Banks seek agility, transparency and transformation from procurement
Procurement adds value by offering transparency into where and how a business spends its money. But when it offers “an understanding of what is driving a particular spend pattern… where the demand is coming from and how can it be managed effectively,” it can really start to deliver both strategic and tactical benefits.
So says Feike Brouwers, who spent 16 years with Dutch banking giant ING, most recently as CFO for ING Direct in the UK – a role he took up just as the British banking scene was being caught up in the developing financial crisis in 2007. At that time the bank was, as he puts it, 'distressed' – although the recent sale of the business to Barclays demonstrates how well Brouwers and the team performed over the past five years.
The good news is that even after five years of turmoil, there are still plenty of catalysts for change. “We’re seeing a lot of banks and financial services companies moving back to their core business,” says Brouwers. “Older banks are in strategic review and are looking at where they can invest their capital most efficiently. With the new capital and liquidity requirements on banks, you have to be even more efficient with your capital.”
And it’s not just market, product and customer realignment. “It’s also very challenging to keep your staff engaged,” Brouwers adds. “And a lot of banks are starting to look at their cost base more closely – there's a lot of cost cutting, there's a lot of redundancies being announced.” (Expect another 18,000 in the UK in Q1 alone.)
For retail banking, in particular, slight margins and a febrile atmosphere among consumers means that efficiency in operations is a critical issue for profits. “It’s very much on the radar of boards in large financial institutions.” says Brouwers. “I look at the procurement function together with the finance team, not only when approaching cost reductions and managing costs but also to make costs more visible and transparent.”
That’s been a boost for the role of Chief Procurement Officer (CPO) too, which is popping up in many management teams newly concerned about the cost issue. But their contribution is rarely that narrow.
“If the business needs to work with a particular supplier or a certain resource, it’s up to the procurement function to find the cheapest option,” explains Brouwer. “But there is a more sophisticated side to this: should procurement not also be involved in a discussion about how the demand is managed?”
In other words, don’t just find the cheapest print supplier, say. Find out why the bank needs to print so much material and whether or not other communication options might do the job better.
Brouwers acknowledges this is an ideal state rather than a reality for most financial services organizations. “Educating the business around demand management becomes part of the collaborative exercise that the procurement function should be leading,” he says. “Once the business starts to see value being returned from this process it becomes second nature to involve procurement at the start.”
At ING Direct, local procurement teams work in co-ordination with the global CPO (heading a relatively new function – it was created just four years ago). But they have enough autonomy to ensure decisions are made fast and they retain agility.
That flexibility within a shared strategic objective extends to the budgeting process too. “We start completely from scratch [each year] and map out exactly what we really need this year to achieve our objectives,” Bouwers says. “This process is more prevalent in small businesses, but it’s very interesting for big businesses and can be transformative. We’re looking to reduce waste, challenge legacies and really uncover why, how and where revenues are being spent.”