As business leaders prepare for the year ahead, reducing third-party costs remains high on the C-suite agenda. While the Finance and Procurement departments will manage the technical aspects of identifying and delivering on cost-cutting opportunities, it is often forgotten how important the CFO and their senior peers are in creating the right conditions for successful execution.
Working with a wide variety of organisations, we find that the likelihood of a good outcome rises by 40% when senior leadership fully support and manage opportunity assessments.
Getting started: Ambition and preparation
When approaching an opportunity assessment, senior business leaders should consider the critical actions below:
Define scope and targets
The focus of the opportunity assessment should be clearly defined. This is true whether addressing a full scope of spend, targeting specific areas like indirect procurement, or aiming for additional objectives like Working Capital. Establish clear parameters, including timelines and concrete targets with anticipated bottom-line impact and ROI. The assessment requires a clear direction to yield meaningful results.
Secure executive commitment
Gaining commitment from executive peers is essential. Executive buy-in and accountability are key to building the momentum needed for successful programmes. Sometimes, other pressing initiatives will limit their availability. In such cases, it may be wise to reassess the timing or scope of the assessment.
Encourage “blue sky” thinking
Foster an open-minded approach. Encourage the kind of atmosphere where all ideas are welcome. This includes revisiting previously rejected ideas and considering those that require investments to unlock savings. In the beginning, make room for thinking that isn’t constrained by existing capability or resources. Later on in the process, this can be refined.
Establish strong governance and decision-making processes
Implement robust governance to ensure opportunities are reviewed in an open forum, allowing decisions to be made based on a solid business case rather than prematurely dismissing options without proper assessment.
The right context and timing are critical to success
Certain scenarios can make opportunity assessment particularly valuable. These include:
- Budget planning: Aligning the opportunity assessment with your budgeting process allows for the smooth integration of identified opportunities into financial planning.
- Market changes: Inflationary pressures may create additional reasons to revisit supplier relationships to maintain margins.
- Company performance: If the cost base shows continued year-on-year growth, an opportunity assessment can help identify and address the underlying issue.
- Company Changes: An opportunity assessment can help organisations prepare themselves for an acquisition, private sale or an IPO.
Harnessing data to maximise impact
Lack of spend visibility limits the organisational focus to a budget level, restricting the ability to consolidate cross-functional spending and maximise value. This is where CFOs can play a pivotal role by aligning stakeholders across the organisation and identifying synergies to maximise impact.
By creating a comprehensive, organisation-wide spend cube upfront, with clear visibility into costs across business units and spend categories, CFOs can ask the right questions and ground the assessment in a realistic view of current operations.
Putting plans into action
Identifying opportunities is only the first step. To turn those findings into tangible results, CFOs and senior leaders must ensure that the right commitment, resources, and capabilities are in place. Key actions include:
Focus on key initiatives
Momentum is essential. Concentrate on core initiatives that align with available resource levels and organisational goals. It’s often better to build momentum through smaller focused efforts than launch too broad a programme.
Engage the wider executive team
Achieving stretch targets will require significant time investment from various parts of the organisation. Building executive awareness and securing senior sponsorship is key to realising savings. This may involve high-level executive discussions and aligning budget targets with the developed initiatives.
Assess Procurement’s ability to deliver sustained results
Evaluate whether the procurement function can deliver on the identified opportunities by asking the following:
Does Procurement’s remit cover the entire spend targeted by the programme?
- Does Procurement have the skills and capacity to deliver results?
- Is Procurement aligned with key company goals?
- Can existing employees be upskilled, or should temporary resources be brought in to meet a specific, time-bound need?
- Should the business invest in more senior procurement resources to lead the transformation programme?
Is now the right time for an opportunity assessment?
An opportunity assessment might be the key to bringing about significant change if your company is getting ready for a big transformation, facing cost pressures, or nearing a budgeting cycle. CFOs and senior leaders should ask themselves:
- Do you think there might be cost savings available as a new budget cycle approaches, but you’re unsure where to begin?
- Is your organisation getting ready for a significant financial or strategic event?
- Are you having to reevaluate your cost structure due to market pressures?
If you answered yes to any of these, now is the time to see how an opportunity assessment could assist your organisation in maximising value.
