It’s a common problem.  Many organisations go through the motions on business planning – someone in top management wants a business plan done and it gets prepared, reviewed upstairs and then put on the shelf.  It’s not really used, it’s not at the centre of how the organisation goes about its business – and even if the organisation is committed to some kind of fundamental transformation, the business plan is often not at the heart of the improvement efforts.

On the other hand, just about every Investors In People (IIP) survey ever undertaken shows clearly that people right across and down the organisation feel that they don’t understand where the business is headed, what the key priorities are and what their own part is in driving it there. As a consequence, they tend to feel disconnected and sometimes disillusioned – “it’s mushroom management, all over again!!”

Based upon the balanced scorecard and strategy mapping approach developed by Kaplan and Norton, we in Four Pillars have developed our own approach to strategy development and business plan deployment.  Providing a systematic approach and the engagement of up to one hundred people in the process, it can be deployed with the corporate management team or with other functional leaders and their teams, offering fantastic results in terms of clarity, focus, commitment and action.

David Atkinson provides an overview of strategy mapping, explaining the cause and effect relationship between each perspective

We begin by helping clients to clarify their five year business vision, mission and key priorities. Then, using the four elements of the balanced scorecard as a starting point, we define the critical financial goals and the market sectors and customer value propositions.  As we progress through the programme, we ask the group to first answer the question, “How can we work together to increase revenue and reduce costs?” and then “How can we build the relationship with our customers so that we can add value and offer better service”.

The Vision, Mission, Key Priorities, Financial and Customer Perspective define the Business Plan and will generally more than meet any requirement from the top management for a detailed plan.

Next we develop the Business Improvement Plan. Using the financial and customer perspectives to give clear business objectives, we then work with clients to define the critical process improvements that are required and the learning and development needs.

This systematic approach helps the participants in the planning process to deeply understand the cause and effect relationship between the financial objectives and what they need to achieve with their customers, their critical processes and with their skills, their technology infrastructure and their leadership and culture (the Learning and Development Perspective).

We facilitate this process by developing a Strategy Map with the planning participants which then becomes a one slide pictorial presentation of the Strategy which is perfect for briefing out across the organisation.

Each aspect of the Process and the Learning and Development Perspectives will require detailed development and we support the teams that will undertake the planning with templates and facilitation to develop the Business Improvement Plan.

The benefits of this approach are extraordinary.  A clear overarching focus for the organisation, a wide understanding of the priorities and the plans to approach them and a wave of enthusiasm for tackling the biggest issues.  In other words, the all of the foundations for successful business transformation at its very best.

Michael Simmons details strategy mapping in practice with leaders and their teams.

If you would like to hear much more about how Four Pillars goes about applying this approach with our clients, simply email Michael Simmons or subscribe to our blog for more reflections and insights on strategy and business transformation.

By Michael Simmons

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Yesterday, as usual, I woke up to the sound of BBC Radio 4’s ‘Today’ programme and a report on the apparent infiltration of tax consultants from the ‘Big Four’ accountancy firms into HM’s Treasury department.  These consultants were on short-term placement in Whitehall to help civil servants understand how tax loopholes are exploited (legally, of course) and support those civil servants in the drafting of new schemes and policy.  All in a spirit of openness, collaboration and public service, don’t you know.

In the newspapers and at earlier hearings, the Chair of the House of Commons Public Accounts Committee Margaret Hodge has railed against the morally-dubious business practices of the Big Four and others in aiding corporate and already-wealthy individuals avoid paying their ‘fair share’ of corporation tax in particular. A shameful roll-call of big name clients….Starbucks, Google, Amazon, Four Pillars (only joking about the last one!) have also been in this picture in recent times.

Spokesmen for the Big Four have provided assurances that their placement of young, inexperienced advisors into the Treasury is a benign and worthy activity. Really, what could a smart, university-educated, youngster with ‘only’ up to seven years working experience working in a tax advisory capacity, possibly do to undermine the Government’s efforts to tighten-up the public embarrassment of gross corporate tax avoidance?  Well, I can’t help thinking cynical thoughts and, as I’m steeped in the world of procurement, it reminds of the question about to what extent should buyers facilitate the close engagement of supplier placements in their own businesses as part of their supplier relationship management (SRM) efforts?

We’re told that working closely with key suppliers is essential if buying organisations are to harvest the full potential value from their relationships, whether that’s supply chain efficiency, innovation, risk mitigation or cost improvement. Co-location and deepening relationships are enablers to that value creation and its harvesting, and there are reported examples where this happens. I’m not about to argue (in principle) with such practice as, in our client work, I’m often an advocate, but this practice must be undertaken with clear-sightedness and an understanding of whose business interests such arrangements serve.

When companies encourage co-located collaboration with suppliers, they are looking for a competitive or service improvement edge; the focus is on not only the impact on the buying company but also those of downstream customers.  The question to ask is “how can this supplier collaboration serve the interests of our customers and help us be more profitable and win more business ourselves?”  Who gets the share of the spoils from the collaboration is a function of the commercial leverage (or power) each party brings to the transaction whilst, of course, all parties must ‘win’ to some degree or the collaboration will break down and fail.

As well as opportunities to improve value, these arrangements also carry the risk of some loss of knowledge power (informational asymmetry favouring the buyer).  The supplier is able to access a wider range decision-makers and information about the buyer’s business; increasing transparency in the relationship that can lead to the buyer’s loss of leverage in future negotiations, where previously some obscuring of the facts could have helped the buyer secure a better deal.

So, back to the Treasury and the Big Four.  The Treasury’s role, in addition to policy and governance, is to develop tax revenue-generating mechanisms and to distribute funding to support the other government departments and agencies.  The leaking of potential tax revenues through loopholes is an important area of concern and is obviously attracting attention and effort to address it right now.  One can imagine brainstorming sessions involving inside and outside advisors alike, looking at current practices deployed by the tax-advising consultancies aimed at avoiding tax for their clients. But there’ll undoubtedly be other meetings around the efficacy of modified or new schemes where the Big Four representatives will provide some critique, and in doing so, will gain insight on any shortcomings or new loopholes.  Does anyone seriously think they’d be excluded from these discussions?

Massively simplifying the tax system would result in fewer government resources required to manage the system and offer fewer loopholes for the tax advising experts to ‘manage’.  There’s the rub; the Big Four have surely zero interest in simplification as their client value proposition is being to navigate system complexity on their clients’ behalf.  Ongoing access to the inner workings of the Treasury is manifestly in their interest and remains a risk to the Treasury as long as they continue to offer such access.

To the wider question of buyer-supplier collaboration and co-location, what advice would I give procurement people?  Certainly involve suppliers in a range of value improvement activities but do so once it is clear that those suppliers are committed to the task and that the buying organisation can retain control of those activities.  Be realistic throughout and calculate the risks of the potential loss of leverage.  Remember that regardless of the quality of your relationships and value-improvement initiatives with key suppliers, in tough economic circumstances an urgent cost saving edict from the CEO’s office can stall SRM progress and undo much good value-creating work.

On the other hand, my advice to sales and account managers is to continue to seek access to your customer’s organisation; wrap your intentions to grow revenues and profitability in collaboration and the language of shared-interests.  Build close alliances with decision-makers across the organisation, systematically go about uncovering the needs and interests of the all the key players, and weave this knowledge and insight into your own value propositions.  Your presence on ‘the inside’ will make it extremely difficult for a competitor to gain access and you will be in pole position when it comes to helping the customer construct its tender documentation and decide on its bid evaluation criteria.

I know the above is hardly the language of whole-hearted buyer-supplier collaboration or (dare I say it) ‘win-win’; but it is perhaps the voice of vigilance and realism.  Don’t shoot the messenger.

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This week I watched an amazing piece of footage of a flock of Starlings flying in the early evening sky and creating the most beautiful shapes, like isotopes forming and reforming before my eyes.  This is nature at its very best, magnificent and beautiful; thousands of birds flying in unison, all following a similar pattern and working with each other.  Watching a few birds fly and swoop alone is amazing enough but when you see a huge flock do it together they create a sight to behold.

This made me think of salespeople and how the great things they do separately can be multiplied many times over if they work together, helping each other and co-ordinating their approaches.

More often than not selling is presented as a lone wolf profession with each salesperson trying to out-do their colleagues in a dog-eat-dog world.  Just think of the portrayal of the salespeople in the film Glengarry Glen Ross and the many sales reference books that ask you to view your fellow salesperson as someone who will steal your business as soon as look at you. This impression has endured for many decades.  Salespeople operating independently can produce solid enough, even good results.  However, when salespeople work together in a team and share a common purpose they can be far more effective for their organisations and their clients. They may still be competitive in nature and love being successful, but their focus is on delivering for those clients and beating external competitors rather than trying to outdo their colleagues.

To illustrate, and at its most simple, the people in these teams will regularly speak to each to provide updates on competitor activity and share best practice.  This team-based approach to selling really comes into its own when targeting communities of interest; that is groups of buyers who reference each other when making buying decisions.  These buyers may be in the same sector, location or profession, for example HR Directors who reference each other when selecting talent management software or General Counsel who reference each other when selecting professional service providers.  It is like when you ask your friends or neighbours if they can recommend a good tradesman or financial advisor; you trust their judgement as you trust a supplier who understands your requirements.

If you are successful in selling to one member of this group you can use their recommendation and your experience in selling to other members.  This is particularly relevant when the communities are fragmented and difficult to sell into because winning a single deal is often costly, and can be time consuming.  Although the individual rewards to the sales person can be less attractive than a more traditional solo-sale, working together helps spread the workload and risk across the team, as well as accelerating learning about what is working and what isn’t working so that sales effectiveness can improve overall.

But this only happens when there is a culture of cooperation amongst the sales teams and a clear focused goal for the sales team and for the client or interest group in question.

One of the real beauties of this approach is that success can breed further success. Once a few deals have been won in a particular interest group, then others in that community become more inclined to buy from you. You can quickly establish credibility and your increased knowledge of the community enables you to create even greater value which can, of course, build barriers to competitor entry.  Winning deals also builds confidence within the sales team as members quickly see the benefit of team collaboration.

I have worked with teams who have successfully won tens of millions of pounds of new business through team selling into defined communities of interest.  This has represented business that they may have not have won if selling on their own, and that previously may have been considered unattractive due to the resources required to win individual deals.

In summary, tea-based selling allows:-

• Accelerated learning across the sales team
• Greater cross-fertilisation of ideas
• Greater sharing of best practice
• Pooling of resources to mount attacks on target markets and communities
• Spreading of the risk in new or riskier markets
• Maximise the value of the different skills in the team

If you are a sales leader here are the 7 key questions to consider:-

1. Are we selling as individuals or as a team?
2. What current methods do we use to collaborate in winning business, and which work best?
3. How could we be more effective in selling to these communities of interest if we collaborated as a team?
4. What should be our target communities of interest (groups of buyers who reference each other when making buying decisions)?
5. How will we measure team success in selling to these communities of interest, including goal-setting, and how will we share the rewards?
6. Do we need to separate team roles? (to better utilise individuals’ key skills – rainmakers, door openers, value creators etc.)
7. How do we intend to learn about the mechanics of working together and to continuously improve our practice?

In certain circumstances, such as when targeting communities of interest, team selling can be incredibly effective both in increasing the value you deliver to both your customers and your own business. It takes focus and effort to make it work but the results can be worth it.

Four Pillars has an extensive range of tools and coaching methods for improving sales effectiveness for teams and individual sales and account managers. Get in touch and let’s start the conversation.

Photo posted with full acknowledgement to the Daily Mirror. We thought about including a picture of a flock of starlings but we couldn’t resist posting instead a classic photo of a dark side of ‘the beautiful game’.

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Following the success of our recent Birmingham open ‘Selling to Procurement’ workshop, we are running a further workshop on May 23rd in central London.

For those of you in sales and account management who regularly meet with professional buyers / procurement, this 1 day workshop will really help you to understand the strategies and tactics used by the function. We will also introduce you to the Procurement Review template, which can become an incredibly valuable aid to your account and negotiation planning.

The Birmingham workshop filled up fast, so first come first served!

For details of the agenda: S2P London workshop 23.05.13

For the booking form (admin handled by our partners Selling Interactions Ltd): S2P Booking form – London (2)

The Selling to Procurement 2012 survey can be found here: The Sales & Procurement Relationship v2.0

Or contact our David Atkinson if you prefer to run the workshop in-house, and would like more details.

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Guest blogger, David Kemp, recently Vice President-Supply Chain at the Engine Control and Electrical Systems division of Goodrich Corporation, continues his theme on organisational change.

When I wrote here in January about how to design a successful organisation, I set out to recommend three basic steps. The approach avoided the rush to define slots for your people, but rather took a more considered and purposeful approach as follows:

1. Identify and define your purpose and processes;
2. Build up an appropriate organogram with the capacity to operate those processes
3. Assign individuals to their new roles in the organisation with training and development as required.

But the first of these steps is often the hardest, especially if you are operating under time pressure to get results quickly. And who isn’t?  I remember when I took my role as the leader of the Supply Chain Function in my division in Goodrich, I was responsible for the supply chain and procurement activities of the four subsidiary businesses that made up division. I needed to move quickly to build an integrated organisation, in order to enhance our efficiency and effectiveness across the whole of the division. I had been appointed to find ways for the procurement and supply chain function to make its full contribution to the success of the whole business, and results were expected from the very beginning.

I set out with the intention of having my leaders across the business work systematically through the above three steps, starting with the project of integrating, commonising and standardising our processes throughout the division.

It was tough to know where to begin, and in truth we started off taking a populist approach to what would be the most fruitful areas for integration. We pulled a few procedures from the intranet for each location, and set a team to study them and write a version that would work for all the sites. This activity would have been followed by training and embedding a standardised way of working, with the checks and balances that I wanted.

Achieving this result for just one of the most basic processes in a supply chain department took much more time than we could afford. After many months, it became apparent that the approach was not going to work in our timescales, and that we had massively underestimated the task at hand. And of course, working through the on-line media, it is impossible to grasp easily the scale of the challenge – you cannot see how thick is the book that you are trying to edit! It was only when I saw the piles of printed paper that represented all the documents we had loaded onto the intranet, that I realised it was time to try something different.

So another approach which we tried was to draw a top level process map for the procurement function, showing the inputs and the outputs, and identifying the value added. Sounds straightforward? We found ourselves challenged but the complexity of a modern business, with multiple rework loops and support functions, each of which had its own set of process definitions to work with. We looked at sister business, and for ‘best practice’ benchmarks externally, all of which informed the discussions but did not move us forward with the required pace. Looking across the procurement and manufacturing processes in our multiple sites, this quest for a master process map became a project in its own right! We were not actually helping to build the integration in the businesses that we needed, but engaging in a theoretical debate as to what should be, rather than what is and what might be.

The task would have been so much more straight forward if we had been starting with a clean sheet of paper. But, of course, we were not – we were starting with a fully approved suite of processes with differing legacies that had been in use for a long period of time. These were complete, but with a scattering of inconsistencies and discrepancies, and with a general need for modernisation.

The discussion did progress, however, to the point where we found ourselves starting to identify areas of process groupings that we could focus the teams onto. From the highest level, what are the primary purposes of the organisation? What are the areas of the business that the teams work together in based on their expertise and skills?  This somewhat empirical approach flew in the face of the systematic approach that I would have preferred, but as a way to get the whole team moving forward it was a correct and pragmatic adjustment.

Some groups of terms and definitions started to come together, ones that eventually became helpful.  For example, one logical group of headings that came together embraced terms such as:

• Supplier selection
• Sourcing
• Management of the Approved Supplier lists
• Commodity strategies.

Not everyone would agree with which processes belong in which groups, but as a leadership group we set about achieving a consensus and then backing it unanimously. And of course, semantics came into play, with the need to be mindful of the differing interpretations of words that occur in different countries.

We ended up with six groups of processes that would be recognisable in many businesses:

Sourcing strategy:
Commodity and category management, supply base analysis, source selection, price negotiations and approval.

Generate and fulfil orders:
All the transactional stuff of a purchasing department.  Orders, Invoices, Goods Received procedures etc.

Supplier relationship management and performance:
Segmentation of the supply base, the spectrum of supplier management tools and process, performance scorecards, problem solving and escalation.

Quality requirements:
Regulatory requirements and their application. Inspection and product management processes.

Management of product discrepancies:
The handling and disposition of non conforming products to assure product integrity to the customer

New Product Introduction (NPI) and change management:
One of the hardest areas, reaching across all the disciplines and integrating new product launch, supplier transitions, and the procurement aspects of product lifecycle management.

With these six groups accepted by all the stakeholders as the right groupings, we then slotted into this structure all the existing processes from the different sites. If something did not fit, we took a decision to make it fit somewhere, rather than add complexity with an additional process group.

It became apparent quite quickly that we had devised a way to ‘eat the elephant’- one piece at a time! It became less challenging to integrate, commonise and standardise now that we had this overarching framework in place, and progress started to gather momentum as part of normal business improvement activities. Rigor could be applied within the process groups, to the point that we began to standardise, and remove unnecessary or duplicative steps that held the business back, with the result that a number of division – wide processes came into place at the tempo that we needed.

In summary, my top three tips for sorting out a complex set of processes in your area would be:

1. Make a rough cut. Look for groups of processes reflecting the overall purpose of the organisation, and get your leadership to endorse them
2. Stick with those groups until you have allocated every detailed process into one of them
3. Rationalise one group at a time, into a standard format, using flow charts where you can

By David Kemp

David Kemp has held a number of senior roles in Procurement and Supply Chain, most recently as Vice President-Supply Chain at the Engine Control and Electrical Systems division of Goodrich with accountability for direct and indirect materials. Prior to this, he spent over 30 years developing his expertise in purchasing and supply chain management at Rolls-Royce, holding Executive positions for 12 years until joining Goodrich in 2009. He is considered expert in leading and managing complex supply chains, negotiations management, effective global team working and supply chain strategies.

He has delivered transformation programmes, major commercial agreements, new projects, and extensive work in developing worldwide supply chain organisations.

David became a Fellow of the Chartered Institute of Purchasing and Supply in 2002 and was elected to the Board of the Institute in 2008. He now serves as a trustee of CIPS pension fund. He is also a Fellow of the Chartered Institute of Logistics and Transport, and a Fellow of the Royal Aeronautical Society.

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In this fourth and final blog in a series on power in buyer-supplier relationships from Chris Lonsdale, he argues that it would be a mistake to simply dismiss ‘power’ as ‘bad practice’, and proposes that teaching managers about power is about preparing them for potential manipulation or aggressive behaviour from the other side. Once again, over to Chris….

This series of blog posts has not been about presenting something new, but rather re-visiting something old. The argument has been that the term ‘power’ should not be seen as synonymous with aggressive exploitation of dominance (although that of course happens), but rather should be understood as a practical concept that has four different manifestations (the so-called ‘power positions’) and a range of management implications.

Power (including acts of ‘opportunism’, that is, the information games described in post two) remains a controversial concept however, and some believe that it has no business being a prominent concept within procurement, sales and, indeed, wider management education and training. Why is this?

There are many reasons, but three in particular.

First, some in education and training themselves view the term ‘power’ as synonymous with aggressive exploitation of dominance. Incidents such as the horse meat scandal, of course, only encourage this mistaken view.

Second, others in education and training, while fully understanding that they are not synonymous, still often argue that the very teaching of power and opportunism will encourage people towards ‘bad practice’. Such people argue that many receivers of education and training will miss the message about power being a concept not an aggressive practice and believe that they are being given a green light.

Third, many of the same people argue that education and training should be about encouraging ‘best practice’ not studying historic or current ‘bad practice’. It should not dwell on ‘bad practice’, but help reduce it.

What should we make of these reasons? The first reason speaks for itself. In terms of the second, there is something to say for this argument. In the field of financial economics, for example, some have persuasively argued that the literature/teaching/training on performance incentives aimed at aligning the interests of managers and shareholders (e.g. share options) gave out the implied message (sometimes inadvertently, sometimes not) that managers have no actual moral obligation to do their best for shareholders. This moral loosening, it is said, then affected the very efficacy of the performance incentives being put forward. That is, managers, freed from moral restraints, ‘gamed’ the incentives. The effect of this was seen most dramatically in the financial sector with the consequences we all know about.

However, we should not get too carried away with this argument. The information economics literature, of which theories around using share options are a part, started in about 1970. Surely no serious person would argue that bad business behaviour started in 1970. Similarly, it goes without saying that the use of power in business to business relationships pre-dates the management literature.

And, it needs to be remembered that teaching managers about power is partly about preparing them to cope with potential aggression from the other side; preparing them for the worst, so to speak. While some argue along the lines of ‘give, and it will be given to you’, that benevolence will be met by benevolence, it is surely unwise to bank on that. Sometimes an olive branch will be accepted, on other occasions it will be seen as a sign of weakness.

In terms of the third reason, there is simply (and quite reasonably) a difference of opinion between educators and trainers over what management education and training should be about. Some people argue for what I call ‘should be’ content. That is, you present examples of excellence (or exemplar ‘best practice’), raise people’s sights, etc. Others argue for what I call ‘as is’ content. That is, you start by accepting the imperfections of the world and consider what constraints, if any, those imperfections impose upon your ambitions. This latter ‘as is’ content, of course, has to include ‘best practice’ examples as those examples allow you to understand what your ambitions could be. But there is an acceptance that you won’t always be able to achieve ‘best practice’ and that sometimes not trying is a better option than only getting half way.

So to conclude, the recent horse meat scandal will strengthen the arm of those who see power as a damaging concept for business and for management education and training. That is understandable but regrettable, as power will always be with us and knowledge is …. erm …. power.

By Chris Lonsdale

Guest blogger Chris Londale is a Reader in Procurement and Supply Management at Birmingham Business School’s Centre for Business Strategy and Procurement. See CBSP_brochure for details of the Centre’s research and renowned MBA programme.

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Four Pillars is delighted and proud to announce that Michael Simmons has been appointed Director of Business Transformation and Organisation Development Services from the 1st March, 2013.

Michael brings a huge wealth of experience to Four Pillars in successful business transformation.  He will lead our change management and organisation development services, providing expert consultation to clients on business strategy development, achieving operational excellence, installing a performance management system and culture and leadership development.

After working with him over the past 12 years, previously as a client of his and now as a colleague, I’m thrilled that Michael has agreed to take up this role. I’m certain he will bring his deep knowledge and experience, along with his always-practical insight and wisdom to our clients. His primary focus during the coming months will be to lead further development of the Four Pillars approach to Business Transformation and introducing a new approach to Achieving Operational Excellence.

I would urge anyone currently wrestling with organisational change, or with a desire to step-up the leadership capability of themselves or their team, to contact Michael here at Four Pillars and have a chat. You won’t regret it.

David Atkinson

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We are delighted to announce that our client, Compass Group PLC has won an award for its work in growing its international clients business. The award was announced by the highly respected Strategic Account Management Association (SAMA) and recognizes the excellent work that Compass has done in co-creating value with its clients.

In responding, David Atkinson, Managing Director of Four Pillars said, “We have been working with Compass for several years on different aspects of their International Clients Programme and this is terrific recognition for the success that they have achieved.”

Additionally, principal consultant Edmund Bradford said “As part of the entry process for this award we interviewed many of their senior executives and I was blown away by the innovative ideas they were developing and implementing with these clients around the world.”

The award will be handed out at the SAMA European Conference in Berlin on the 11th March 2013 where Four Pillars will be joining in the applause.

The full SAMA announcement is provided below

SAMA Announcement

February, 2013

Compass Group Recognized for Strategic Account Management Excellence and receives SAMA Excellence Award™ for Co-Creating Customer Value.

The Strategic Account Management Association (SAMA) has selected Compass Group, a world-class provider of contract foodservice and support services, to receive a SAMA Excellence Award™ for Co-Creating Customer Value. The award will be publicly given to Compass Group executives at the SAMA Pan European Conference, 11 March, 2013 in Berlin.

Through its International Client Programme begun in 1998 to develop strategic relationships with its top clients, Compass Group has demonstrated world-class practices in the critical area of customer-supplier value co-creation. Collaborative value creation is the key process in strategic customer management to bring about mutual growth, profit, trust, loyalty, innovation and risk management in B2B relationships.

“We are very impressed with Compass Group’s accomplishments and the documented evidence that their International Client Programme has integrated the key processes for co-creating customer value and through it has attained superior growth,” says Bernard Quancard, President & CEO of SAMA.

These elements are being documented in a SAMA case study examination, and presented in a conference session this March.

Useful links:

SAMA Pan-European Conference (Berlin – 10-12 March) website

SAMA Pan-European Conference brochure

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In this third in a series of blogs from Chris Lonsdale on the concept of power in buyer-supplier relationships, he asserts that a dominant power position in a business relationship is just that, a position. It doesn’t have to be aggressively exploited. In practice the deployment of power resources is a sometimes subtle and nuanced exercise. Over to Chris….

In the previous post in this series, I looked at the concept of buyer-supplier power, providing a high-level picture of what causes different power positions between buyers and suppliers. I also suggested that buyers can miss opportunities, through poor internal practices, to establish favourable power positions. In this post, we look at the use of power.

As was mentioned in the first post, the concept of power should not be seen as synonymous with an aggressive use of power. An understanding of the concept simply enables managers to understand their power position vis-à-vis a supplier and can be part of an overall commercial analysis. Once the power position is understood (and, admittedly, that is not always a straightforward task, not least as conditioning will often be employed by one or both parties), that understanding can assist managers in a number of different ways. We look briefly at two of those ways.

First, it can help to inform supplier selection decisions. There is a difference between a supplier’s ability to provide value for money and its inclination to do so. Very dominant suppliers often disappoint and in some situations buying organisations, having assessed the power positions of themselves and a number of suppliers, might consider selecting currently less capable suppliers that are likely to be keener to deliver and develop over time.

Second, power analysis can provide insights into what supplier management strategies might be possible with suppliers in different power positions. We can touch on a few of these insights. The power position of independence is broadly analogous to the economic condition of ‘perfect competition’ and should (assuming competent buying behaviour) lead to the buyer obtaining good value for money, with the assistance of e-auctions in the case of certain goods and services. However, it is the other three positions that the remainder of the post considers.

The power position of interdependence, where both parties regard each other as critical to their business, has long been associated with buyer-supplier co-operation and, indeed, such a position does often support co-operation or ‘partnering’.

I recently visited a large engineering company and looked at its co-operative relationship with a specialist raw materials supplier. When the ‘scarcity’ and ‘utility’ resources (see previous post) on both sides were analysed they came out pretty well balanced. For example, from the buyer’s point of view, the supplier offered proprietary products that it valued, the medium-term agreement offered a desired degree of price stability and the supplier’s reliability and service quality was one of the best in the supply market.

The supplier, on the other hand, also valued the medium-term commitment in what was a volatile market, the account was one of its biggest and it also valued what it considered to be a prestige customer account. This was clearly a relationship with a high level of interdependence.

The co-operation, underpinned by this interdependence, manifested itself in a high level of information exchange and on-going product and process development aimed at both cost-out and product and process enhancement. And, as the relationship delivered for both parties, the contract largely stayed in the drawer.

This is a very familiar tale, of course. However, is this the only power position that can support such buyer-supplier co-operation? Not in my experience. I have seen many fruitful co-operative buyer-supplier relationships when the power position favours the buyer. One concerned the telecoms arm of a large technology conglomerate. In the case of one of its products, a piece of telecoms testing equipment, it wanted a supplier to assemble all of the ‘non-core’ components and sub-assemblies.

It was offering considerable and regular business, a big brand name and on-going business assistance to a crowded market of relatively small players that found it very hard to differentiate themselves. It also ensured it kept the switching costs low to make sure the dominance didn’t slip away over time. However, while it certainly drove a hard bargain (harder than it could have done in a position of interdependence), it also recognised the impact of supplier quality on its own performance and the need to work with the supplier on continuous improvement. As a result, there was close co-operation, similar in operational terms to the engineering case.

For the reason discussed in the first post, this type of relationship, as well as the engineering one, can be thought of as ‘win-win’: the supplier, while the junior partner, both accepts that status and recognises that the relationship is a fantastic commercial opportunity for it in an unforgiving market.

Finally, buyers should, not surprisingly and if possible, try to avoid very dominant suppliers, in general, but especially where co-operative relationships with suppliers are sought. Work I did in the aerospace sector in the 2000s included many long-term relationships with dominant suppliers that were long, drawn-out struggles, with regular re-launches and personnel changes. Likewise, in the public sector, the UK government has often been criticised for its supplier selection in the IT market and many relationships between NHS commissioners and acute trusts in England are very similar to those I witnessed in the aerospace sector.

To conclude, the above discussion emphasises that a dominant power position is just that, a position. It doesn’t have to be aggressively exploited. The fair trade movement, for example, although by no means perfect, promotes the idea of trade where dominant power positions are not exploited for ethical reasons. But, as we have seen with the telecoms example, enlightened self-interest can see dominant power positions utilised carefully and responsibly as well.

This brings us back to horse meat. Aggressive use of dominance may well be part of the picture in this scandal. In many retail supply relationships the suppliers are very disposable, while the leading four retailers account for about 80% of the buy-side. This, according to many observers of the industry, although not really backed up by frequent regulatory enquiries, has led to brutal buying practices, with desperate suppliers all down the chain adopting desperate measures, measures that in the case of horse meat are now affecting almost everyone in that chain.

It has also led many observers of supply chains generally to draw broader lessons about procurement and supply management practice. A lot of people are feeling vindicated for very different reasons. In a final post on power, we look at some of those reasons and ponder what it might mean for procurement education and training.

By Chris Lonsdale

Guest blogger Chris Londale is a Reader in Procurement and Supply Management at Birmingham Business School’s Centre for Business Strategy and Procurement. See CBSP_brochure for details of the Centre’s research and renowned MBA programme.

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In this second in a series of blogs from Chris Lonsdale on the concept of power in buyer-supplier relationships, he cautions practitioners not to confuse the concept of power with the lazy assumption that it determines how relationships should be managed in practice.

In a recent post, I suggested it might be time to re-visit the subject of power in buyer-supplier exchanges. Over the past 16 years, I must have taught, trained, worked with and advised somewhere between 1,500 and 2,000 procurement professionals and others professionals with an interest in procurement. During this time, the topic of power (the subject of many publications, not just by me, but also my colleagues over the years at Birmingham) has always been one of the topics to generate the most interest and yet, arguably, power does not have a profile in the profession to match this interest.

The initial post in this series outlined a number of issues to be explored. The first reminded us that power is a concept not a practice and should not be associated with any particular type of management action. In particular, many people associate the word power with the aggressive exploitation of dominance. They should not. In this (rather technical, but hopefully not too dry) post, I explore the concept of power.

Power was defined in the initial post as the ability of one party to make another party act in a way that they would not otherwise have done. There are two things here. One, power is understood here as residing in the relation between two parties. That is, you don’t say ‘IBM is powerful’. Rather IBM is said to be, for example, dominant in its relation with X, but not in its relation with Y.

Two, what provides the ability? The rather circular answer is power resources. Buyers and suppliers in exchanges, whether it is a new exchange or the continuation of an existing one, possess power resources and it is the relative possession of power resources that determines the power relation.

These power resources are many, but most can be placed in three categories – scarcity, utility and information. Scarcity refers to the options available to the two parties. Sometimes this can mean the availability of other buyers and suppliers to the buyer and supplier in question. In existing relationships, however, scarcity concerns both the availability of other buyers and suppliers and the ease of switch. Time is also relevant here. Scarcity of time affects the power relation.

Utility refers to the importance of the exchange to the two parties. Is it critical to the buyer’s business (e.g. a core sub-assembly)? Is it critical to the supplier’s business, either in terms of immediate revenue or future potential revenue (e.g. the buyer provides access to a new market or technology)?

Information refers to the existence or otherwise of information asymmetries between the two parties. Economists have invented a range of concepts to describe different types of information asymmetries, including: adverse selection (the supplier is trying to pass off rubbish as quality); moral hazard (the supplier is putting in less effort or lower quality inputs than it is letting on); strategic misrepresentation (the buyer or supplier is bluffing about their walk-away point); hold-up (the buyer or supplier is trying to lock-in the other party while talking about sweetness and light).

Depending on the balance between the two parties in respect of these three categories of power resources, the relation between them can be one of four types. Buyer dominance and supplier dominance are two of them and represent power positions. The other two (which are strictly speaking not power positions, for reasons too boring to go into) are independence (neither party considers the other important) and interdependence (both parties consider each other very important).

So this is a little synopsis of the concept of power. Of course, buying organisations can be left with only ‘potential power’ if their power resources are affected by poor internal practice. To give a few examples, scarcity can be affected by over-specification and the over-consolidation of spend, utility can be affected by the excessive fragmentation of spend and information can be affected by poor negotiation and contract management practice. This raises the question of whether enough procurement practitioners (not to mention internal clients) have a thorough enough understanding of the concept of power to be able to incorporate it into their practice.

In the next post in this series, I discuss the different ways in which buyers and suppliers can utilise (or not as the case may be) positions of power in business markets and look at the relationship between buyer-supplier power and buyer-supplier co-operation.

By Chris Lonsdale

Guest blogger Chris Londale is a Reader in Procurement and Supply Management at Birmingham Business School’s Centre for Business Strategy and Procurement. See CBSP_brochure for details of the Centre’s research and renowned MBA programme.

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