Over the past four months, Ardent Partners has presented one Chief Procurement Officer’s insightful and fascinating foray into a procurement outsourcing project that has gone terribly wrong. [Readers can review all eleven articles in the “CPO Insider” series by clicking here.] What started out as a larger corporate initiative to reduce headcount and increase savings and efficiencies devolved into a poorly-executed playbook of what to avoid when planning to outsource your procurement and AP operations.
In the context of a larger initiative that began at the very top, our CPO volunteered to put his operation first in the process and have his department go through a “pilot” process. What followed was a real cluster____ of a process; at times frustrating, at times surprising, but always absolutely maddening. Our CPO should be commended for sharing his story and we are indebted to him for his time, his insights, and perspective, but above all for his honesty. I consider it a must-read for any procurement group considering any level of outsourcing. Which brings us to today. Some time has passed and the procurement (and AP) outsourcing operation has reached a steady state. Things continue to improve, slowly, and the outsourcing progresses forward across the company. Now, time for reflection – after eleven installments in the series as our CPO shares the first four lessons learned from this outsourcing adventure. Episode 12 of CPO Insider starts now:
CPO Insider: Four Lessons Learned, Our CPO Reflects Part I
Lesson One – Do Your Homework: One of the first lessons this CPO and his staff learned – the hard way – was to ask the BPO providers the right questions during a much more rigorous RFI/RFP process in order to fully understand the different capabilities, experiences, potential limitations, culture, and strategies that would lead to the successful execution of the project. Readers may recall that the BPO provider that was selected touted their people and capabilities at the outset, but very early into the transition, staff shortcomings and cultural differences quickly appeared. Drilling down and getting specific answers to key questions, like, “How many years of experience does your project manager have?” or “How do you plan to lower our costs and increase our performance?” can give procurement leaders and teams a better sense of whether and how well a BPO provider is prepared to undertake a BPO project.
Lesson Two – Engage the Right People: Another lesson learned was to ensure that they had the right mix of people engaged at the right times throughout the process (e.g., Finance, HR, IT). In this case, as with most large projects, the earlier that stakeholders are involved, the better. For example, during the execution phase, the team learned the hard way that the BPO was providing insufficient IT bandwidth to fully accommodate payment processing, which caused delays and forced staff to work overtime. Had the CPO and his team engaged IT earlier in the process, minimum bandwidth requirements would have been highlighted sooner and it would have saved all parties time and money fixing the problem after the fact. Another example is that the team would have greatly benefited by having someone who had outsourced a business process area in the past and could identify the standard 5-10 issues that every outsourcing project takes. The team was frequently caught flat-footed, not knowing what it didn’t now until it was too late.
Lesson Three – Establish and Follow Ground Rules: The third lesson this CPO and his team learned is the value of governance and responsibility – of clearly defining and communicating which groups are responsible for areas of project planning, transition, and execution, and then holding each other accountable to their assignments. In this case, the procurement outsourcing project was managed by a project manager without any prior outsourcing experience. Rightfully or wrongly, critical decisions were deferred to the procurement organization, which led to confusion as to who within the enterprise was driving the project. Eventually, procurement took ownership out of sheer necessity. But, under normal rules of engagement, the project manager would have remained at the helm throughout the project and collaborated with – not deferred to – more knowledgeable stakeholders vis-à-vis critical decisions.
Lesson Four – Understand People and Processes Before Changing Them: Today’s fourth and final lesson (we have four more coming) to be learned is the value of understanding existing processes and the people who manage them at present before implementing a dramatic transformation project via outsourcing. In this case, the CPO and his team, having outsourced AP operations years ago, had an almost complete lack of understanding of accounts payable operations and issue resolution. Their knowledge gap allowed the outgoing BPO provider to depart without transferring the “tribal knowledge” gained over many years to either the company, his team, or the incoming BPO. So when the cut-over to the new BPO went live, neither the procurement organization nor the incoming BPO provider knew how to process certain payments or resolve payment issues. This caused huge payment delays and significant supplier unrest. In another case, the BPO staffers were changing processes and workflows without understanding the wider system and organizational implications, which created headaches, confusion, and extra work for many different teams. Had the procurement organization and the BPO provider understood the bigger picture – what “tribal knowledge” they lacked and needed to capture; what might happen if they change X-process – they could have prevented may problems and avoided exacerbating many others across the entire procurement and accounts payable processes.
Hindsight is 20/20, and very few projects are implemented without encountering some issues. Readers of season one of CPO Insider understand that today’s lessons were learned the hard way – the very hard way. We present them so that other procurement professionals considering or preparing to implement a procurement outsourcing project can avoid them in the future. Stay tuned for Part II in this series, coming up next week.