In 2016, Philip Morris International (PMI) first announced its commitment to a ‘smoke-free future’. This involved the company aiming to shift at least 40 million of its adult customers from cigarettes and other combustible tobacco products to smoke-free alternatives by 2025. In March 2021, the company announced an ambition for smoke-free products to account for more than 50% of its total net revenues, also by 2025. This represents a major paradigm shift for PMI, changing the makeup of what is being sourced but also driving a need for greater innovation to build a smoke-free product portfolio. The procurement leadership team at PMI recognised that to support the business in making this transition, the function required an overhaul of its capability development programme. A rapidly evolving business environment required procurement to revisit its processes to keep delivering value to stakeholders, help the organisation focus on value-added activities, and enable further growth. The scale of PMI, a global organisation with over 500 procurement professionals based in over 60 locations across the globe, added further complexity in achieving operational effectiveness and ensuring continued development and job satisfaction.
Setting up the team
In 2019, the CPO and Procurement Leadership Team (PLT) set up a strategy to identify and deploy critical capabilities within global Procurement by the end of 2021. A dedicated role of Procurement Capability Manager (PCM) was created to lead the initiative with the support of Governance & Planning teams, PLT, and subject-matter experts. An internal hire, the PCM was chosen for their deep knowledge of procurement processes and systems, project management and people development skills. The strategy focused on three main areas:
- Capability development
- Building an agile organisation
- Creating a sense of belonging
Overhauling capability development
The PCM launched a capability development framework in May 2021, deploying it in 5 phases:
- Mapping job profiles to consolidate pivotal job types: This involved matching a variety of job titles to more broadly defined job roles carrying similar requirements and allowed PMI to consolidate 232 different positions into 52 defined roles, reducing complexity as well as functional and geographical customisations.
- Definition of competencies and proficiency level targets for each job types: The Procurement Capability Manager then assessed what competencies and proficiency levels were required for these rationalised roles, identifying 26 procurement-specific competencies, such as supplier relationship management and category management, and 13 cross-functional ones. This framework was supported through external benchmarking, which led to the prioritisation of a number of capabilities including business partnering, data analytics, digital literacy, and innovation.
- Creation of competency descriptions and learning paths for each proficiency level: Learning paths were developed using a blended learning portfolio consisting of self-paced learning, live training, developmental relationships, and on-the-job activities.
- Development of learning interventions for each competency and level: The structure of these activities was then designed, with significant work undertaken to integrate learning activities and people from diverse geographies and teams into one single learning hub.
- Deployment of capability development cycle: A workflow was then designed, which allowed for verified self-assessment, individual development plans, and learning interventions.
Capability development cycle
PMI’s capability development cycle is a five-step process (see figure 1 below) that helps team members and their managers to identify improvement areas and continue to close the gap between their current and desired capabilities.
- The employee completes a self-assessment via an online form, assessing the level of their skills across a number of competencies linked to their job profile. They are asked to justify their assessment, including by uploading certificates.
- The ratings produced are reviewed and approved by their line manager.
- The PCM compares these approved ratings with the proficiency level targets for that team member’s particular job role, to identify where gaps exist.
- Based on the gaps identified, the PCM creates a tailored learning plan to help individuals develop.
- The gaps are closed using learning interventions detailed below.
To maintain flexibility, rather than being carried out annually the Capability Development Cycle is triggered in three cases:
- A newcomer joins procurement
- A change of role by somebody within procurement
- A change of competency/proficiency targets
To monitor the status of the capability development programme, the team tracks both the percentage of people who have completed an assessment – with an aim of keeping this above 90% – and the percentage of each employee’s current proficiency level compared to the sum of requirements for all competencies for a role. This helps them to determine where to focus their L&D efforts going forward.
Structure of learning paths
Learning paths for each team member are structured to gradually increase in intensity and complexity as proficiency levels grow over three stages:
- The initial step is based on self-paced learning, with digital eLearning content with embedded tools and templates, and instructor-led training.
- To grow capabilities beyond that, staff members are provided opportunities for job shadowing and participation in relevant projects that will help them develop their skills to an intermediate level.
- To reach an expert level, staff are offered the chance to manage on-the-job activities, such as leading a project or managing a major negotiation and encouraged to seek external recognition.
To take one example, for category management, staff members can go through an eLearning programme that includes templates for category strategy preparation. They can then participate in live training, where tools can be applied in practice. They are also encouraged to participate in category strategy preparations, including analysing spend within a category and identifying consolidation opportunities and demand management challenges. Finally, for the expert level, they are given the opportunity to practice category strategy implementation by pitching related projects in front of senior stakeholders, develop new variants of pricing models and introduce learning opportunities for junior members.
Building a more agile organisation
The function also invested heavily in agile and cross-functional ways of working, engaging in several initiatives designed to improve efficiency and value-delivery:
- Enhancing and standardising processes: A set of cross-functional projects were executed in 2020-21, aimed at enhancing, simplifying, and standardising procurement processes in several key areas. PMI engaged around 60 employees (12% of the population) formed by category, sourcing, and governance experts from multiple teams and geographies to reshape processes. Four areas of significant evolution included:
- Budget management: Procurement having greater input during budget creation and management
- Demand management: The ability to set targets and KPIs around levels of demand, aligning the business, and procurement.
- Contribution guideline: A common methodology to measure procurement’s contribution.
- Supplier-enabled innovation: Establishing framework, process, and measurement of innovation.
A category standardisation tree was used to align financial, business, and procurement language. This simplification led to significant documentation reduction, eliminating over 120 pages, including 11 standard operating procedures, four forms, and one work instruction.
- Stakeholder NPS: A ‘stakeholder Net Promoter Score (NPS)’ was implemented in 2021 by the Procurement’s Governance and Planning Team to ensure stakeholders’ experiences with procurement were properly accounted for and measured. This is collected through a survey run twice a year.
- Tail spend management: The procurement team deployed tail spend solutions in over 60 markets to make vendor relationship management easier and more cost-effective. The company partnered with Candex and Amazon Business.
- New digital tools: Dedicated project teams were set up over 2020 and 2021 to look at digital tools for spend, sustainability, and contract life-cycle management. This digital transformation established a ‘best-of-breed’ ecosystem bringing together Sievo for spend analytics, Scout for sourcing execution, Icertis for contract management, Coupa for Po Automation and EcoVadis for sustainability assessments.
In parallel, the Procurement Data Governance Team rolled out new category management dashboards and worked to ensure that everyone across the organisation would be able to access the progress against key KPIs.
Creating a “Sense of Belonging”
Sense of Belonging was an initiative to boost the integration of procurement as a function and team. These efforts looked to strengthen bonds between individuals and procurement goals, enable access to correct information, and facilitate connections between coworkers. There were three main areas of focus:
- ONE TEAM: Fostering one community culture and engagement within the procurement team itself
- ONE SUCCESS: Recognising and celebrating internal talent and supplier contributions
- ONE VOICE: Increasing awareness of procurement’s impact among internal stakeholders
Through the combination of overhauling capability development, strengthening its systems and processes, and efforts to create a sense of belonging, PMI’s procurement function has been able to transform itself into a future-ready organisation that is playing a key role in the company’s new strategy. Key successes have included:
- The function exceeded its cost saving and cost avoidance targets by 25% and 65% respectively over 2021
- The function’s NPS score grew rapidly from 27 at the end of 2020 to 69 by October 2021, with the score for indirect procurement reaching 73
- Internal procurement staff NPS increased from 9.1 to 41 in 2 years.
- The training schemes were well-received, with NPS scores of 74 for negotiation and 87 for stakeholder management
- The new tail spend tools reduced the amount of new vendor account creation and onboarding activities by roughly 15%, speeding up the process
As it continues to develop, the function’s “Fit for Future” strategy is targeting improvements in three key areas:
- People capability: Increasing the coverage of its capability development programme from 75% to 90% of the function’s population and continuing to address competences with the highest proficiency gaps by bringing in more customized learning programmes
- Culture & engagement: Focusing on well-being and work/life balance, with special support programmes and training and standardised reward and recognition processes. Strengthening the community and tackling silos with consistent communications and global events.
- Technology: Further integration of contract lifecycle management with PMI’s sourcing management application, implementing a risk management solution and addressing cost modelling with a modern digital solution.
Advice for others
The PMI team shared three principles that should be followed when transforming capabilities:
- Be as transparent as possible: Explain the strategy, objectives, and break them down into smaller projects with clear deliverables.
- Collect feedback and show you’re acting upon it: Empower people by asking them to volunteer in essential projects. Do not impose solutions based on assumptions. Prepare a framework people can fill in with their inputs instead.
- Always look forward: Do not address the status quo. Take the time and dedicate resources to investigate market trends and best practices. Embed your findings into processes. Make processes as modular, adjustable, and self-actualising as possible.
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