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September 27, 2010

PROCUREMENT – FRIEND OR FOE 1:Is corporate commoditisation killing meetings?

As if the recession wasn’t enough, the increasing involvement of procurement teams in the organisation of corporate events is putting further pressure on cutting costs. Ian Whiteling wonders if, rather than creating value for companies, procurement is actually lowering the standard of meetings and conferences.

Whether you like it or not, the age of procurement is here and is likely to be around for some time, looking particularly at home alongside its new friend the era of austerity. However, although procurement and cost cutting go hand in hand, as companies search for ways to become leaner, meaner machines by maximising the return on their activities, making savings should not be the be all and end all. This is especially the case with respect to meetings and events, to which procurement is now turning its attention, as Deborah Sexton, president and chief executive of the Professional Convention Management Association, is keen to point out.

“Procurement needs to understand that it isn’t simply all down to costs,” she says. “In today’s environment, meetings are also all about an experience. Simply finding the least expensive room in the cheapest venue could be very detrimental to an organisation.”

At the coal face
The problem lies in procurement teams applying their learnings from their experience in transactional spend consolidation to meetings and events, which of course are not all about commodity purchasing. So what’s the experience on the front line? Grass Roots EventCom’s marketing director Aileen Reuter reveals all.

“Recently, we are seeing a number of external consultants being brought into to develop the requests for information (RFI) and request for proposals (RFP) – not all with the right understanding of the meetings and events sector (most have a strong knowledge of travel consolidation),” she explains.

“A few procurement divisions are fully engaging with their stakeholders and conducting an open, two-way strategic engagement process. In these instances everyone wins. This engagement means that the volume and type of meetings are understood and agreed, as is the market reach.
“Sadly, we do find a number of procurement people are not so well integrated with the stakeholders, especially when external consultants are used to create and manage the RFP process, as they don’t have the stakeholder relationships to create such a well connected and communicated process.”

Across the board
This situation affects both in-house meetings planners and external agencies.

“Regardless of whether an external consultant or not, when you get a RFI or RFP that is a 200-page document and there is little opportunity to get under the skin of the questions, even by having reasonable access to stakeholders and procurement contacts, then you need to question the value of tying up such resource to respond,” Reuter continues.

“If you do, you could be wide of the mark with the assumptions you have needed to make. At Grass Roots, we recently turned down participating in such an opportunity.”

In another example, procurement tried to over commoditise and didn’t understand Grass Roots’ value proposition. One purchaser had a RFP that required a high degree of unusual venues in their meetings mix. But they wanted to compare Grass Roots’ specialist venue innovation team with a venue sourcing call centre, which didn’t have the same level of expertise and was offering a lower-priced service, which procurement was attracted to.

Up for auction
Reuter also points out that online RFPs are on the increase, emphasising the drawbacks of this approach.

“They are very formulaic in their nature, which drives out the ability to be creative and again does not take into account the value proposition, as they focus on bottom line costs,” she explains. “E-auctions also assume an ‘apples with apples’ comparison and are an output of trying to commoditise the purchasing of meetings and events.”

Sexton believes that this commoditisation is also preventing savings being made strategically in some areas of the meetings organising process, and reinvested in others, which can help to improve the quality of events overall.

“If procurement works the way I believe it should, there will be great savings in travel, but some of that saving needs to be put back into face-to-face and virtual activities,” she says.

“It isn’t all about cutting costs to the bone, but rather making savings where it’s easy. Such as having contracts with key hotel chains where you know you’re going to maximise the money that is being spent by the corporate on business travel. But some of this has to go back to help putting on and creating the experience that’s necessary to deliver the culture and the message that the corporation needs to.

“It’s a case of cutting expenses in one area and looking at others where it may need to be increased to maximise the effectiveness of your meetings strategy.”

For better or worse
So is the introduction of procurement actually damaging the quality of meetings? Reuter doesn’t think so, but states that it certainly doesn’t make creating great events any easier.

“It is not worsening the standard of service we deliver or the meetings and events we produce,” she says. “But when agencies provide unsustainable pricing then this can damage the industry as it puts everyone’s professionalism into question. We are selling expertise. When you price it too low, you can only go one of a few ways: out of business, under service a need or use less qualified staff.”

Next week we investigate whether procurement can bring any benefits to the table and how planners and agencies can act to get the most out of the relationship.

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