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Does your contract reflect aspiration or reality?

Today’s blog is later than usual for the very good reason that I’ve only just parted company with Everest Group head of pricing and advisory, Sarthak Brahma. We had a wide-ranging conversation and you’ll be hearing more from him in the pages of Intelligent Sourcing magazine in the coming months.

One of the themes we drew out was the difference between what companies say they want from contracts and what they actually try to extract when they’re running. Here’s a clue: everybody talks about value, productivity and innovation, but they’re actually interested in cost.

Brahma believes this is because of the way the procurement profession is structured. “What is procurement’s metric? It’s about driving costs down,” he said.

His colleague, client director Nnamdi Ugo, pointed to a meeting they had today with just such a professional. They’d examined the contract and agreed that the deal was a pretty good one and the professional had a fair price. “That’s not good for me to hear”, came the answer – because the metric on which the next contract would be based would be still further savings. Just how realistic that would be remains to be seen.

Part of the issue is the fact that there’s no real definition of “digital” when people talk about digitalisation. “Does it include mobility, the full SMAC, or can it just be something with social media content?” The accurate answer is that nobody knows because there is no “official” definition. So when someone from procurement, no matter how well-informed they are on technology they might be, goes into a negotiation, they almost can’t know what they’re negotiating about.

A final point (for the moment) is on measuring the outcome. Second-tier companies are going into pitches promising 40% cost savings, he said, and they appear to be delivering them – but they may not be. “They go in and perform the ‘optimise charter’ – clean up existing processes, effort rates and cut cost without extra technology and save 18-24 per cent,” he says. “The digital technology they’ve promised saves the rest.”

The CXO doesn’t care of course; he or she has saved the money they wanted to. In term of justifying your job as a procurement professional or CTO, however, it can be a serious issue – and the metrics don’t appear to be in place.

It was an interesting chat. Expect to hear more from Sarthak in our pages soon.

 

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