Cost cutting focus stifling UK businesses
– Research suggests procurement needs a new broom as focus shifts to growth and innovation
Years of cost saving drives in UK organisations could be stifling businesses and damaging the reputation of procurement as the department responsible for it, suggests new research by Redshift on behalf of Wax Digital.
Only one in four procurement professionals said their department was ‘highly effective’ in the CPO Viewpoint study which questioned over 200 senior decision makers in procurement, finance, IT and sales and marketing. Other departments saw procurement’s effectiveness as even lower – just 12% in finance and 4% in sales and marketing deeming it at the top of its game.
Procurement is also accused of hindering business progress by ‘prioritising cost over value’ – and this is a criticism that even a third of procurement professionals levelled at themselves. 68% of procurement respondents admitted that they hinder other departments’ progress in one or more ways, with 86% in sales and marketing and 78% in IT agreeing.
Cost saving could also be holding back other areas of procurement value such as support for innovation. All departments surveyed agreed that procurement’s most common area of value was ‘overall cost reduction’ but in contrast ‘supporting innovation’ is the lowest area of value, cited by just one in ten surveyed.
Daniel Ball, director, Wax Digital, said:
“Inevitably, UK businesses and organisations have focused on cost cutting and had to take sharp measures for at least half a decade now, but this research suggests that doing by so they may have stifled business growth and innovation, as well as the performance of procurement teams which are critical to ensuring that supply chain partners and suppliers are readied to support this growth and delivering innovation collaboratively.”
While procurement is clearly seen as delivering some value to the business it’s more likely to be considered ‘necessary’ rather than ‘value adding’. Even a majority of procurement people hold this view at 52% compared to 46%. And only 28% in sales and marketing and 36% in IT see procurement as ‘value adding or critical’.
It also seems that other departments don’t want to let procurement loose on their most strategic spending areas – perhaps for fear of highly scrutinised ‘cost over value’ cuts. Across finance, IT and sales and marketing the areas of spend where procurement is planning to support these departments is totally at odds with the departments’ own spending priorities. For example, IT’s spending priorities for the year ahead are infrastructure (34%), security (34%) and enterprise software (22%), whereas procurement assistance is most commonly focused on devices (28%), and hardware (26%). Strikingly 22% in procurement could not cite any areas of IT buying that they were helping with.
Daniel Ball concludes:
“As the business landscape gains positivity it’s time for procurement to widen its focus on where it can deliver other areas of value to the business beyond pure cost savings.”