12 May 2011 | Rebecca Ellinor
Rebecca Ellinor speaks to Michael Whitby, group procurement director at Lloyds Banking Group, about building on procurement’s progress and the future of purchasing technology
Last summer Michael Whitby and his family were all set to move to Minneapolis, where he was to become global CPO for retail giant Best Buy, when he got the call from a head hunter about the group procurement director job at Lloyds Banking Group.
“I was 80 per cent of the way through the process but once I saw the size of the opportunity at Lloyds, it was a very big pull for me.
“It is the biggest train set I could find. I imagine this is one of the top four or five CPO jobs in the UK. There are really good opportunities to add value.”
He joined at the start of the year and oversees £5 billion spend and heads a department with 240 purchasing staff and 80 interims who are working on various aspects of the integration of HBOS and Lloyds TSB.
The recruitment process was supposed to take four months, but since Whitby was set to go elsewhere he underwent six interviews in five weeks. Far from being phased by the process, he was impressed. “The quality of the people I met was really important to me. I liked the challenge and the capability and style that was in front of me.”
Having held and enjoyed previous roles in financial services at NatWest and Barclays (see Career profile below), it wasn’t difficult to make the move from retail. “Once I knew what was here – the fact that you get the chance to deal with some of the world’s top suppliers – that is really compelling, not just in terms of the deals you get involved in, but the way they operate, their research and development and where they are going. It is really stimulating.”
The next phase
Heading the procurement department at Lloyds Banking Group is a big job, but unlike some other tempting CPO challenges, it’s not about wholesale transformation. As Whitby describes it, it’s about “creating the next iteration of what has already been a good journey for procurement”.
“We have some good people, some good products, but supply markets are changing, the business is changing and procurement’s role is to understand both sides of that,” he says.
Previous Lloyds CPO Caroline Booth left the company in August to move to Toronto Dominion Bank Financial Group. While at Lloyds, she said she put better purchasing on the board’s agenda. She told SM in an interview in 2007: “If you can make procurement a contributor to the business objectives, you can make it a more important function.”
She initially joined as group procurement director for Lloyds TSB and then held the same title for Lloyds Banking Group upon its formation in January 2009 when Lloyds TSB acquired HBOS. By August 2009, the company saved £34 million through procurement activities. Contracts were consolidated, duplication in the supply base removed and advantage was taken of the company’s greater spending power.
The merger of HBOS with Lloyds TSB resulted in the largest retail bank in the UK. Its size has attracted some concern, and most recently the government-appointed banking commission recommended that Lloyds Banking Group “substantially” increase asset disposals. This process, we’re told, is not one that will specifically involve procurement.
The major integration work of technology systems that support what Lloyds TSB and HBOS offer customers is expected to finish this summer.
Financial results for 2010, out in February, revealed the company expects to save more than £236 million annually in procurement from 2012 thanks to negotiations with suppliers carried out last year. Part of Whitby’s task will be to ensure these savings are realised; most of his plans, however, concern forward-looking efforts to boost supplier relationship management, make it easier for internal customers to “do the right thing” and a focus on strategic sourcing.
“Part of the interview process was with a number of the major business executives who are looking at some of the longer-term strategic sourcing and supplier relationship management opportunities.”
This, he explains, is about understanding the “roadmap” of some suppliers – what they are developing that could help Lloyds in the mid to long-term. It could be anything from technology that the company could be first to market with, to CSR expertise or process management improvements.
“These companies are out there improving their businesses because that is how they create value and retain profitability. If you are in the right relationships, there is value past price and that is a really big ticket for us.”
He uses an example that was in place before he arrived, where an arrangement with a major courier company is helping Lloyds to manage volatile fuel costs. “If you just say ‘we have a million parcels a year, what is the price?’, you will get only the price.
If you ask it a different way you can access the quality of what is behind it and buy into it.”
Part of the challenge is to make the business easier for suppliers to deal with. “We are invariably finding bad cost between the two parties because we don’t quite line up so part of what we are asking is how we can strip bad costs out. That is a far easier conversation than to just go after a discount or their margin.”
Building connections
Whitby says while procurement at Lloyds has been a really good dealmaker over the past two or three years, it needs to start to have more subject matter expertise and work more closely with the business on some of the mid to long-term propositions around sourcing. “Sourcing being influence in the way your clients think and act in acquisition,” he adds.
Part of any senior role, he says, is to create informed clients, to grow people’s appreciation of what is possible, but also some of the risks. To do this he has to build his connections with key stakeholders at the bank.
“It is about working out who the network is and some people are significantly more influential than perhaps their role suggests. Googling people is really interesting. You find out who they are, you do some preparation – it is a bit like dealing with suppliers and negotiations – then I try to meet people and have relationships with them before I have issues.”
Getting to meet them isn’t difficult, he says. “In other companies the first challenge is ‘why are you here? Here, people know you’ve been through the right [interview] process, so the doors are open.”
And these meetings are key because “the only way procurement can be done well is with the clients,” he says. “It is their business, their budget. You need a really strong dose of pragmatism.
Things don’t always work out in the ideal way – perhaps you only have a month to help achieve something. But if you help them through, next time you get two or three months because you have helped them in the first case.
“Senior procurement specialists have to network and understand where the business is going to consider the opportunities, risks and threats as you start to move your supply market to support that.”
Whitby reports to group operations director Mark Fisher who heads the operations board and is a man he describes as “a brilliant sponsor”. As CPO, Whitby has a place on that board that meets once a week. “I get exposure to a really broad range of other activities: securities, risk, operations, IT, so I get an insight into how the business runs. It gives me a really big procurement role, but also the chance to be far more influential across the operations side as well.”
Lloyds has several large spend areas. Alongside property and facilities management, marketing, HR and some non-traditional purchasing areas including property rent and rates, IT is one of the most significant and there are plans to grow it further.
“We are upping our game in IT. Technology is an increasing part of what we do. It is a big spend, but it’s about more than just price, it is about how we work with our suppliers to get the new technology coming into the markets early for our customers.”
One of the areas he is already working on is trying to have a longer-term view of systems. “We have a view of the next 12/15 months but I think you need three years because by the time you budget for something and implement it, it’s on you.”
He wants to boost investment in technology both to free up procurement to focus on more strategic spend areas and more easily enable internal customers to “do the right thing”.
“We have to make procurement work for our customers rather than make them do what we want them to. You need good processes, rigour and risk management but if that is what you offer, if that’s how it feels, most people get their credit cards out and just buy what they need. That is where we can do more. There are clients who do their own thing who we are bringing in to work with us in a collaborative way.”
Lloyds already has a system based on SAP called ‘shop@i-need’ that lists a lot of products and that will be expanded to provide more. Whitby says there will be “a lot of punch-outs, catalogues and things that make it easier for people to get what they need without touching procurement too much”. He hopes to make the process “less clunky” and says Amazon is a good benchmark because you get what need in three clicks.
Another way procurement can help is by electronically buying about 50 to 60 per cent of what the bank requires. “We need to have that facility available to us over the next 12/18 months because it would enable us to use fewer suppliers, be more expedient and have better market knowledge.”
The right mix
In a number of categories the procurement team will ‘pre-position’ the supply market – in some cases deals will have already been done so customers can get what they need through self-service. Management consulting is a good example of this, he says.
“You can put framework agreements and rate cards in place so 60/70 per cent of what you need to have for the clients is already done. When you have an actual need you can pick that up and get to market much more quickly and trade the value of the business rather than just a single piece of business.”
To achieve these changes, Whitby says he needs to ensure his team is the right mix of “subject matter experts” and “banking generalists”, those who know the Lloyds DNA inside-out. “We need generalists to understand the bank’s needs and market specialist knowledge to then use those opportunities. We have some very good people, but not enough of them.”
He is looking to create a procurement academy and plans to make it simpler for good purchasing staff to take up opportunities in other parts of the company and vice versa. He also hopes to attract graduates and non-graduates as well as specialists from other industries so there is a varied mix of backgrounds and experience to help generate ideas.
Whitby says CIPS training will be offered together with project management, financial modelling, management techniques and business processes. “Our ambition is to grow the increasing breadth of capability that we need right across the spectrum from sourcing through buying and supplier management, relationship management and supply chain management.”
One appointment he is looking to make is an IT sourcing and supplier relationship management director to take a strategic approach. That individual will sit with the IT team. However, with buyers in three London locations, Bristol, Cardiff, Crawley, Edinburgh and Halifax it is not always possible for them to be based alongside their internal customers.
“In an ideal world I would sit as many of our buyers as I could with the clients. If you understand what the client is doing, where they are going, what the pinch and success points are, you have a much better chance of getting it right.”
Career profile: Mike Whitby
From oil to banking to retail (and back to banking), his career has spanned the globe.
Michael Whitby describes his professional background as “pure procurement”.
He began his career in the oil industry on the construction side and has worked in London, Abu Dhabi, Oslo, Tokyo and Milan on various projects.
In 1988 he joined NatWest as one of the first specialists into the IT team. After eight years, including five as head of group IT procurement, he moved to Barclays where he helped set up group procurement as sourcing and relationship management director for retail and corporate.
At this point he started to get a taste for change management in addition to building on his experience of IT procurement.
He then had five years with Reuters, as global sourcing director. This was another change programme where the company was seeking to create a global capability covering 220 countries, five regions and multiple brands.
He then spent two years with BAA, before serving another three with Best Buy after the US consumer electronics retailer and The Carphone Warehouse agreed to create Best Buy Europe.
“I spent quite a lot of time in Minneapolis helping them work on what a global capability might look like despite being the European director. Best Buy being retail was a completely different rhythm to the other companies I worked in: it was very fast, very market reactive and that was good, it was a different dynamic for me.”
