If clients employ professional buyers (procurement agents), shouldn’t agencies employ professional sellers? And shouldn’t it be the job of professional sellers to know not only how to deal with pricing objections, but how to structure a deal that will solve both parties issues?

Why do procurement departments exist?

a. To get the best possible price.

b. To get the best possible value.

What procurement is really trying to achieve

It’s easy to assume that procurement professionals are interested only in saving money by getting your services as cheaply as possible. But procurement exists as a function to secure value for the company. Consequently, procurement departments drag agencies through a series of detailed, invasive questions about their process, cost structures, competencies, experience, financial strength, etc. all with one central goal in mind: to make sure the agency is capable of delivering what it says it can deliver.

In the faulty world of time-based compensation, the client organization really has no other way to evaluate or assure performance. As long as agencies continue to price their services based on costs (hours) instead of value, procurement professionals will always be looking for compliance to their process as a means of evaluating whether an agency really, truly is capable of delivering what it promises.

Compliance to process vs. alignment of incentives

In the end, procurement has a detailed process for selecting agencies because of the total lack of alignment of economic incentives between clients and agencies. In fact, in the current cost-based system, there is a real misalignment of incentives. The agency actually has an incentive to spend more time, not less.

Next time you’re working with a procurement department, ask “What if we proposed a form of compensation in which the economic incentives of both parties were in near-perfect alignment?” We recently asked such a question of a respected procurement professional of a major company. His response? “Then there would be no need for compliance to our detailed process.” We then asked, “So why not just bypass the process and go directly to what it’s supposed to accomplish; alignment of incentives?” He was compelled to agree that this is actually the ultimate job of procurement.

Dead or alive

Consider this example. When Great Britain sent prisoner ships to Australia, they initially paid the shipping companies based on how many prisoners boarded for the journey. The problem was many of the prisoners died making the trip.

They could have proposed a process and documented compliance ––such as with the ludicrously expensive Sarbanes-Oxley law –– insuring that adequate food, medical supplies, etc., were on board.

An economist would laugh at this. Rather, a good economist would suggest they pay the shipping company for how many prisoners they deliver to Australia alive. Once the incentives are aligned, who care about process and compliance?

Try this next time

If you want to disarm procurement, you must first walk away from the notion that you’re selling time. Then give procurement the assurance they need right up front by proposing compensation based on your ability to create the value they seek in the first place.

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