Running a business can be hectic. Leading a business can be stressful, time-consuming and at times complex with all of the issues and various challenges leaders run up against. While business can be complex for the leadership team, it can also be complex for the management and staff as well. When our teams run into problems, more often than not, our teams try to do the right thing.

Managers and employees try to solve the problems they are faced with as quickly and as effectively as they can. It is also the role of leaders to solve business problems and in the process, simplify the complex. Inefficient processes, controls, policies and the like can oftentimes be improved, but sometimes you are just rearranging the desk chairs. Sometimes it is necessary to blow up your process and reinvent it to improve efficiency, improve controls, and in the process simplify the complex. The challenge with that approach, however, comes down to the leadership style for the person addressing the problem.

Management Styles – The Caretaker

The caretaker is interested in managing organizational performance, but his/her approach is much different than the change agent. The caretaker will frequently manage what they inherit from their predecessor. Caretakers tend to manage within the same organizational structure, using the same performance metrics, setting modest goals and objectives and strive for improved performance in incremental levels. Caretakers may nibble around the edges trying to fine-tune an existing organization structure, including processes and controls, and will probably achieve some incremental improvements in time. The approach can be considered tactical in many respects. If complex processes are encountered, maybe a little fine-tuning will help smooth out the rough edges. Caretakers are not likely to reinvent the department or organization, unlikely to blow-up ineffective processes or policies, but will likely look for minor improvements within the current structure.

Management Styles – The Change Agent

The change agent, on the other hand, will usually take some time to survey the operation when taking on a new set of responsibilities. The survey he/she will employ will probably include discussions with team members at all levels, customer input, management input and will probably include a healthy dose of performance metrics to see what the organization deems important and how they are performing. The change agent will likely check for alignment of the organization mission and various departments, and ensure they staff appropriately to accomplish the mission. The change agent is usually not afraid to radically change or alter an organization if the performance is poor, alignment hasn’t been created with other departments, or processes are viewed as too complex to satisfy the client.

Leaders Simplify the Complex

Leaders who are change agents will see complexities, inefficiencies, processes that are out of whack, poor controls, performance measures measuring the wrong things and take action to do something about it. They will blow up the current process and reinvent the landscape or re-imagine the landscape in a more efficient manner. Change agents aren’t afraid of breaking some eggs in the process, challenging the norms, upsetting the apple cart if you will, to rationalize the business. Change agents will be both strategic and tactical as necessary to drive new levels of performance and achieve the organizational objectives, be it customer satisfaction, profitability, expense control, opening new markets, etc. Leaders who are change agents will recognize complexity in their organization and take radical steps if necessary to simplify the complex.

Complexities in Your Organization

If you happen to be a change agent, you probably see countless examples of inefficiencies, poor processes, poor organization structures and complexities in the organization that are costing thousands, maybe millions of dollars annually in direct and indirect costs. You probably see the frustration of staff trying to execute processes that are inherently flawed, costly, and don’t yield the desired results. You probably see well-intentioned controls that really don’t control anything, but make people feel better that they are in place. As a change agent you probably see examples of the following:

• Employees expected to execute the mission without the right tools and equipment.
• Employees expected to make the best decisions for the organization with little or no direction or guidance from the management team.
• Emoyees playing roles in the organization without the training, expertise, and support to perform effectively.
• The wrong people in the wrong seats on the bus.
• Management personnel that are indifferent to obvious inefficiencies and complexities that surround the staff every day.
• Management who see the problems clearly but are afraid or unwilling to challenge the status quo.
• Leaders and managers who are intimidated by change – who pretend to know it all and are really too afraid to make significant changes.

Complexities in Spend Management

Since my experience lies in logistics and spend management, I see countless examples of complexities and inefficiencies in organizations every day. These are opportunities for change agents to attack. I have that opportunity because someone in the client organization admitted that they didn’t have all the answers and were looking for some assistance. Complexities in the spend management space include:

• Managers and employees do not know which suppliers to use for a given expense category – so they source a new ‘qualified’ supplier, obtain some pricing and hire them to solve a problem.
• Accounts Payable Departments initiating 1,200 checks to pay suppliers each month even though the organization really only needs 250 to 300 suppliers to satisfy all 100 expense categories.
• Managers who sign a five-year supplier contract because they were offered a ‘great deal’ that supposedly provides best-in-class pricing and service levels.
• Large groups using 3,000 suppliers across the organization, again across 100 expense categories because management doesn’t want to centralize and dictate the specific supplier each location should use.
• Accounts payable notices that supplier pricing has increased, but they are not sure if the increases are acceptable or were expected by management.
• Employees are on the receiving end of spiffs and gifts from suppliers that management finds objectionable and concerning, but there are no policies precluding employees from accepting those ‘gifts.’
• A manager is introduced to a new marketing service, that will undoubtedly add new top-line revenues or improved CSI scores, so they sign a contract and begin the service today, not realizing that the same functionality is already resident in other services they have subscribed to, creating redundancies and adding new expenses.

Leadership’s Role – Simplify the Complex

If we agree that it is the role of leadership to lead by plotting the company direction, to simplify the complex, and ensure the organization runs efficiently and effectively, it cannot happen by nibbling around the edges or by being a caretaker. Rather, we need to be ready to challenge the status quo, think strategically and be willing to break some eggs in the process to get things right. We need to devise policies and strategies that set our employees up for success, answer obvious questions they have and provide guidance to employee actions within defined limits, provide structures that will ensure that the organization will run efficiently, effectively and in a predictable manner. In other words, it is our obligation to simplify the complex…to set employees up to have clarity in organization structures, roles, responsibilities, processes, and controls.

So, how do we simplify the complex, drive efficiencies and effectiveness in the spend management space?

• Be willing to admit we don’t know it all, and be willing to break some eggs.
• Be willing to make some unpopular decisions by leveraging the supplier base to an optimal level.
• Establish some aggressive cost savings and supply base objectives.
• Realize that economies of scale are the result of deliberate management actions and do not happen automatically when scale occurs.
• Be willing to look at the downstream impact of our decisions or lack of decisions across the organization.
• Strive for simplicity and maximum control in process design.
• Realize that centralization offers inherent efficiencies and more organizational control and efficiencies than decentralization.

Simplifying the Spend Management Function   

To begin to simplify the complex in the spend management space, consider the following actions, which are designed to provide clear lines of control, responsibility, efficiency, and effectiveness.

1. Centralize
Purchasing control and Decentralize Execution. Policies and controls are established at the top and authority is then delegated to selected employees to execute the mission within established guidelines. Result: Clear policies and less confusion.

2. Limit Commitment Authority.

Employees can spend money in three ways: through a contract, a purchase order or approving an invoice. Realistic limits should be established by selected titles within an organization and then communicated clearly. You are essentially taking authority away from everyone, then delegating limited authority back to selected employees when they operate within prescribed guidelines. Result: Clear authority levels and less confusion and less organizational risk.

3. Optimize the Supplier Base.

3,000 suppliers will result in 36,000 checks per year for an organization using only 100 expense categories, resulting in far more back-office expenses, and management headaches than necessary. Narrow the supplier base to the best, most cost effective, service-oriented supplier in each category and leverage that supplier across the organization. Result: Fewer invoices to approve, fewer checks to cut, and better pricing due to increased leverage.

4. Communicate Your Preferred Suppliers to Employees.

To provide clarity and reduce confusion, communicate who your preferred suppliers are in each expense category across the organization. Result: Employees will realize that their ability to add suppliers at will has been replaced with a new philosophy of standardization, and supply-base growth will slow to a crawl adding simplicity and reducing back-office expense.

5. Negotiate

Fixed Pricing for High Usage Items/Services. It is far more efficient and cost effective to quote and negotiate pricing once per year across a category than shopping prices and suppliers continuously. Result: Fewer interruptions from suppliers seeking business, fewer meetings, and fewer internal employees spending their time shopping for low-cost items when they can be taking care of clients.

The above are just five examples of where leadership can alter some existing structures with policy changes that will provide clarity among management and employees, guidance relative to their position responsibilities, reduce risk and drive new efficiencies and effectiveness…by simplifying the complex.

Summary – Best Practices

Change agents make things happen. Caretakers watch things happen. Regardless of your personal leadership and management style, it is incumbent on leaders to plan, organize, direct, and control. It is also incumbent on leaders to realize when there are inefficiencies in the organization, confusion or complexity and then take steps to resolve those issues.

Take a look at how your organization spends money with your suppliers. Is the approach organized? Is the approach systematic? Do employees know their boundaries or limits? Are those boundaries effective? Are you observing the problems around you and doing anything about them? Change agents are not afraid of breaking some eggs and reinventing processes, controls, and even organizational structures if the situation warrants it.