Dominic, you have supported a great number of transformation processes. What is the first big mistake that companies make?

The first mistake often happens at the beginning of a transformation project. The managers in charge are good business administrators, with technical and legal expertise, and they have good ideas on how areas, processes, and business models can be optimized. But these changes will only succeed if there is a shift in attitudes, culture and, ultimately, employees’ behavior.

So, right from the outset, management needs to have experts on board who are trained in the human factor. A transformation of structures and processes is only ever as successful as the transformation in employees’ minds. Soft skills are essential skills, especially in these volatile times. This point is still underestimated, or not prioritized until it is too late – sometimes with serious consequences for the entire project.

But senior management often has coherent arguments and convincing data. That’s a good starting point, isn’t it?

Senior management often believes that it is obvious to everyone why change is necessary. But experience shows that most employees and executives need to be shown in a credible way why change and transformation need to happen, if they are to achieve results in the future. It is important to communicate this sense of urgency clearly and repeatedly. Managers should only take the next step once the critical mass of all concerned has fully understood what will happen if there is no transformation.

Why is that so important? Could you not just dictate the way forward and press ahead?

Many people say that they are fundamentally positive about change – until it hurts them personally for the first time. You can’t entrench the need for change in people’s minds with one-off group events or a email from the CEO. It takes a professional communication strategy, and plenty of small discussions at every level, over a long period of time. Communication skills become essential wherever there is growing pressure to change.

What should the crux of these discussions be?

Initially, most employees see transformation as a potential threat. This is understandable, because the working environment will change radically. Change can provoke fear in many people. If these instinctive reflexes are not overcome professionally, the result can be resignation and resistance, or even a dangerous, negative group dynamic.

How can management counteract this?

It is important to involve employees. People like to have some control over their own destiny and actively help shape it. In my experience, change management, in practice, often relies too much on simply informing staff about developments and decisions, instead of offering the chance for employees to put their heads together and take part, right from the very first step.

Recommendations for a Successful Transformation Project

1. Plan and budget for your organizational and personnel development at an early stage

It takes time, and often perseverance, to win over employees. For this psychological aspect, it is imperative that management calls in specialists to set up a staff development approach alongside the project. This can support the change and minimize follow-up costs right from the start.

2.Clear communication

Communication must be clear, such that explanations and messages are transmitted rather than soundbites; that way, a true vision becomes clear. It is important to provide information transparently before it reaches the company grapevine, and to ensure that senior management members do not contradict each other in the messages they send out, even in heated situations.

3.Executives as disseminators

If employees are not fully on board, a project may fail, due to uncooperative behavior or simply a passive attitude from executives. The demands placed on managers are often different from usual, and they should be prepared accordingly. As well as good communication, intensive discussions, and a willingness to answer critical questions, it can also be useful to offer specific support for managers through coaching or training.

4.Consider personal needs

Many employees feel more positive when they are given more responsibility. So, it is important to show them how transformation is an opportunity for them to develop personally, and how it relates to their personal needs and goals. Measures involving qualifications provide a sound framework for this. Employees can exchange views under supervision and management can make important messages easier to take in.

5.Sustainable implementation

A transformation is not a project that will end with a deadline. The changes need to be integrated into day-to-day business and the new processes have to become second nature. Only when everyone repeatedly sees how the new processes and tools help them will the transformation be sustained in the long term. So, any change should conclude with a well-planned stabilization phase. This helps to absorb setbacks, show off successes, and let the innovations blend in with the familiar. Something to bear in mind: “A change is only really successful if employees defend it, even when management are not around.”

Ingo, you have worked for plenty of companies and you have seen various approaches to transformation. Where dies executive management come into it?

One thing that is crucial for executive management is their mindset. Management must be absolutely clear at all times about the strategic and operational importance of procurement for the entire company. This is the only way to ensure that the transformation is taken seriously and supported both internally and externally. So, it is important for executive managers to initiate the transformation themselves if possible and to ensure their employees are sufficiently aware of why it is happening.

Is that enough?

No, not at all. The process needs constant endorsement and monitoring – which requires patience. When it comes to procurement, transformation is not a sprint, but a marathon. For executive management, this means keeping up to date about advances or setbacks, facilitating or overcoming them, and ensuring the transformation will not shy away from any “sacred cows” that are so often found within companies.

What do you mean by sacred cows?

In my view, it is essential to transform and, ultimately, optimize every area. That’s the only way to bring about successful change. But if a transformation bypasses some areas, such as marketing or consulting, for whatever reason, it sends the wrong message to the workforce and, worst case scenario, can lead to resentment or lack of credibility.

What other problems can typically crop up?

In many companies, procurement is not given the significance that it ought to have. To send out a message about the importance of change, executive management should take care to define the transformation from the top down. It also helps, right from the outset, to pass on the project management to employees who are assertive and proactive in implementation. This requires very clear roles: who is negotiating, who is doing the follow-up, and who is developing the specifications. Each step should be assigned to just one point of contact.

Do you think it is appropriate to dictate everything from above?

It’s not about dictating, but about working out and deciding goals, milestones, and a communication plan together at a senior management level. But the actual implementation itself must be developed within the individual department teams, and in many areas it has to be coordinated with partners in other departments. After all, procurement overlaps with many other areas, such as production and sales. There should always be a contact within these overlaps to ensure that the impending changes are well coordinated.

What role does communication play in these processes?

Communication is extremely important for executive management. It must ensure that changes are communicated consistently to employees and external contacts, such as suppliers and customers. Both sides, both internally and externally, need to be carefully prepared for the transformation. It isn’t easy, but it can go smoothly if you get your strategy right.

How should sub-projects be incorporated into the transformation?

It is important to start by dividing the project as a whole into smaller sub-projects that individual teams can tackle better. If they are too small, you run the risk of fragmenting the project. If they are too big, you could overwhelm your teams. Once you have done this, you can decide how you want to communicate certain messages.

For example, it’s always good to champion successful negotiations as flagship projects, to get everyone on board with the success as much as possible. Every employee involved needs to know about it, so they can play their part. This guarantees as many colleagues on your side as possible. As with any change, there will be nay-sayers in procurement too: people who don’t believe that the savings defined are necessary or possible. In these cases, regular reporting can be vital for getting these people on board with the transformation.

How do you convey sub-projects externally?

Consolidation with a small number of strategic partners externally can produce some great results in how a company presents itself. In the best case scenario, you can use what you say to send a strong signal to the market. But watch out: the signal must fit in with your strategy and form an integral part of it; otherwise, it could backfire on you.

K+S is one of the big players in its sector. The company was founded in 1889 and is considered the largest salt producer in the world, operating mainly in Europe, as well as North and South America. It also is one of the top international suppliers of potash and magnesium products.

To grow sustainably, open up new business lines, and make its customers much more central to its corporate strategy, mining company K+S is currently undergoing an extensive transformation with its group-wide Shaping 2030 strategy. Procurement plays a key role in this, aimed at driving the company-wide transformation by creating synergies and saving more than €30 million a year from 2021. To achieve these ambitious goals, it was essential to refine its global procurement structure, optimize its processes and expand its skills.

One of the people responsible for this extensive transformation program, which has been running for 2 years now, is Niels Walberg, head of central procurement at K+S: “We can’t achieve an saving like this by negotiating prices alone, without changing anything else,” says Walberg. With Inverto’s help, he and his team have defined a business case and identified 220 specific sub-projects. The goal is to save around €2 billion compared to the current level of expenditure and to significantly improve strategic planning.

Based on a prioritized implementation plan, temporary resources were used to successfully implement some significant initiatives. At the same time, K+S set up a structure for program reporting and procurement control. This supports procurement managers by tracking value creation potential and increases awareness of procurement’s role and contribution among senior management.

The change processes were refined by setting up a project office to coordinate the transformation and all the parties involved, and to develop a clear program design. “It’s essentially a matter of bundling quotas, using alternative suppliers, or simplifying ordering processes,” explains Walberg.

Over the course of the project, it was essential for the procurement team to continue to meet the needs of internal customers and to maintain service levels during the challenging transformation. “As procurement is evolving, it’s still important to deliver on a daily basis. Our business partners expect us to cover all the major performance areas, from safety compliance and sustainability standards, product and service availability, cost and quality, right through to innovation and service to our internal customers,” says Walberg.

At the same time, an innovative procurement system will be introduced to offer customers improved self-service for a much wider range of goods and services. This will free up some of the procurement team’s capacity, so they can achieve cost potential in their strategic procurement work.

Contributing to the value of the company remains a decisive goal for procurement; this is where the business partners’ various expectations must be taken into account. Linking procurement with internal stakeholders and external suppliers is crucial to the transformation’s success.

Especially for complex products and services, like the ones K+S needs to procure, a buyer has to develop a deep understanding of any impact to the production process, as well as possible risk factors.

The definition of common processes and clear roles has greatly improved interaction between procurement and other departments. Integrated procurement teams, consisting of buyers as well as specialists, have made progress with crucial aspects. According to Walberg, discussions between members of these procurement teams, and functional training for strategic buyers, have helped to develop skills that remain important in day-to-day business, such as advanced TCO methods.

For example, when they were looking into reducing the number of alternatives in the safety and protective equipment range, procurement involved the relevant engineers from the company’s German sites, as well as the supervisory board. Walberg says, “Unfortunately we cannot take everyone’s individual requests into account. But by working with all the parties concerned to reduce alternatives, we can achieve savings without sacrificing quality.”

Procurement was also able to significantly reduce the cost of software licenses. The procurement department formed a project team with the HR, Legal, and IT departments to review license requirements and optimize their needs accordingly.

Now, just over two years later, it is already clear that these measures are working. “Our global procurement organization is stronger, and it clearly and visibly contributes to the new structure and to the group’s goals. Combined processes and procurement have significantly improved cross-functional collaboration with key stakeholders such as operations and engineering, as well as business functions such as Marketing and IT,” says Walberg.