue to be subverted by the procurement process, as more and more spend is subject to formal procurement processes. The two key priorities for procurement are:
- What is the value in this project?
- How can we turn the latent value into measurable results?
Many procurement people aspire to be perceived as a ‘trusted advisor’ to business stakeholders, but there are several key barriers, including:
- the legacy perspective that procurement is price-focused, rather than value focused;
- the inability of many procurement practitioners to define what is ‘value’;
- the challenges for procurement practitioners in understanding market dynamics;
- the use of simplistic decision making tools, such as weighted factor analysis which can be poorly suited to an increasingly complex and uncertain world; and
- poor stakeholder alignment affecting the ability of procurement practitioners to manage organisational changes needed to realise benefits.
The Jerry Maguire challenge
If your value proposition is credible, and you can demonstrate how your solution can realise benefits for the client, (or better still, support the realisation of benefits), then there is an opportunity to support procurement people building credibility with their stakeholders. Most organisations have a structured procurement process, so let’s review a generic process and consider both the trends affecting procurement and the opportunities for sales teams to create extraordinary value.
Opportunity analysis
Some procurement practitioners used to be ‘tail end Charlies’, only involved in the process once the business case had been approved. Sometimes the business case was based upon a proposal from a supplier, so the scope for the procurement process to add value was limited. The trend is that investment in technology solutions, spend analytics and strengthened governance is giving procurement people earlier involvement in projects. The choice sales teams have is to either build a relationship with the specifiers, and try to avoid the project being subject to competitive processes, or to work co-operatively with the procurement team. Avoiding procurement altogether is not a sustainable strategy!
A key opportunity for sales teams in this phase is to influence the definition of ‘value’. There is no question that ‘cookie cutter’ procurement strategies of variety reduction, aggregation of demand and/or supply base reduction are based upon the assumption that competing solutions are interchangeable. It is hard to persuade a prospect that yours is a premium solution if they have defined the need in generic terms to ‘commoditise’ the specification. Before the specification is fixed, can you shape how the requirement is defined to ensure that:
- your offer is not excluded later for not meeting some mandatory requirement; and/or
- your offer is well aligned to the definition of need, so that you score well in the evaluation phase?
If value is some composite of benefits and costs, can you develop a cost / benefit model that supports your value proposition? Extraordinary value might mean that you shape the specifier’s definition of the need, so that their expectations are aligned around your solution.
Market analysis
Who knows more about the market; your sales team or the prospect’s procurement team? In the past that was easy to answer, as many procurement practitioners ‘drove a desk’, but now the answer is that some procurement teams may have better insights into the competitive landscape. Category managers may deal with the same markets every day, rather than deal with a succession of different projects, building no real market understanding of any of them.
One challenge for procurement practitioners is VUCA. VUCA stands for volatility, uncertainty complexity and ambiguity, and these trends will have a significant impact on procurement, and in turn upon sales teams. For example, the possible rise of protectionism (or even the emergence of headwinds for free trade agreements) may change the footprint of the competitive landscape. Imagine that trade agreements fall apart and tariff barriers rise in tit-for-tat protectionist moves; might that result in less offshore competition?
The opportunity for sales teams to create value for the client may include providing periodic market reviews about market exits, entrances and changes in market conditions. What do your sales teams really know about the client’s challenges, and their own market?
Develop Strategy
Procurement people reconcile their requirements from opportunity analysis with the character of the external market to develop appropriate procurement strategies. Many clients are responding to the volatility and uncertainties of supply markets by focusing upon building agility and resilience. Agility means that the client can be flexible and adjust quickly to externally-originated change. Sales teams might expect more contracts to be of two years plus one year plus one year duration, as clients seek to balance the benefits of co-operation with the flexibility of harnessing competition if something changes. Most procurement teams are focused upon simplifying processes and increasing throughput, and that can be hard to reconcile with a cycle time to complete a sourcing project of 180 to 270 days. It may be quicker and easier to renegotiate with the incumbent supplier; this could be good news or bad news, depending upon your point of view! The opportunity for sales teams is to help the client scale and understand switching costs, and to be responsive if markets change.
Market Engagement
This phase is when the procurement plans are put into practice, and is when RFIs, RFQs, RFPs and all the other market enquiries that procurement people use are issued to potential suppliers. Many procurement organisations, especially in the public sector, are simplifying and standardising processes, templates and terms and conditions. For work that is competitively tendered, expect to see more consistency of documentation within larger organisations, but not necessarily between organisations. As the proportion of sales that is subject to competitive bid processes grows, sales teams might consider reviewing proposal management processes. You might not like bidding for work, but there are two key responses that may support you to drive up success rates.
Firstly, how do you distinguish which bids are worth pursuing and which are not? Consider three key questions:
- Will anyone win?
- Will we win?
- Do we want to win?
If sales teams can design a simple filter to focus scarce time only on bids that you have a chance of winning—and want to win, it may help them develop better proposals. Procurement people can tell proposals which are copy and pasted from previous bids at 100 metres in a fog, so consider developing a library of responses to ‘standard’ questions, but if your solution really is compelling, make sure that the content of your proposal communicates your extraordinary value in ways that align with the client’s evaluation processes.
One trend that is emerging is the simplification of bid evaluation processes by creating bid response templates that require bidders to ‘summarise your value proposition through a haiku of no more than 17 syllables’. OK, that is an exaggeration, but if you cannot differentiate your extraordinary value in 200 words or less, you might consider whether the client’s simplification of the process is a symptom of commoditisation of the requirement, and review whether this an opportunity worth pursuing. The alternative is to accept that some clients won’t read a PDF of your value proposition, and encourage your proposal team to define your value proposition more succinctly.
Negotiation
Sales people are often told that procurement people receive more training than them, and of course procurement people are often told that sales people receive more training than they do! Whatever the truth, procurement practitioners have changed more fundamentally over the last 15 years than sales practitioners. No meeting of sales professionals is complete without trading war stories about experiences of poor client behaviour, and that will not change overnight. As a simplistic metaphor, imagine that procurement practitioners exist on a scale from Peter Price to Valerie Value. Both talk about being open to exploring sources of value, but Peter measures value in terms of discounts off headline pricing. You will know you are dealing with Peter when, after presenting a compelling pitch about sustainable benefit realisation through improved client outcomes, Peter asks “that’s great, so can we talk about your pricing?”
Valerie Value does exist, and she classifies outcomes from the procurement process in three ways: ‘‘hard dollar’ benefits (just like Peter), cost avoidance, and the ‘value adds’ that may represent how your solution creates extraordinary value. Sales teams can support Valerie by validating that your claims to create extraordinary value are credible, measurable, and that you can support her in realising the potential value. Make sure that your negotiation planning identifies the likely objectives and behaviour of the other party.
Contract Implementation
Once the deal is won (huzzah!) the solution has to be mobilised. Many procurement people complain that the internal handover in suppliers from the proposal team to the delivery team is poorly managed. Sales teams can be more successful if they ensure that the delivery team are briefed on what was promised to the client, and support the client in mobilising the solution. Extraordinary value might equate to working in co-operation with the client to plan and manage performance so that there are no surprises. As category management processes penetrate the procurement community, there will be more continuity of involvement by the procurement community in projects, and so make sure that internal handovers within your sales team are well managed.
Supplier Relationship Management
Supplier… relationship… management. Doesn’t sound like a partnership of equals, does it? A key trend is that more and more clients are devoting resources to increasing ‘compliance’ with procurement solutions. ‘Back door selling’, (when an unsuccessful bidder seeks to win work even though they didn’t get on the panel or win the deal), will be detected and managed. Expect more panels as clients seek to maintain the relentless consolidation of the supply base. Getting on a panel may not guarantee you business, so the opportunity for the sales team is to be clear about the commitment from the client. If there is no commitment, and the panel members need to mobilise sales teams to generate business, make sure that you know who to pitch to, and what terms apply to any secondary procurement processes. If the client is managing compliance, what will be the role of your account manager?
Review and Refresh
At the end of the engagement, after performance of the project, what benefits were realised? How well did each party perform? What might be done differently next time? The trend is that lack of resources in procurement teams means that optional contract extensions may sometimes be exercised as the client simply doesn’t have the bandwidth to renegotiate or seek potentially more appropriate alternatives. The opportunity for sales teams is to capture client feedback about opportunities for improvement, and ‘close the loop’ by building better cost / benefit models about the actual benefits realised.
Remember everybody lives by selling something.
Author: Ben Shute, Comprara