Hello and welcome back to Smart Consulting Sourcing, the only podcast about consulting procurement.
I am Hélène, and today we will be talking about Consulting Procurement Maturity . However, before that, let me give a recap of last week.
Procurement – both direct and indirect- might be considered secondary activities, but both play an essential role in a company’s growth.
Understanding the similarities and distinctions between the two can help you better handle your indirect spend, and in particular your consulting spend.
In many firms, direct procurement is more recognized than indirect procurement because it helps with production and has more senior management backing. Indeed, indirect spend is complex and made up of a mix of tangible and intangible services and is seen as less attractive.
Indirect procurement is constantly evolving with new categories emerging all the time. Cloud computing and e-payments are two of the most recent additions to the indirect category. They are already having a significant impact on businesses.
Indirect categories are difficult to manage because they have different customer preferences and regulations. Categories in the “indirect” group are very diverse and do not fit neatly into specific criteria.
Listen to the complete podcast about Direct Vs. Indirect Procurement
This week, I want to discuss about: The Consulting Procurement Maturity.
Consulting Procurement Organizations should aim to reach a high level of maturity. The team uses best-in-class practices and brings significant efficiency gains for the Procurement group and company. But before an organization can draw its path to excellence, it must first evaluate where it stands today on the Maturity Grid.
Understanding the starting point of your Consulting Procurement Journey is probably as important as defining where you want to go.
Let’s start with the basics; what is a Maturity Grid?
A Maturity Grid aims to help organizations understand where they are today, where they should go in the future, the value of doing so, and how to get there.
Also known as a maturity model, it measures an organization’s progress toward a goal.
It can also offer an initial benchmark for how near an organization is to be “completely evolved” on a given set of criteria. And it can facilitate talks and provide a path for management to follow. However, before an organization can chart its course to greatness, it must assess its current position on the Maturity Grid.
A maturity grid is often represented as a matrix with rows and columns. The rows represent the dimensions that are evaluated, and the columns denote the level of maturity. In the intersection of each row and column, you will find the best practices for a given maturity level in a given dimension.
Procurement professionals can evaluate the maturity level of their organizations by checking the best practices they have implemented and, then, based on their ambition, they can work out, which can be the next steps for them.
Now, let us talk about the dimensions of Consulting Procurement Maturity Grid.
The consulting procurement maturity grid was created with the specific consulting category in mind. It is built around four dimensions.
The First one is Strategy, Governance & Organization
Strategy refers to the overall plan for how the organization will achieve its goals. Governance is the set of formal rules and structures that guide decision-making within the organization. Organization describes the way that teams are structured and managed within the company. The maturity grid explores how the decisions are made when buying consulting services, who is involved and how consulting supports the strategy.
At the highest level of maturity, you will find, for instance, a collaborative approach to consulting sourcing and systematic make-or-buy assessments.
The Second Dimension is Sourcing Process
The sourcing process describes how goods and services are purchased from scoping to contracting. This dimension explores not only the adequacy of the process to the volume of consulting projects handled, but also the different steps within the process.
For instance, at a high-level of maturity, companies will have a sourcing process differentiated by the nature of projects that could be strategic or non-strategic. Most suppliers will be selected through competitive bidding and their references will be checked systematically.
Then comes the third Dimension, which is Enablers
The enablers are those little things that must be in place for an organization to move up the consulting procurement maturity grid. Without these enablers, an organization will either not be able to take advantage of opportunities or be at a disadvantage compared to its competitors.
The enablers can be manuals, guidelines, and systems. But they must work together in synergy; if one enabler is not aligned with the rest of the corpus or not working well, it will drag down the performance of the consulting procurement capability as a whole.
Last but not the least, we have our fourth Dimension, Category Management:
There are five vital elements of category management: market knowledge, category strategy, performance measurement, category review, and performance improvement.
The most advanced consulting procurement groups will implement all the best practices of category management for the consulting category. It could be tail spend management, or bilateral feedback to and from consulting suppliers.
What are the levels of Organization in the Maturity Grid?
When it comes to procuring Consulting Services, most companies fall into one of four categories. Starting from bottom to top, we have our first level,
Which is, Operational:
At this level, the organization has no specified processes for consulting services, and operational teams do the majority of spending without any oversight.
The Procurement Group is only involved at the end of the process, and they have a poor understanding of the consulting industry and are frequently focused on local players.
Suppliers are chosen based on personal contacts, and the suppliers sets the terms and conditions.
So we see that the Consulting Category is poorly handled, and that there is a lot of room for savings and improvement.
If you are at the first level, you should aim for realistic results and look forward to going to the second level, without rushing to become the best-in-class yet.
Then comes the standard level.
A significant Consulting volume is being managed by a Standard Organization, which has begun putting systems in place. A basic dashboard in a spreadsheet is used to regularly track the overall consulting spend.
The company involves procurement for significant projects and has a designated leader for consulting procurement despite a lack of knowledge about the consulting market.
They implemented a comprehensive NDA throughout the RFP stage and established a Contractual template for Consulting purchases.
Being a standard Organization, you can aim to climb to the next level by being more sophisticated and by implementing a company wide systematic demand management system.
The Leading Organization has established a vital Category Management system for Consulting Services. The main stakeholders are involved in complicated projects to guarantee alignment and buy-in.
The majority of Suppliers are chosen through competitive bidding, which includes a systematic presentation of the most attractive bids and reference checks. The Consulting Procurement team employs frame contracts for the primary suppliers.
It has implemented project-specific sourcing processes as well as systematic demand management. For the key Capabilities, a Preferred Supplier List is offered.
The company is one step away from having a fully developed Consulting Sourcing Capability.
There’s only one aim for a leading level organization which is to be a Best-in-class organization. And in order to attain this top-level, you need to have all the major stakeholders and senior management envisioning the same goal and working hand in hands towards this change.
And at the top-level, we have, The Best in Class:
A Best-in-Class Organization has developed a fully mature Consulting Procurement Capability. The Consulting Spend and Consulting Sourcing Strategy align with the organization’s strategic aims. For the Consulting Category, procurement is recognized as a complete business partner.
The teams now have a comprehensive grasp of the market, including alternatives, fee benchmarks, and new entrants. They’re putting in place a complex fee structure (allowing for flexibility and incentives) and frame contracts.
They are in charge of Tail Spend and manage a dynamic Preferred Supplier List that anticipates the organization’s future demands.
They’ve implemented Category Specific Digital Solutions and created sourcing standards based on the nature of the projects. To manage micro-projects, they use Experts’ Networks and Consulting Marketplaces.
The Consulting Sourcing Capability has reached the pinnacle of maturity. The project’s return on investment (ROI) and internal satisfaction have improved. The procurement team is now seen as a critical partner for the category, and consulting costs are under control.
Targets for different organizations based on the size and use of consulting
But the target for a given organization on the consulting procurement maturity grid will depend on the size and the volume of consulting used.
Building a best-in-class consulting procurement capability should be the final goal for large companies on their transformation journey.
They have probably already implemented Strategic Sourcing, Demand Management, and Category Management. Each year, they invest hundreds of millions of dollars in consulting and could make significant savings and improve quality by implementing best-in-class consulting procurement processes.
Mid-market companies that spend between$5 million and $30 million in consulting should aim for a Maturity Level between Leading and Best-in-Class, or rely on a third-party service to walk the additional mile.
For smaller businesses with annual revenues of less than $5 million, the Leading Maturity level is a good place to start. And Consulting can be included as part of a company-wide effort if the organization has not yet implemented Category Management.
Besides the consulting procurement maturity has to been examined in the broader context of the whole procurement activities, including people and processes. And as a subset of indirect procurement consulting will benefit from all initiatives in the procurement space.
SWOT, McKinsey 7S, pricing waterfalls, BCG growth matrix, and even fundamental check-lists are frameworks that consulting companies have developed to identify issues. Just like the instruments, such as x-ray, thermometer, blood pressure gauge, or blood tests used in a physical exam, the frameworks are used not as a therapy but rather a diagnostic procedure to determine the cause of the illness. Just as we determined the cause of setbacks with the help of the maturity grid, organizations can use those tools to get to the upper levels in the maturity model.
So the consulting procurement maturity grid has four levels to determine where your organization currently stands. Just like everything else, organizations cannot take a short cut to upper levels. They have to take the journey step by step and it is almost impossible to jump the levels.
Besides, not every company should aim for the highest level of maturity. Every organization should evaluate the best trade-off between the investment in a new consulting procurement capability and the value expected. In other words, it might not make sense for smaller organizations, with fewer projects, to build a best-in-class practice for consulting, even from an operational standpoint.
If you are curious about our consulting procurement maturity grid, you can have a look at our recent insight called “Diagnosing your consulting procurement maturity made simple” . You can find it on our website: consultingquest.com. And until June 30th, you will also have access to our “Consulting Procurement Maturity Benchmark 2022”. You can find a banner on our website. Just click on it and you will get an assessment survey about your organization’s maturity. And when the survey is finished, we will send you short personalized feedback with your positioning compared to your peers.
And that marks the end of our podcast, folks. Next week, I want to talk about what is a top consulting firm? So, stay tuned.
Till then, stay safe and happy sourcing!
If you have other questions about the maturity of consulting procurement, remember you can contact me directly on LinkedIn or by email because I am always game for a chat!
Bye and see you next week! Au revoir!