eWorld: Hackett Group’s Procurement Capability Maturity Model

Hackett were presenting their capability maturity model for procurement yesterday at eWorld. It is designed to address the questions: “What is the future of procurement?” and “How will the value proposition of procurement effectiveness evolve?”

Hackett’s model shares a lot with the CMM models already widely used in IT (in that it has the same name and also has five stages of increasing maturity). Though it also leans on the Maslow hierarchy of needs in that each of the 5 levels is not a replacement for the previous level but builds on the previous level in the hierarchy. The levels are:

1. Supply Assurance (“Right goods and services at the right time at the right place”)
2. Price (“Right goods and services AND at the right price”)
3. TCO (“Shift from lowest price to lowest Total Cost of Ownership”)
4. Demand Management (“Reduce demand activity,  complexity immediacy and variability”)
5. Value Management (“Increase business value derived from spend rather than just reducing total cost/spend”)

Level 1 is about processing POs
Levels 2 and 3 incorporate strategic sourcing
Levels 4 and 5 are something completely new and different for many procurement departments.

What I particularly like about this model is that it makes clear how, as procurement moves up the value chain, it moves from being one focussed just on Supply Management (levels 1 to 3) toward Customer Management (levels 4 and 5). If level 1 is about processing purchase orders and levels 2 and 3 are about strategic sourcing then levels 4 and 5 are a massive paradigm shift in how procurement relates to the business.

This gives an interesting path for procurement professionals but also presents a challenge and a dilemma. The skills and mindset needed to succeed at levels 4 and 5 are likely to be massively different to those needed to succeed in levels 1, 2 and 3. It may well be a new breed of leaders who elevates procurement to the heights of levels 4 and 5.

Incidentally, this presentation was billed as the “unveiling” of Hackett’s Procurement CMM model. I spoke to them after the presentation and asked how much of this info would be public domain and how much would be private for their clients only. The answer wasn’t that clear. They seem to be still trying to figure out how to market it widely whilst also retaining control of generating revenue from the information. For example the paper they were giving out at the event has written all over it: “For Current Members of Executive Advisory Programs Only”. However they were giving this document out freely at the eWorld event. I do hope they take the step of putting more of this model into the public domain to encourage more rapid take-up of their model.

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9 thoughts on “eWorld: Hackett Group’s Procurement Capability Maturity Model

  1. David Stone

    I am not sure this is a massive paradigm shift. There is a lot of work to be done with the business to ensure Procurement’s potential contribution is understood, but increasing value from spend is what Procurement does, along with the more basic levels.

    But, I wonder how e-auctioning fits an environment where supplier selection can be well ahead of a settled specification. If value creation comes from a collaborative approach, in the very early stages of a project, then creating competition too early, risks suppliers compromising on quality, or offering pricing they know they won’t have to honour. I think this means that unless we can clearly weight all the non cost elements,(including degrees of uncertainty about the eventual requirement) we need to put our hands up and say can’t be auctioned.

  2. Thanks for the comment, David.

    I do believe that Weighted e-Auctions are under-utilised and will pay dividends when buyers finally start using them regularly. But I also believe that it is incorrect to think that you need 100% accurate weightings for every attribute before you go to auction. I have seen a few different approaches to weightings, and all leave some margin for subjectivity. So arguably, with the best will in the world, you’d never get 100% accuracy in your weightings anyway.

    But there is a massive value in being 80% accurate with your weightings, in my view.

    Perhaps I’m biased but I do put my money where my mouth is. I recently ran an e-auction for software development services for TradingPartners. As you can imagine this is very core and also very high risk to the business if it goes wrong. And the specification of what exactly is to be delivered is not yet settled. Yet running a weighted e-auction has given me an easy-to-make choice for selecting a development company with a high degree of confidence that I am getting an appropriate price for the quality level. Confidence that I wouldn’t have had without an e-auction. I haven’t implemented the contract yet, so perhaps I am talking prematurely, but when I compare this weighted auction approach with other things I have sourced recently, the weighted auction wins hands down.

  3. Alan, this is a great topic.

    Personally, I’m not completely sold that levels 4 and 5 belong in a procurement/strategic sourcing organization. Clearly, value engineering by modifying requirements, receiving more service for the same cost, and managing demand are all ways to drive further savings. However, the level of coordination, collaboration, and involvement with internal department’s operations teams may be too complex for many procurement teams to pull-off. As if roles and responsibilities of strategic sourcing didn’t already create enough organizational stress, level 4 and level 5 maturity models may not be right for every company – depending on the company’s acceptance of it’s strategic sourcing team.

    Frankly, there are probably a handful of areas a procurement team can focus on level 4 and level 5 maturity, but to suggest that every spend category warrants this level of investment is incorrect.

    No doubt there is value, but Hackett may tempt CPOs to increase their responsibility beyond the level of their peers may accept.

    I think a better way of looking at this is levels 4 and 5 are processes which require different organizations to take different roles. While procurement teams may be best suited to lead level 3 initiatives, their clients may be best suited to lead the behavioral changes and redesign elements that levels 4 and 5 require. However, procurements teams are essential to driving the sourcing teams, guiding the supplier relationship development opportunities, and providing the data necessary to empower the team leaders.

    Tony
    http://360vendormanagement.com

  4. Pierre Mitchell

    Hi guys,
    I work with Chris at Hackett and thought I’d chime in on Tony’s comment.
    Procurement is a set of processes, not a department, and level 4 and 5 are not stating what people in the Purchasing department too. Operating models vary (i.e., think of a RACI model – the roles must be clear even though they may change over time from the business to and from Procurement – i.e., to your point about roles…the roles must be clear even if Procurement doesn’t =”R” or “A”), but the best practice principles do not. Procurement doesn’t have to own it, but it should continually be expanding its circle of influence to influence the process more deeply and make sure that the organization does it – regardless of where the reporting lines are.
    This is where numerous companies get tripped up. Procurement wants to control it by doing it versus coordinating it and improving it via a more facilitative method. It’s like the expert vs. process consulting approach – you need both – and it’s a skill/capability needed to the ‘new procurement manager’. Also, think about Six Sigma – it’s not a professional quality function that does it, but rather a mass deployment of the best practices to the masses. Think about “hands-free” P2P. Extend the model to non-P2P processes. If Procurement can bake risk management into a business led and business executed process – that’s a home run.
    Drop me an e-mail if you want to chat more about this. It’s a very important and interesting topic. pmitchell@thehackettgroup.com

  5. Paul Kirch

    Pierre,
    I have worked at several client sites, including Cisco and Qualcomm, where we implemented a completely automated procurement solution, from initial requisition generation to material receipt, using Oracle solutions. I know that you and Chris were instrumental in the development of the “touch free” Purchase Order concept in the indirect procurement area. I used this idea at Qualcomm to fully authomate direct materials procurement in the discrete manufacturing area.
    Paul

  6. Pingback: Procurement vs procurement « Where Next

  7. Hackett or Hack

    Interesting, this sounds exactly like the “new” model that I heard Chris present at eWorld in 2007; has been part of the Hackett storyline for some time as I recall; They just pulled it out of the drawer to see if it will stick this time around…

    Reality is there’s a whole lot of sizzle, but not much steak here…. and CPOs like steak. As Chris’ waterboy has noted elsewhere, almost no companies are at Hackett’s so-called levels 4 & 5…. so touting its importance whilst proclaiming its irrelevance is quite foolish. Want to talk to a purchasing group that’s been hacketted within an inch of its life? dial up BP or DuPont and ask them to talk about their experiences….

    I assume Paul Kirch is joking about this team’s alleged influence – Ariba and Commerce One were in the doors with a vision well before these guys were on the scene…. and let’s be honest, Pierre was tier two analyst on his best day, still just a waterboy for the procurement star at Hackett.

  8. Dear whoever left the last two comments about AMR and Hackett (I wish you would post with your real name, or at least stick to one pseudonym). Sounds like behind the sarcasm of your comments you might know what you are talking about. Care to enlighten a little more? Drop me a mail or post a comment.

  9. Pingback: Who needs another framework? « Alan Buxton’s e-Sourcing Place

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