Confessions of a Corporate Shopaholic

Setting cost savings targets for the team is a daunting task.  It is always a stretched goal but it has to be realistic and attainable at the same time.  Although it is often the collective hard work of a team or even the entire regional organization, the company will always convince you that your personal bonus is tied to how well you are achieving your cost savings targets. 

Very well.  Let’s be realistic for a moment.  Even though there are plenty of other measurement metrics like customer satisfaction, employee retention, training & development, or policy & regulatory compliance to report, the single biggest and most representative proof of why we are worth our paychecks is how much cost savings we are delivering to the company.  Finance is all about numbers, and we know the rules of the game from day one.

So how to come up with the target is an art by itself.  The more experienced your boss is, the easier and more straightforward that conversation will go.  I have had this past experience that my boss had absolutely no idea what addressable spend is, nor what pass-through costs mean.  There are also financial controllers who mix all things up in one pot, which I can understand since they only care about the bottom line and not the details.  I just cannot imagine some senior procurement executives simply put a percentage of total spend as savings target.  They usually have relatively less experience with services buying and the outsourcing arena.

The key to having a civilized discussion with your boss on target setting is to be entirely fact based.  Get the top 80% spend supplier list ready.  Go through each one and identify what is negotiable and what not.   And with that, check if there is any room for negotiations in the coming year.   Next go through businesses one by one.  Discuss what each of their priorities are next year.  What are their budget plans?  How can we get in and help?   Finally go through the areas which are not attacked so far and explore tactics to engage.  Who should do it and how?  What are the carrots we can provide?  Do we have enough resources for it and does it make sense?

With a bottoms-up approach the conversation usually can turn more comfortable.  Don’t skip the details including inflation and currency appreciation factors.  Your boss may not find it welcoming to hear so many bad news at once, but we have to acknowledge collectively that it’s no longer an easy job for anyone.  I don’t want to be penalized at the later end of the year that I have not provisioned for the risks of the target.  So I make sure I document all my points with as much facts and evidence as possible, in case there are colleagues who have forgetful minds.

My other advice is to set accountability right from the start.  Some accountability are totally within the team in terms of project execution and quality, but a few dependencies are entirely top-down.  Someone needs to get management buy-in, and to what level that buy-in will require depends on the company and/or business line culture.  We all need to get off our butts to knock on stakeholders’ doors to get new businesses.   I have done my very good share of going to people 3 or 4 levels above my rank for new businesses, so I get quite irritated if I see a leader not doing just that when all of us have exhausted our abilities to get roadblocks removed solely due to a lack of seniority on the corporate ladder.

I have seen tons of organizations with low morale mostly due to unattainable savings targets.  Leaders who alienate themselves from team members because they don’t want to know the details or have no intention to dive in to play his or her part only makes the matter much much worse.   That’s usually how companies lose their brightest people, and it’s one mistake no company can afford to bear.