Procurement lessons from Moneyball
By Paul Martyn, VP of Supply Strategy at BravoSolution
For starters, he probably wouldn’t be as famous as he is today. That’s just the reality when comparing Major League Baseball to procurement.
But we’d bet that he’d still be a winner – and likely, a revolutionary CPO.
Take note of the teams still alive in this year’s MLB playoffs: The Royals, Orioles, Cardinals and Giants. None of 2014’s five highest-spending organizations remain (we’re talking about you, New York, Boston and LA.). And only one of the remaining four – the St. Louis Cardinals – ranks in the top 10 for payroll.
His best-selling book and hit movie aside, Billy Beane’s famous Moneyball philosophy continues to have a real and lasting impact on Major League Baseball. That’s obvious. What’s less obvious: the practical procurement lessons hidden in Billy Beane’s Moneyball philosophy – and how CPOs can take action today.
Here are the top six CPO best-practices from Bill Bean:
1. If you can’t compete today, change your game plan. You can’t win like the Yankees unless you have a Yankees-like bank account. The same holds true in the supply chain. Chances are, your procurement organization will never command the purchasing power of an Apple, Walmart or Amazon. But that doesn’t mean you can’t compete – you just need to find a smarter, more sophisticated approach.
2. Know what numbers matter. One of Billy Beane’s most revolutionary moves was to revamp which statistics his scouting department valued most. He thought the metrics that most scouts focused on — RBIs, stolen based, batting average – were old and archaic indicators of future success.
We’ve advocated for a while now that procurement teams need to change how they aim for and measure success. Old measures, like the number of categories sourced, spend under management and cost savings, are all important for running a business. But if you want to win – and separate your procurement organization from the rest – you need to refocus on the numbers that really matter: earnings-per-share, operating margins, return on invested capital and valuation.
What does that look like? Analysis shows that best procurement teams deliver operating margins and return on invested capital 3.4% and 2.4% higher than their industry peers.
3. Uncover what’s really holding you back. While just about every procurement team has aspirations of driving this kind of financial performance, very few are in a position to do so. The issue: there is a litany of internal and external issues holding procurement teams back, and very few companies have the wherewithal – and patience – to take a step back and diagnose what’s getting in their way.
The biggest hurdle tends to be organizational misalignment. In too many organizations, employees and departments are working toward different goals – misaligned in how they interpret the top business objectives, go about achieving them, and measure progress again their work.
For CPOs that want to transform their performance, it’s critical to take an honest look at where you team is today, and what’s really getting in your way. Famously, Billy Beane uncovered the real problem that was plaguing the Oakland Athletics – that the game of baseball was unfair due to the financial landscape. This was the first step in creating a real strategy for Oakland to overcome the obstacle and start winning, instead of continuing to dance around the issue and lose.
4. It’s all about the data. As general manager of the Oakland Athletics, Billy Beane paid no attention to the decade-old scouting and operational best practices that had been in place since before his time. Instead, he had a revolutionary idea that decisions should be based on data and analytics – not history and anecdotes. In fact, statistical analysis fueled every decision the Oakland Athletics made – from which players to go after, who to retain, and when to let someone go.
It’s no different for procurement. Rigorous statistical analysis should be at the center of every major decision a CPO makes. For example, today’s advanced sourcing and optimization technologies enable procurement teams to weigh thousands of what-if sourcing scenarios to find the perfect bid. Advancements in spend analysis are giving organizations more visibility than ever before – and making the data actionable, so CPOs know exactly how and where to consolidate, rationalize and normalize the spend. Many organizations are even using spend analysis to qualify the value of potential acquisition targets by looking at the impact of a merger on their supply chain. The key is having the right data, and the capabilities to make the intelligence actionable and predictive.
5. Create a plan. And follow it. The Oakland A’s always executed against a bigger plan. Everyone was working toward a similar goal, and if you couldn’t get onboard, you were sent packing.
While that may seem harsh, much their success came from having a clearly defined roadmap, with very specific performance metrics to measure progress along the way. CPOs looking to take their performance to another level should follow a similar path.
When it comes to procurement transformations, the journey is just as important as the destination. Change is hard, and moving from a procurement organization that historically focused on tactical sourcing metrics to one that consistently impacts financial performance will take time. A well thought out roadmap is essential for keeping your team on the right path, and knowing when to change course.
6. Find your champion. One memorable example from Moneyball was a conversation Beane had with David Justice, a then 37-year old player. While most looked at Justice as an over-the-hill player on his way out, Beane saw something else: an opportunity to get a well-respected veteran to champion his cause, and influence other players to follow through.
Who is your champion? Transformations are hard, and maybe even tougher for procurement, which has long been viewed as a tactical, behind-the-scenes business function. To truly enact change, CPOs need a team of believers that are committed to following the master plan. Having a change advocate – like the CEO, CFO or a recognizable board member — goes a long way in determining success.
Michael Lewis, the author of Billy Beane’s story, Moneyball: The Art of Winning an Unfair Game, says it best: “No matter how successful you are, change is always good. There can never be a status quo. You have to always be upgrading. If you challenge the conventional wisdom, you will find ways to do things much better than they are currently done.”
Are you ready to toss conventional wisdom out the window and transform the performance of your procurement organization? Here are a few resources for getting started:
The first step: take this survey to understand where you are on your sourcing journey. Remember, if you want to move forward, you need a clear picture of where your team is today, and what’s holding you back.
Then, check out sourcing guru Mickey North Rizza’s latest paper – The 9 Habits of Highly Effective Procurement Organizations – for strategies on delivering hard-hitting financial performance.
And finally, learn more about how BravoAlign can put your team on the path to becoming one of the best procurement organizations in the world.