A Standard Definition of Spend Under Management
In this year’s CPO Rising report, author Andrew Bartolini, Managing Partner and Chief Research Officer at Ardent Partners, and Publisher of CPORising.com, the first independent media site written for and about Chief Procurement Officers announces a bold year-long initiative to create an industry standard definition for “spend under management”.
This has been a discussion point in the industry for a long time, so in the final installment of our interview series with Andrew, we asked him, what will that look like? And why now?
Coupa: You say you plan to spend this year working towards an industry-standard definition of spend under management. How are
you going to do that? Who’s going to be involved in that dialog?
Andrew: I think everyone–-all stakeholders could be involved in the dialogue. When I look back at the industry 15 years, even 10 years ago, I used to spend a lot of time talking about the concept of spend under management and educating organizations that the ultimate goal of procurement is not savings. Savings can be a component of it, but ultimately what procurement should be looking to do is influence internal stakeholders to make the best decisions and influence suppliers to best support their business.
When you ask, what's the mechanism or what's the measurement that can really capture that influence, spend under management is that metric. As an industry, we should spend more time defining spend under management.
Coupa: Why are you undertaking this initiative this year? What’s different?
Andrew: If we were to go back to the 2006 time frame, the average procurement organization managed about 30 percent of total spend. Now, 8 or 9 years later, that number is 60 percent. So, in the early days it was less important what the definition was. Organizations that placed more spend under management by and large were simply outperforming others.
That's still the case today. But now the industry has matured enough that we can begin to move towards a more common, or standard definition. It's not something that's going to make or break the industry, but we should be aligning ourselves so that when you start to do things like benchmark against performance we have that commonality.
Up until now when we think and talk about spend under management for reports like these, my firm has given organizations a lot of leeway to let them define it however they think about it, but we should start to have a discussion about whether there is one definition that is superior to all others.
As we look at it, and begin to engage practitioners and solution providers and stakeholders people are going to have different views. For example, when it comes to defining savings, the definitions are widely diverse, and that's okay within an organization. But for spend under management, we should be moving towards an industry-wide best practice.
Coupa: Do you really think this is something that can be pinned down?
Andrew: Yes. In ten years we've gone from no one understanding what this metric is to all organizations measuring it in some way. Now let's get some refinement and make a determination. Right now, it is nebulously defined as “influence.” Well, what does influence mean?
My point is, how can we improve what we're measuring today? If I were to boil it down why I want to have the conversation now, it’s that as a profession, we're ready to move the conversation from “are we doing something” to “are we doing it as well as we can?”
Coupa: So are you leading the charge?
Andrew: Ardent Partners is going to lead the charge, and you're going to see some articles on CPO Rising. We're looking to engage a large number of stakeholders in that conversation and to try to gain some industry alignment.
Coupa: At the end of a year will you have a definition?
Andrew: I wouldn't want to commit to a time frame, but by the time we publish this report next year, we'll have made some significant strides. These things take time, I was talking about spend under-management for five or six years before I no longer had to explain what it was every time I talked about it.
The procurement revolution has been much more of an evolution. We want to continue to push the ball forward, so in that context we're going to push it as far as we can, we'll see where we are, and we'll pivot or continue to push forward.
I think there's absolutely a great opportunity to delve much deeper into this topic because it is a primary metric, and the more that we can educate and get people to think progressively about what it is that they're doing within their roles, well, we view that as a very key part of what the analysts at my firm do.