Do You Know the Difference Between Strategic Sourcing and Category Management – What is Value?

If you can’t clearly define Value then you are in good company.  Jeff Bezos, Jamie Dimon and Warren Buffet are struggling with that very question – particularly when it comes to Healthcare.   As you may have heard there is a “new, disruptive health care alliance formed by Amazon, Berkshire Hathaway, and JPMorgan Chase.”  In an HBR article ” We Won’t Get Value-Based Health Care Until We Agree on What “Value” Means”, these industry icons are struggling to define Value for their employees. 

This article IS Category Management.  It is NOT labeled as such or presented that way but it is a classic case study.  You MUST read it because it points out the difficulty associated with buying on behalf of your stakeholders, identifying ALL the right stakeholders, seeking out their Value Drivers and THEN creating a solution that will meet everyone’s needs.    Here is are a few excerpts that really hit home:

“For physicians like me, clinical outcomes are paramount; health improvement and high-quality care are essential components of health care value. And we assume that patients share that perspective. But, it seems, they don’t. When the Utah survey asked patients to identify key characteristics of high-value health care, a plurality (45%) chose “My Out-of-Pocket Costs Are Affordable,” and only 32% chose “My Health Improves.” (In fact, on patients’ list of key value characteristics, “My Health Improves” was slightly below “Staff Are Friendly and Helpful.”) Given the chance to select the five most important value characteristics, 90% of patients chose combinations different from any combination chosen by physicians. In general, cost and service were far more important in determining value for patients than for physicians.

“If Messrs. Bezos, Buffett, and Dimon really want to drive major change in the U.S. health care delivery system, they should help convene value-focused dialogues, providing the kind of political and economic cover necessary to bring stakeholder groups into these conversations. And they shouldn’t stop there: They’ll have to remind everyone that these conversations aren’t only about cost containment — that “value” means more than just what we pay. (Or, as Buffett put it in one of his famous chairman’s letters, “Price is what you pay; value is what you get.”)”

At The Mpower Group we have been having this Value conversation for almost two decades.  We fundamentally believe that our focus on Cost has left us in poor favor with our stakeholders.  Do we seek out their Value Drivers?  Do we ask?  Do we listen?  This IS the most difficult part of Strategic Sourcing / Category Management – understanding and satisfying the Value drivers of your “customer” (usually your internal business partners). 

Here is a definition of Value that we have been using for quite some time: 

This definition was created by a Professor Mohanbir Sawhney from Northwestern University.  If you take nothing else away from this, please note the line – Value is “Customer” defined AND it is not negotiable.  Our solutions must meet the Value Drivers of our “customers” (stakeholders) to be successful.  By the way, that does not mean that we give up on cost.   As Procurement / Sourcing / Category Management professionals, it is ALWAYS our job to pay attention to cost (defined as a competitive cost in the marketplace – not necessarily the cheapest) BUT it must be in the context of what is important (Value Drivers) to our stakeholders. 

Jeff, Jamie and Warren (as smart as they may be) have a rough road ahead.  For those of us who have been doing Strategic Sourcing / Category Management for some time, we know how challenging it can be.  We also know that if you do it right, you can have a MAJOR impact on your business.  Best of luck, guys, and give us a call if you need some help 😊!

Let us know what you think and join in the conversation . . . . . .