Whilst categories are a good organising principle for procurement, for technology, at least, it can lead to siloed thinking that misses bigger transformational opportunities...
One of the challenges of functionally aligned organisation structures is that sometimes you get different parts of the business working in different ways, aligned to different objectives and speaking in different languages. This is quite common between Technology (be it Digital, IT, OT or whatever) and Procurement. Each group can be suspicious of or lacking respect for the other, and the schism can be so bad that Technology has its own procurement team because Group Procurement “just don’t get it”. Equally, Procurement feel aggrieved because they are engaged too late, the commercials handed to them in a hospital pass hamstrung by technical lock-in, and otherwise treated as low status order-placing “water boys”.
A classic area of speaking in different tongues is how you group the things you buy and deploy. Technology people may think of Services, which are built of a multiplicity of components of different types: software, hardware, Cloudy parts, people, external services and so on. (Aside: The people element is quite special here, as it can be actual internal headcount not a third party component so invisible in traditional AP-based spend cubes)
All those Service parts have different buying characteristics, whereas Procurement think about Categories, which are things that have similar buying characteristics and approaches.
Whilst that can undoubtedly make sense for commodity items, it starts to fall apart the more specialised the entities in the categories. Software is, for example, a hard category as it is not particularly susceptible to procurement amalgamation, even if there some common processes like license management. Ten different specialist softwares from different authors in a high-level category cannot be amalgamated, only switched/substituted or eliminated – which are business / technology decisions, not procurement, as such. So the high level category is really still ten little categories…
Then upshot is you can literally have people thinking and talking at cross-purposes – Services vs Categories, thus…
There are perfectly valid reasons for both views but sometimes you need to lead with one rather than the other. This is particularly true when considering how to optimise costs, which can fall into three paths…
Business as usual Category Management won’t change the pile of cardboard boxes of your category, maybe just organise the contents a bit better; Category Sourcing might tidy up the boxes a bit. However, both are fundamentally limiting to the scope of opportunity that unfolds. Therefore, to unlock the bigger ticket opportunities and build the castle of your dreams you have to look across categories…
The cross-category opportunities don’t have to be the mega-sized reshaping of Digitalisation, BPO, technology outsourcing or even technology switching wizardry of Cloud migration and the like, they can be quite mundane. A good example is that of Technology contractors working in staff augmentation roles on daily rates. These people are often managed in a HR category where somebody has thoughtfully negotiated a single-source deal with a contract resource management company and their fancy resource management platform (you know the names).
However, these typically expensive on-shore contractor creatures should be factored away into managed services run by technology partners delivered from cost-effective locations wherever on the globe that may be.
But whilst the headcount is locked in to the HR category with spend stuck in the wrong bucket and savings counted against with “their” savings target, that doesn’t happen, and the bad behaviour of buying expensive unstructured resource is institutionalized and systematized. That is indeed a “category error”!
The necessary solution is to allow opportunity assessments and following commercial stages to break out of the category strait-jacket and think holistically about the business, its technology underpinnings and how it can be transformed for the better (and lower unit cost).
The starter for ten on that is to align the complementary roles of Technology and Procurement across the business service lifecycle to provide a mutual support and grasp the larger opportunities, like this…
And so it goes…