Phantom Savings – Bill Young Shares Insider Information
- 14 December 2020
- Written by: Bill Young
- Category: Procurement
José passes the long-haul flight test. Some people could be a consultant – others not. It’s a hard characteristic to define but the long-haul test gets close. You’re flying long haul and discover that a colleague from your organization is traveling with you. Your reaction is either ‘Oh, that could be entertaining’ or ‘OMG, I must find those sleeping pills’.
José also had natural Machiavellian instincts. He understood politics and accepted them without judgement or prejudice. José did not have the expectations of behavior and standards that burden the rest of us. He expected people to do what was good for them personally. And, if they were senior to him, he didn’t get hang-ups about helping them.
José was responsible for managing our Procurement savings portfolio. That is a spreadsheet with a line-item for each project. It has fields for status (complete/live/potential), owner (responsible procurement person), client (budget owner), other stakeholders, benefit ($-value), probability (1-100%), type of savings (P&L/spend-avoidance), and all of that endless stuff. Even more important than that, José was responsible for negotiating reportable savings with Finance Controllers. To most of us, this made José more important to our lives than the CPO.
José did not encourage anyone else to talk to Controllers. Finance was his special relationship. There were inconvenient things that Controllers must have been aware of, but preferred not know about formally. José was simply helping them.
The company had committed with shareholders to a multi-year savings program. The CEO would present a savings total in each annual report, with the implication that it had all gone to the bottom line in the P&L account. If savings became too creative, Finance would have to remain ignorant . This constrained our discussions with them.
It was perverse the way everyone pretended that savings were real and universally valued. In many ways, it was a bit like the US Republican party under Trump! When formerly respected individuals get drawn in to an illusion, it’s hard to escape.
Of course, it did no good for Procurement’s reputation. Executives pretended to each other that Procurement really was delivering billions in savings; but each knew from their own projects that it was make-believe. Looking back, it must have been horribly stressful for the CPO.
It didn’t stress José. Not at all. He loved the subterfuge. Sometimes, I thought, he even has our CPO convinced.
Returning to the topic of consultants, it was consulting rates that revealed José’s true genius. He came back from one his private conversations with the Finance Controller, looking particularly pleased with himself. It seems that he had reconfirmed his methodology for reporting savings on professional service fees, including consultancy. It was based on benchmarks and I wondered if José had perhaps finally allowed his conscience to overrule his habitual dissimulation.
José insisted that he must have all of the negotiated rates for professional services and that he alone would do the benchmark comparisons. He was specific about requiring the hourly rates by consultant grade (analyst, junior, managing, partner, etc), and the name of the consultant, so that he could categorize it. The results surprised me; and they obviously pleased the CPO.
On a warm evening after work, we were meeting for a beer in nearby pub garden. José and I had got there early.
“How does this consultancy benchmark thing work?” I asked
“It just does” was his unhelpful reply.
“But how?” I persisted.
“You really interested?” José ventured with a meaningful look
“I am” I said, with emphasis. “I don’t even know the benchmark you’re using!”
“Very simple, the benchmark is last year’s rates for each grade, by type of consultancy”
“How can that possibly work? A lot of projects are new each year. And we use different consultants. Nothing is comparable”
“Who says?” José shot back with a challenge that I took to mean that José decided what was comparable and what was not. “If HR engages Accenture on a communications project this year, and we had McKinsey on a comms project somewhere, last year, that’s comparable”
“If they were doing identical things” I said
“Of course they weren’t doing identical things. Nobody repeats assignments identically. There’d be no point, would there, unless you’d lost the report from the first one. Don’t be daft!”, José said, revealing a sophisticated understanding of the professional services business.
I was beginning to understand the source of the remarkable savings José reported.
“Aha, but what if McKinsey replaces Accenture” I said knowingly, as a ‘Gotcha’.
“Well, that doesn’t really sound comparable now, does it” said José, making clear I was trying his patience.
“What, then…” I said triumphantly “if McKinsey puts its rates up, year-on-year. You’d have to report a negative saving, wouldn’t you”
“You won’t find any such requirement in our Guide to Productivity Reporting” he retorted with authoritative assurance. “Why would we do that?”
“In fact”, José went on, after a pause, “We do record increases.”
“Not as negative savings, of course; but as a new factor in the benchmark calculation”
“You see, that raises the baseline and makes savings easier to achieve next year”
I was not only defeated, but outclassed. Looking round for distractions, I was relieved to see our colleagues arriving. I thanked José for the Masterclass and, as he nodded to the barman to come over, he said quietly, “I hope you see now why there is no need for you to talk to Finance Controllers. Just leave that to your savings bitch”.
The long-haul flight test sorts out potential consultants from others because we enjoy the company of someone who calibrates the world against an accurate yardstick, but resists the temptation to poke us in the eye with it.
In reporting Procurement achievements, especially of the indirect variety, are there times when it is wiser to confirm, than to challenge, the expectations of executives? With age, I have learned two things: that there is a happy and comfortably affluent consulting industry whose success depends upon exactly that; and, that some executives are not so stupid as to believe their own statements.