Category Management starts and ends with the business priorities

Case study Nordea

Category Management starts and ends with the business priorities for Nordea

By Future Purchasing |

Morton Hedegaard - Head of Group Procurement, Nordea
Nordea Logo

Morten Hedegaard
Head of Group Procurement, Nordea

Nordea is a global bank with a 200-year history of supporting and growing the Nordic economies. Their values are deeply rooted in these open, progressive and collaborative societies. They are the largest bank in the Nordics and have a strong market position within their four business areas: Personal Banking, Business Banking, Large Corporates & Institutions and Asset & Wealth Management.

Mindful of their responsibility towards current and future generations, they have made sustainability an integrated part of our business strategy. They enable sustainable choices for their customers, engage in active ownership and drive change through their lending and investment decisions.

Many key components must fall into place to make category management a business success factor. But an overriding tenet that has frequently shown to be at its core is a solid understanding of the business priorities to be an effectful business partner.

In a successful operation, the procurement team, but especially its sourcing and category managers, must understand the strategies, goals and processes of the business functions with which they work and tailor their own strategies and processes to support their projects. This requires frequent stakeholder communication at all levels, resulting in a combination of both technical and commercial skills to access the business’s potential value levers.

This is a principle long held by the Head of Group Procurement at Nordea Bank Abp, Morten Hedegaard. With 13 years’ experience at the prominent Nordic financial services group, Morten has successfully run a cross-functionally operating procurement department since 2018, and previously held roles in operations, category management, project management and consultancy.

Morten shares his experiences and learnings from what he describes as the department’s “ongoing category management journey.”

Category Management starts and ends with the business priorities

An embedded approach is a partnership approach

Having begun its category management journey some years back, the procurement team at Nordea has arrived at a stage where they have ceased to refer to category management as a separate discipline, such is the extent of its embedment. Rather, the conversation today leans towards Partnership.

“A business partner,” Morten says, “is someone who can lead and drive business outcomes for the stakeholder. This goes deeper than just supporting them, and for us it is borne out of time invested in engaging, listening, understanding and applying relevant expertise that allows us to challenge – something that adds value to agreements rather than simply executing them.”

To arrive at this point, they went from a text-book style model of separate category management teams (for indirect or banking-specific categories for example) to a single team which now embraces a partnership approach. “We found that time spent on routine category management exercises like a certain schedule of category plans, market analysis, spend analysis, contract landscape analysis and industry trends, while important for us, yielded technical input from the stakeholders, but not the strategic input to projects we wanted.”

A structural change was needed. While the current tactical approach facilitated an entry point to a pipeline of projects, a new partnership approach would help them obtain their financial KPIs. That would rely on a build-up of credibility. And to gain that credibility they needed to get to know the business functions’ priorities, the question was …

How to engage with the business and its budget holders?

Getting to understand the agenda and the mechanics of a business area comes from working in projects rather than holding status meetings.

“Once you are able to be part of large projects, it follows that you build relationships. And once you are able to demonstrate your expertise and knowledge (which is where your traditional category management analyses come into play) then you will gain the trust to work side-by-side with the stakeholders. The ‘big ticket’ contracts need sourcing and negotiating skills to be completed, and close advisors to help execute them. That’s where our value is added.”

“This doesn’t mean that we are not following a category management approach, on the contrary, we are taking the relevant components of Category Management and applying them where it makes most sense and not least when it makes sense to do so in a financial services environment. When a window of opportunity arises, which might be anything from business process outsourcing to the use of a new technology, we are ready to have all hands-on deck. Then we will take a SWAT team approach to ensure success for the business area.”

A classic approach to category management might be more relevant to the production industry for example, where raw materials or components are being sourced and whose prices are market-dependent and where there’s a supply chain to manage. But the financial services sector doesn’t always fit into a tangible mould. “We are buying services that are integrated into business processes. So, you have to be able to adapt the category management concepts to suit your business or service.”

“You get the stakeholder buy-in by proving that you can add value. When you have proved yourself you don’t need a mandate. To earn a seat at the table, for us, is to be involved in the large, complex sourcing projects where we can use our negotiation and advisory skills and thus gain stakeholder respect. The key stakeholder is more likely to want to interact with the sourcing manager who has been involved in the whole negotiation and understands the specified requirements. So in our model, sourcing and category management must go hand in hand to add value.”

So the procurement team has developed a very agile approach which enables them to respond to any window of opportunity. Says Morten: “Sometimes a category strategy is what is required to advance a specific area, but it then requires full attention from me and my management team to create the buy-in from senior leadership in the business areas. And sometimes there is little appetite in the business areas to make changes to the supplier base, because their focus is elsewhere.”

“In our environment it is not a necessity to have deep expertise in every possible category at all times. But having this agile approach, with pockets of expertise and a team that deep dives into the businesses, works for us and helps us achieve credibility with stakeholders.”

What do the stakeholders perceive as value?

Value can mean different things to different people and departments, but according to Morten:

Value can mean different things to different people and departments, but according to Morten:

“Firstly there’s a big value add in bringing a mature sourcing approach to the table, which will yield a better commercial output. This means the structure and methods to do the relevant analysis, sourcing strategies, and not least negotiation. This is where we have the ability to lead because it’s a professionalism not usually in abundance in the business areas.”

“Secondly, the regulatory landscape has become top of mind for everyone in the industry, so there’s a bigger need for the business to involve us in the jungle that is risk and compliance. When we have been involved, stakeholders can rely on the fact that all relevant risk and compliance requirements have been met. Risk management is a special skill set, and we have to internalise and have a deep understanding of the risk that we have to manage to be able to navigate all requirements smoothly.”

“Thirdly, long-term strategic planning for opportunity identification and capacity optimisation is valued. The cadence for these discussions is typically quarterly and we run a 12- to 18-month rolling pipeline. This means we have all strategic discussions within one team, which learns the business’s priorities and is separate from the operational side. This way we keep on top of things like expiring agreements or renegotiations so that we can plan for them in advance.”

At the end of the day …

The core of procurement is to enable the best business outcomes by matching the business requirements with the best the supplier market can offer. “But, at the end of the day,” concludes Morten, “what really matters is that we communicate regularly with the business to understand their requirements and add the value that they cannot.”

As this survey reveals, procurement teams that have embedded a cross-functional way of working with budget holders and technical stakeholders (the ‘Leaders’) are those whose relationships have evolved to consider business objectives and category targets a joint responsibility.

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