The role of procurement has long been misunderstood in financial services. Like many industries, those in the front office have thought of procurement as a necessary back-office process; a hoop that they are required to jump through that does not have any bearing on the success of their own role.
But this is misunderstanding is finally changing. The long-ignored benefits and potential of procurement are beginning to be realized, not just in cost-cutting but in driving transformation and performance across the whole organization.
Our 2021 Finance Leader’s Outlook report showed a growing awareness of procurement as a tool to drive much more than just recovery, with 38% of US finance leaders saying procurement should be measured on business resilience, while 40% of UK finance leaders said innovation should be the key metric.
This shift in mentality is now taking hold in financial services. Financial institutions have long been measured by three core indicators: growth, margin, and productivity. The power of procurement in contributing to the positive movement of these indicators is leading financial institutions to join a growing movement across sectors to rethink the role of the procurement function.
So as financial institutions look ahead to post-COVID recovery, how can they begin to unlock procurement’s full potential?
Procurement has long been critiqued for ‘looking backward’ in financial services – focusing on how costs could have been optimized and using this as the basis for future planning. This is often linked to procurement’s historic reputation as a function that drives compliance and enforces rigid business processes, rather than being a business enabler and transformer.
But there is an important transition taking place as procurement teams begin to look forward and position themselves as the catalyst for transformation.
The mindset of front office management teams has changed alongside that of procurement in recent years, and procurement has now become increasingly integral to the success of companies across all sectors. In financial services, this has most recently been manifested in front office teams increasingly turning to procurement to ensure the arrangements are in place to support their digitization, a process that all financial services companies are undergoing in some capacity. Procurement teams are ensuring that the processes, suppliers, and correct data are in place to ensure that this process can take place smoothly.
Driving efficiency and alignment
Financial services have long been critiqued for the pace at which they adapt, whether technologically or simply through their reliance on macro metrics such as revenue growth and pre-tax margins. This rigidity often ignores the importance of risk management, cost-saving, and the efficiencies that effective procurement can offer. We are now seeing a change of mindset in these areas.
Most recently, institutions have been leaning on procurement to address efficiency challenges in the physical workspace, brought on by COVID. Procurement teams have been leant on to improve resourcing of physical spaces, with many financial institutions reconfiguring their workspaces to facilitate more collaborative and efficient working practices.
Several financial institutions have taken examples from non-FS companies such as Very.co.uk, BP and Dropbox, who have redesigned their physical workspaces in the aftermath of lockdown with the support of procurement teams.
Moreover, procurement can better coordinate efficiencies through better alignment of different areas of the business, which David Sliney, COO of Stifel Bank highlighted at the Financial Times’ recent webinar on Improving Operational Efficiency in Corporate and Investment Banking. Alignment is a key instrument of procurement, ensuring short-term and long-term business initiatives, workflow, and expectations are managed and that the right suppliers are in place to contribute to the delivery of financial institutions’ transformation.
These areas are where we are seeing the increasing interplay between the traditionally back-office procurement function driving front office performance.
Innovation through procurement
In the field of financial services there has long been a stigma attached to outsourcing due to traditionally being seen as a means of cost-cutting, and shifting of the responsibility elsewhere. However, this notion is being transformed by the use of terminology such as ‘co-source’ and ‘embedded support’, whereby organizations look to their suppliers as a source of true value-add rather than a cost-saving measure.
This more collaborative approach to sourcing the right delivery ability is gaining traction and enabling financial services to use procurement in a way to make their businesses truly cost-effective, whilst ensuring specific objectives are met. The process ensures institutions can collaborate with suppliers who act as a source of innovation and partnership, rather than simply a cost-saving tool.
Digital transformation has been a key theme for a number of years and has accelerated during the past year as many businesses look to adapt to hybrid working, online customer demand and increased digitization. This is proving to be another process where procurement is driving performance for financial services.
Whilst many financial services have looked to coordinate digital transformation projects unilaterally, those who have, have found the cost of such projects can rise to astronomical levels. Many institutions are facing these high costs at a tough time for liquidity and the bottom line.
Such transformations present another example of where co-sourcing and procurement practice can aid financial services in implementing projects across the business. Ensuring a more co-ordinated allocation of resources, procurement can help source the right products and services to ensure smooth and effective delivery of digital transformation.
The power of procurement is therefore being realised across a wide array of business areas. Procurement is slowly emerging from the back office and being seen as a function that can support performance of the front office teams.
As financial institutions look ahead to recovery this year, we expect procurement to increasingly come to the fore.
Click here to find out more about how Proxima can help unlock your financial services’ procurement potential.
*This article is written as featured in Global Banking and Finance Review.