Global Challenge

Exceeding his target of saving one global financial services business £50 million on its annual spending, procurement specialist Bob Seaman has helped Standard Chartered Bank enter the new millennium.

The challenge when I arrived at Standard Chartered Bank in late 2000 was clear. Like many businesses, including some of the biggest and best global companies, its procurement operation needed to become more cost efficient. The bank’s wide geographic spread meant the purchasing operation was highly decentralised. Much of purchasing was being done locally with a large number of suppliers.

As the 21st century dawned, competition was as fierce as ever and effective management of a global corporation in a regulated market was increasingly demanding. Although Standard Chartered was already one of the world’s biggest and most successful financial services businesses, there was plenty of room for expansion.

Fit for the 21st century.

A major re-engineering programme, Fit for Growth, was launched to pave the way for future development. One of its primary aims was to reduce costs across the whole company. It was also aimed at creating an environment which would encourage employees throughout the world to work as a single business.

A radical reappraisal of the bank’s property management was also a priority. Two new centres for the bank’s IT, finance and HR operations were built in Kuala Lumpur and Chennai, India. But another key element in the reform programme was procurement. The target was to cut procurement costs by $50 million annually.

It was at this point that I was drafted in to head up the procurement part of the campaign. For me, this was an interesting development in my career. I am an engineer by background, starting life as an apprentice at an aerospace firm in the West Midlands, Like many people, I got into procurement almost by accident when the industrial downsizing of the 1980s led my then employer to offer several of us the opportunity to move into new roles. I had no idea what procurement was all about, but thought it sounded interesting. And so it proved to be.

Two decades later, I was at the BOC group in a senior purchasing role when the opportunity at Standard Chartered came up. They were interested in the fact that I had been closely involved in an operation at BOC very similar to what they had in mind: the globalisation of a procurement operation in a similar geographic area to the one in which Standard Chartered was based.

Big Challenge.

It was a massive challenge and, I have to admit, somewhat daunting at times. For me, it was especially interesting in that I was more used to dealing with direct spend in industry.

But the principles are the same. In a bank there is no assembly line in the traditional sense. But I quickly realized that the production line was, in fact, the IT the bank was using. The IT systems are the means of delivering the product to the customer and at Standard Chartered IT accounted for about a third of the $1 billion annual procurement spend.

To meet the ambitious target set for us, we knew we had to put the traditional procurement disciplines in place: more centralised spending to gain leverage in the marketplace, standardised procedures and automation by means of e-procurement.

But how to go about it? There were several options seemingly available. We could develop our procurement team in-house. This would have taken time we didn’t feel we could afford. We could join a purchasing consortium, but that could have meant a very complex and difficult-to-manage relationship which would only have increased the overall problem. We could have employed consultants. This seemed like a very expensive solution. Or we could have gone along with the hype at that time – remember this was at the height of the dot.com boom – and signed up with a range of e-marketplaces.  None of these seemed to provide the answers we wanted. The critical factors in our choice were that we had to believe fully in it and that it was supported by the board, and none of these seemed to fit the bill.

So we examined the possibility of outsourcing the function. This appeared to provide the speed we needed to radically reform procurement, while at the same time giving us the opportunity to maintain some kind of control. We entered talks with PricewaterhouseCoopers, who appeared to have the kind of experience in this field that we were looking for. They had an understanding of what we were trying to do, a convincing record with clients initiating similar programmes, and the back-up infrastructure to provide the necessary support to their team.

After a year spent negotiating an extremely complex contract, a team of 30 fully experienced supply managers was brought into Standard Chartered’s offices in London, Singapore and Hong Kong to start work on the reform programme.

Building trust.

But it quickly became apparent that the key success factor was winning the hearts and minds of the major stakeholders within the bank. Many saw the new people as consultants rather than new members of our team, though on a slightly different footing.

We had to confront the problem head-on by convincing our people that the PwC staff were on their side. And the PwC staff had to prove their value to gain credibility. People naturally become defensive when they feel they have someone in front of them telling them how to do their job better. We talked to our people and listened to their concerns. And just as important, we had to examine and understand the needs of our stakeholders. You can drive through a change programme with a bulldozer or you can work with the people get them to understand what the benefit will be and find ways to overcome their concerns. That’s the most productive way of getting through the resistance, although there are times when you have to use the other methods. Once they realise they can use the new way of doing things and the additional resource to help them deliver their objectives and meet their business targets, they become supporters.

Another key issue was to build an effective relationship with the service provider, PwC. We insisted on continuity of personnel so that we could do this. And we made sure that we built a close collaborative relationship, so that we were working together to meet the targets we had been set. Imagine trying to bring about this kind of change across several continents and you can see the challenge. Language was not a problem as all our staff speak English, but getting to the people on the ground was very demanding. We had to make sure everyone was involved so that the whole company bought into the changes needed.

Maintain control.

Very early on we decided that some key categories of spend had to be kept under our direct management. Our global telecommunications network and data centre are both provided by external suppliers and maintained a direct relationship with them. They were too critical to be placed under the apparent control of a third party.

In fact, although we refer to what we have done as outsourcing, it is in reality a hybrid arrangement. We have not handed control of procurement over to a third party located elsewhere. We have brought a third party into our business but we work closely with them from day to day. We maintain decisionmaking power over all aspects of the operation.

The procurement team are not empowered to sign contracts. They make recommendations on courses of action, but do not have the responsibility of putting them in place without our approval. There are agreed governance and quality assurance mechanisms in place so that we can be 100 per cent confident that the right decisions are being taken for the bank and its shareholders.

It means we get the best of both worlds. The sourcing team are given the freedom to use their initiative and experience to come up with the best solutions, but we remain in control.

As the new arrangement got underway we also realized that the original terms of the deal with PwC, in which they earned part of their fee based on the savings made for us, was not producing the best results. Inevitably, it was causing short-term thinking based on immediate gain rather than longer-term procurement strategy. The “gainshare” agreement was driving the PwC people to save money, extremely laudable in its own right, but at the expense of other priorities. So we renegotiated the gainshare agreement away to the satisfaction of both parties.

The need for PwC to divest itself of its consultancy arm following the Enron and Worldcom scandals promised to test the strength of our relationship with the team we had been working with. It meant that first they – the senior managers at PwC we had been dealing with as well as the supply managers on the ground – first moved to Exult when the PwC business was transferred to its new owners. Then Exult was bought by Hewitt Associates, so their employers were changing again. This naturally threatened morale as any change of this kind would. But our close relationship meant we were fully informed and consulted over the changes and were able to talk to the people involved and minimize any fears they had over their future. Because of this, the process went very smoothly. It could easily have been otherwise in a less collaborative relationship.

Results.

Three years into the reform programme the results are beyond all expectations: we have saved Standard Chartered well in excess of the targeted $50 million on its annual spending and we fully expect to continue reaping savings.

We have brought rigour and discipline into our supplier relationships. Real Business needs are now built into specifications, a balanced scorecard approach to vendor selection is used – giving weight to a range of factors other than cost, such as the ability to deliver in the markets we require, the vendor’s experience, and their proven support for corporate social responsibility. We now use standardised contracts and a systematic approach to contract management.

An important innovation aimed at making sure our procurement decisions take account of every aspect of a proposed deal is the establishment of multi-functional teams. This means, for example, that the expertise of the finance department can be brought to bear on multi-national projects to make sure we are gaining the best advantage in terms of taxation. This can mean huge savings.

And procurement’s reach has been massively extended. We now influence or directly control about 60 per cent of the annual $1 billion spend.  There is still, of course, plenty to do. Standard Chartered is continuing to expand.

The bank aims to lead the way in Asia, Africa and the Middle East, and it’s good to know that procurement is playing its part in making the business fitter than ever.

Bob Seaman is group head, strategic sourcing, at Standard Chartered Bank