Continuing our Procurement Excellence series, we've already explored understanding business context and assessing the current state. Today, let's dive into something that often keeps procurement leaders awake at night: defining strategic objectives. And yes, I know what you're thinking - another article about SMART goals? Bear with me, because this is about much more than just setting targets. And if a framework is good, why not use it :)
Why Strategic Objectives Matter More Than Ever
How many of us have strategic objectives that truly align with the business needs of our organization? Not just the standard "achieve X% savings" or "reduce supplier base by Y%", but objectives that actually drive value for our organizations?
As I have already said many times, procurement's strategic objectives need to go beyond traditional metrics. They must reflect our role as value creators, innovation drivers / scouts, and risk managers. Let me share why this matters now more than ever:
- Business Alignment: Your objectives must directly support your company's strategic goals. If your company is focusing on sustainability, your procurement objectives should reflect this. If time-to-market is crucial, this needs to be reflected in your supplier collaboration objectives. And I know that we will very quickly get into the saving vortex, from which there is hardly any escape. And we also have to convince top management of the new approach.
- Value Creation: Gone are the days when cost savings were our only focus. Yes, they remain important, but they're just one piece of the puzzle. Your objectives should encompass value creation in all its forms - from innovation to risk mitigation. It is not easy to achieve this. Current structures, processes and policies often restrict us. So it's not just a task for the procurement boss and his team, but for the wider management level.
- Stakeholder Buy-in: Well-defined objectives help gain support from stakeholders across the organization. And believe me - without this support, even the best procurement strategy will struggle to succeed. It will only remain a nice document that is not lived. It is therefore essential to involve all stakeholders in the strategy definition. Then their commitment will be much stronger.
The Way of Defining Strategic Objectives
Let me share my perspective on how to define objectives that actually drive results:
- Start with the Big Picture First, look at your company's strategic goals and your procurement current state assessment. The gap between these two points is where your strategic objectives should focus. And yes, this might mean having some uncomfortable conversations about what's really important versus what's always been done.
- Balance Different Dimensions Your objectives should cover multiple dimensions: Financial Impact (beyond just savings) Risk Management (more crucial than ever in today's volatile world) Innovation & Development (as often said, Procurement has what it takes to be innovation scouts) Sustainability & ESG Operational Excellence Team Development (often overlooked, but absolutely crucial. Without a strong, well-coordinated team, there is clearly no such thing as a well-functioning procurement department)
- Make Them Actionable Here's where many procurement functions struggle. It's not enough to say "improve supplier innovation" - you need to define what this means in practice. For example: "Establish innovation workshops with top 10 strategic suppliers and implement at least 3 joint development projects by Q4." Or simply saying "reduce these ESG risks” is also too general and too general. It should rather be: "Reduce supply chain sustainability risks by conducting detailed ESG assessments of our top 20 suppliers by spend, developing improvement plans for those scoring below 70%, and achieving a 15% average score improvement by year-end.”
- Keep Them Realistic And this is where I often see procurement teams stumble. Yes, we should be ambitious, but our objectives need to be achievable with the resources we have. There's no point in setting objectives that require twice your current team size if there's no budget for additional headcount. It certainly means unpleasant conversations with superiors and top management. But we have to be aware that if we set unrealistic targets for ourselves and the team, it will very quickly have a negative impact on team cohesion and results.
Common Pitfalls to Avoid
Let me share some traps I've seen teams fall into:
- Too Many Objectives: Focus on what's really important. I usually recommend no more than 3-5 key strategic objectives. Remember, less is more!
- Purely Financial Focus: Yes, savings are important, but if that's all you measure, that's all you'll get. Think broader about value creation and align it with other stakeholders and top management.
- Ignoring Team Capabilities: This is really crucial. Your objectives need to match your team's capabilities - or include specific plans for capability development.
- Setting and Forgetting: Strategic objectives aren't annual paperwork exercises. They should be living guidelines that drive daily decisions. Schedule regular meetings with your supervisor and top management to discuss the status and make any necessary adjustments.
Making Your Objectives Work
Here's how to ensure your strategic objectives drive real change:
- Communicate Clearly: Everyone in your team should understand not just what the objectives are, but why they matter.
- Create Alignment: Map how each team member's role contributes to these objectives. This creates ownership and engagement.
- Regular Review: Market conditions change, business priorities shift. Your objectives should be reviewed regularly - I recommend at least quarterly.
- Measure Progress: Establish clear KPIs for each objective, but remember - not everything that matters can be measured, and not everything that can be measured matters.
Looking Forward With Well-Defined Objectives
Well-defined strategic objectives are your procurement function's North Star. They guide decisions, align efforts, and drive results. But remember - they're not set in stone. As your business evolves and market conditions change, your objectives should adapt too.
What are your experiences with setting strategic objectives?
How do you ensure they drive real value for your organization?
Procurement Transformation & Digitalization | Cost optimization | Category Management | Contract Management | M&A | Last mile delivery
4 个月Absolutely agree! Very well put. For example, I’m currently leading procurement digitalization with a completely new team, moving from the foundational/basic stage and gradually progressing to the developing stage with a P2P solution selection. The goal is to drive savings, ESG initiatives, implement AI, and more, serving 1,200 employees across 16 entities with just a 3-person team by 2025. Procurement is also playing a key role in SaaS negotiations. Defining OKRs and KRs for both the team and individuals is particularly challenging due to the hyper-growth of our fintech company. It’s a relatively small team for such a fast-paced environment!??
Global Procurement Transformation Leader and Consultant for multinational corporations, lecturer and Co-Author of "Procurement Confidential" - the real story of how business gets done.
4 个月Ideally, this is the way you should go about it, (now here’s the “but”) but unless you actually reward and differentiate your performers and use these new metrics in promotion criteria based on achievements of these new metrics, none of it will matter. You have to walk the walk, not just talk the talk, or the culture will never change. Long term TCO and generating Net Present Value of Future Cash Flows, and excellent SRM and driving competitive advantages for your company in recurring revenue generation must be rewarded over short term smash & grab savings that only hit this year’s P&L.
Procurement Expert
4 个月Excellent and well constructed advice.