Stage 2

Research

Overview and benefits of this stage

Successful category management is underpinned by robust data and rigorous analysis. To create and implement a strategy, you need to have a thorough insight into all of the relevant information, characteristics and trends that apply, both internally (in terms of organisational behaviour and spend patterns) and externally (in terms of market dynamics).

This is a time-consuming and potentially resource-intensive stage in the category management process. Good strategy is based on good knowledge, and so the temptations of shortcuts here need to be resisted. This is category management’s equivalent of big data.

It’s impossible to give guidance on the timeline for the research phase of category management. You need ‘enough’ time to gather all of the internal and external data required to make a full analysis of the category – and that depends on how big an impact you want to make, how much you really know about the category and how far you are willing to search for potential breakthrough solutions.

As a guideline, we think this stage requires at least 40% of the overall project timeline as a rough ‘rule of thumb’ – but this is very approximate. We have worked with some companies that believe this can be completed in just one or two weeks, and others that have taken some three to six months researching their category.

A well-organised ‘mature’ organisation with a strategic and well-developed approach to category management will assume a knowledge management approach to category management. They know that this research phase represents an ‘investment’ in future value breakthroughs – not just for the first iteration, but for subsequent category management cycles too.

In other words, as long as you store the data you gather from your first attempts at researching a category, you can use this again and build on it in future iterations (i.e. the investment in time and resources will not be as much when you review the category strategy in the future). The only caveat is that all historic data need to be checked and updated if they are to be relied on. It is therefore worth your category team thinking through how they will store, maintain and version control the output as they progress through this category management stage.

Conversely, organisations that take a half-hearted approach to researching their categories tend to achieve suboptimal results and later dismiss category management for failing to deliver sufficient value.

Extra explanation and theory

Research can be time-consuming and costly on resources. More recently there has been a growing trend to rely on market data supplied by third-party consultancies. There are significant risks with this approach! The gain in expediency (you get the research output quicker) is a significant compromise on the quality of the insight gained.

To understand this point, we have to go back to review why you are undertaking the research in the first place. The purpose of researching the category is to ensure that a full analysis can be undertaken to achieve deep understanding of the category. In other words, undertaking research is part of the learning process; it helps category teams discover the underlying characteristics, trends and issues. As the category team explores this, aside of learning more, it also starts to gain initial ideas about potential options for solutions. Researching the detail of the category helps the category team understand and analyse the current and future situations – and this insight is essential to the longer-term success of the category management initiative.

It is understandable why some organisations outsource data gathering to third parties. They sell a good story about being ‘experts’ and having the right resources, and they can affect a quick turnaround. For organisations lacking the right resources, this is appealing. Ultimately this is a mini ‘make/buy’ decision about an element of category management but, before jumping to conclusions, think of the risks of suboptimising the outputs. While the power of the Internet and global sources of data is strong, is it really possible that a team of analysts halfway round the world in a different economy is really going to offer valuable knowledge and insight into your specific market? Understanding the nuances between a global market and more localised regional, national or local markets is unlikely to be understood in full from a distance.

There are two main areas of data that need to be researched, illustrated in Figure 2.1.

Figure 2.1

Figure 2.1

Figure 2.1 Internal and external research

One of the most fundamental pieces of research is understanding the current and future ‘business requirements’. You will see that this gets an activity of its own in this stage.

Understanding and mapping the business requirements is the starting point in getting stakeholders to commit to paper their hopes and expectations for any given spend. From here the business requirements are refined into a set of functional (and then technical) criteria, which becomes the basis for the contract specifications, key performance indicators and contract award criteria – so it’s important to invest time getting this right (and not to assume that your supplier will be able to second-guess what you really wanted later on).

The practical challenges of this are never as easy as the theory suggests. Stakeholders often disagree on business requirements, and so the category manager must facilitate a discussion and agreement (possibly a compromise) on the nature and priority of business requirements. We refer to this as establishing a ‘hierarchy of needs’ in much the same philosophy as Maslow. An example is shown in Figure 2.2.

Figure 2.2

Figure 2.2 Hierarchy of needs

This example helps demonstrate the priority ranking of different functional requirements, with the basic needs at the base of the hierarchy and more desirable features above. This kind of prioritisation approach is far more useful to the category team than a stakeholder who simply says, ‘I want it all’, and it allows a deeper understanding of what trade-offs might be acceptable as a solution. Remember, the priority ranking will differ between individual categories of spend.

Another area of challenge when undertaking internal analysis is that of internal spend analysis. It remains one of the biggest areas of weakness amongst most organisations; the value of spend data is only as good as the care with which it has been captured.

Take for example the spend analysis that came from one of our clients (a public-sector municipality) in Figure 2.3.

Figure 2.3
Figure 2.3

Figure 2.3 Example spend analysis

The table shows how the annual third-party spend has been captured across a year at an initial (Level 1) categorisation. Further detail beneath each spend line revealed a more detailed analysis of spend at Levels 2 and 3.

While initially looking useful (and a lot of public money was spent setting up this system and subsequently populating it), it is more or less useless in its current form. The definitions of each of the spend lines are far too broad and ambiguous. Their meaning and scope is open to interpretation and so general users across the organisation are unable to classify spend on a day-to-day basis with any accuracy. Many coding lines have interchangeable meaning and there are also ‘dump’ codes, such as ‘other’ and ‘unclassified’ (7.02% of the total spend). This makes meaningful analysis almost impossible without a drop-down analysis to individual invoices, which would be extremely resource intensive and slow. It’s a case of ‘rubbish in, rubbish out’, where this example has not been designed intelligently.

Unfortunately, this remains a common problem across many large organisations today. We refer back to the chapter on category hierarchy (Stage 1, Activity 2) and suggest that spend-data systems need to capture and classify data around the definitions of categories and subcategories if they are to be productive when analysing and developing an effective category strategy later in the process.

Practical hints and tips

  1. 1 Be clear about what data you need to gather (and why) before you start.
  2. 2 Prioritise data gathering around what’s most important, rather than which is easiest to gather.
  3. 3 Use a templated approach to help guide and inform you.
  4. 4 Proactively use the category team and wider stakeholders, and involve them in the data sorting and synthesising processes.
  5. 5 Take an iterative approach to research with allocation of roles for ownership and so forth.
  6. 6 Apply a knowledge management approach to storage, accessibility, security, updating and version control.
  7. 7 Be wary of research companies that will ‘do it all’ for you.
  8. 8 Avoid ‘analysis paralysis’, and remember that category management is an ongoing iterative process.

Summary of activities

We have highlighted seven key activities outlined within this stage of the category management process:

  1. 1 Business requirements (RAQSCI) – This is a fundamental consultation process to identify the base functional requirements of the spend and their respective priority.
  2. 2 Category profile – This templated approach is used to create a summary outline of the category and its characteristics, features and trends which then becomes the basis of analysis and subsequent strategy.
  3. 3 Data gathering – This is the process of structured and proactive data gathering to support the research and analysis of a category.
  4. 4 Key supplier profile – This profiling tool is used to gather information on each of the ‘key players’ amongst the supply base. This is not a shortlisting process, but just an opportunity to research and learn about some of the more influential suppliers.
  5. 5 Day one analysis – This initial analytical tool is used to obtain an early indication of the potential strategy that could be considered for a category of spend.
  6. 6 Situational analysis (STP) – This is a very simple but effective summarising and problem-defining tool for category managers to use at different stages of the category management process.
  7. 7 Purchase-price cost analysis (PPCA) – This is a rigorous, detailed and structured approach to cost breakdown, analysis and development of the ‘should cost’ for individual products and services within a category.

What the gateway needs to consider

The temptation for category management practitioners to create a shortcut through this stage and to bypass a methodical and structured approach to research is very high. If this happens, there is a risk that any analysis and strategy is based on unfounded assumptions, which could in turn jeopardise the value of the outputs from the category management initiative.

We recommend that a specific approval point (gateway) is considered at the end of Stage 2 (Research) where the emphasis must be on whether the category research and the data gathered are sufficiently robust for detailed analysis and strategising to commence. The inclusion of a ‘go/no-go’ decision helps control the category team and ensure that focus is given to robust data gathering.

The following checklist gives some more practical guidance on what the category manager should be preparing for the Stage 2 gateway.

Figure

Gateway approval checklist

Stage 2: Research

1 Have the business requirements for the category been identified and prioritised? Figure
2 Has all historic, current and projected spend been identified and analysed for this category? Figure
3 Have all existing preferred (and nonpreferred) suppliers been identified? Figure
4 Have all relevant existing supply contracts and specifications been collated and reviewed? Figure
5 Have current supplier prices been analysed and an appropriate level of cost breakdown established? Figure
6 Have all the relevant internal and external data been gathered, and has a category profile created? Figure
7 Has a key supplier profile been created for any major/influential suppliers in the category? Figure
8 Has a risk register and project plan been reviewed and updated? Figure
9 Has an initial situational analysis been carried out using STP? Figure
10 Have all the relevant stakeholders been consulted on the outputs of this stage of the category management process? Figure

Signed: ____________________________

Category Manager

________________________________________

Sponsor

© 2018, Andrea Cordell and Ian Thompson, The Category Management Handbook, Routledge.