Sunday, May 23, 2010

No Baseline? The Joke's On You.

A consultant walks into a store and asks the clerk "I need to buy a sourcing project for my client please".

"Certainly sir" replies the clerk, "do you need a low, medium or high complexity project?"

"A medium one please" the consultant replies.

"You're in luck, we have one medium project left. It'll do most indirect categories plus a few direct ones as well. Includes a project manager with minimum five years experience plus all the usual tools, templates and work products. "

"Sounds perfect - how much?" the consultant asked.

"Fifty thousand plus tax" the clerk replied, "not including baseline."

"Baseline?" the consultant queried, looking puzzled, "what's that?"

"You'll need it to measure your savings" the clerk answered, "most customers are asking for that these days."

"Hmm, well how much extra is the baseline?

"Another eight thousand, sir"

The consultant thought about it a moment then shook his head. "No it's okay I'll pass. Just the project, please."

"Are you sure, sir?' the clerk challenged, "you won't know what your savings are".

"It's okay" the consultant smiled back, "when I've completed the sourcing I'll present a fact-based case to the client and we'll mutually agree on the savings that I've created."

"And that actually works does it, sir?"

"I'm sorry?" the consultant responded, affronted by the clerk's gall. "What do you mean?"

"Pardon me, sir" the clerk quickly replied, "no offense, but do you always end up capturing credit for exactly 100% of the savings you believe you have created?"

"Well of course not. As I said, I mutually agree on the savings with my client"

"I see. Do you mind if I ask you a question, sir?

"Sure, go ahead." The consultant could see where this was going. This kid was pulling out all the stops trying to sell him this baseline thing. He'd probably be telling him these sourcing projects weren't made like they used to be. That they'd fall apart in the first couple of months without a baseline. He decided to do the decent thing and let the clerk deliver his scripted lines.

"How much savings did you create in your last sourcing project?"

"That's easy. I saved 14% on ten million dollars of small parcel freight."

"And was this a benefits-funded engagement, sir?" the clerk asked further.

"Well yes it was, actually" the consultant answered, adding with pride, "I invoiced for 25% of the savings. A cool $350,000."

"Nice, sir." the clerk congratulated, "and the 14% was the mutually agreed savings amount was it?"

"Well yes, of course" the consultant confirmed, "like I said before, I presented a fact-based case at the end of the project and after going over the numbers we agreed on the 14%."

"If I may ask, sir" the clerk ventured, "what savings number did you originally present to you client prior to the, um, mutual agreement?"

The consultant fell silent a moment, surprised by the clerk's question. Where was he going with this? Deciding to go with the flow he replied truthfully "I originally presented 21% savings to the client. But that's irrelevant. I knew I'd have to negotiate a bit with him to settle on a number we both agreed on."

"Sir, would you mind if I asked you two more questions before you make a final decision on buying the baseline?" the clerk asked.

"Oh sure, go ahead" the consultantreplied. "What can it hurt?" He just wanted to get out of here with his sourcing project. This guy was starting to sound a bit too much like the Best Buy checkout clerk who holds you hostage until you agree to buy the extended warranty on your x-box.

"Firstly, would you consider a $175,000 return on a $8,000 investment a good ROI?"

"Well, of course!" the consultant answered easily, but somewhat warily. For some reason he suddenly felt like a helpless jungle-living insect about to get lured into a huge spiders web on one of those Sunday evening shows on Discovery Channel.

"Excellent. So my last question relates to the project you described, sir. Specifically to the original savings number you presented to your client."

"Okay - what is it? What's the last question?" Enough already, thought the consultant. I ain't no celebrity but get me out of here anyway.

"Do you think you were right?"

Sunday, May 9, 2010

Easy Answers R Us?

About the time Pearl Jam's Vitalogy was rocking my world, my first boss in consulting was telling me there were two things I should never be afraid of telling my client. The first was "I don't know" and the second was "It depends". When Mike gifted me this sage advice I could never have guessed how frequently these mini-mantras would be tripping off my tongue in the years ahead.

Most recently a company asked me to box up and tie a ribbon around the question of which spend categories are being outsourced today. It's a fair question, right? After all, if I could tell them the answer they could start outsourcing those very categories first thing on Monday morning couldn't they? Unfortunately I had to play party pooper, press the play button on "It Depends" and experience the palpable feeling of disappointment and frustration as eyes rolled upwards and exasperated sighs coursed through the conference room.

Why "It Depends" in this case? Well, I agree there are certainly some broad criteria regarding outsourcing decision making like whether or not a category is core to the business and whether or not an external provider can provide ready access to superior domain expertise or buying leverage. The complexity is that the answers to these questions tend to be very specific to a company's unique situation meaning that one generic sound bite of an answer is not available without understanding more about the company's procurement environment. Like what is your spend by category? Where are your pockets of sourcing excellence? Where are your gaps? For example, a VP of Indirect Procurement told me recently how he had hired a Director of Strategic Sourcing who had previously worked as a benefits consultant. This proved of high value when it came to sourcing health benefits, even though the new Director's responsibilities included a broad range of indirect categories. Would this VP have gone out to hire a full-time commodity manager to source only benefits? Unlikely. Would he have outsourced? More likely in this case. The correct decision for this VP really did depend on the unique skill set available in his current team, not on some industry trend or best practice.

So the next time you're called on to provide the easy answer for a grail-seeking customer in a data-poor setting take a deep breath and make absolutely sure you have all the needed facts at hand. If not, then it must be "It Depends". You might not make friends at that moment for sure. But in the long run you're more likely to earn an invitation to return at a later date and find the answers they really need.