Hemas Holdings Plc: Challenging the norm : A study in change management

Hemas Holdings PLC is a company listed on the Colombo Stock Exchange (CSE) and is the holding company of the Hemas Group (HEMAS), a leading conglomerate in Sri Lanka with a portfolio of diversified interests.

A multi-faceted organisation, Hemas’ vision is in tandem with facilitating Sri Lanka in its capacity as an emerging economy. As such, Hemas’ portfolio of interests predominantly focuses on the Fast Moving Consumer Goods (FMCG), healthcare, leisure, transportation and power sectors.

The Business Case

Introduction

The broad-based nature and scale of Hemas’s business functions demand a gamut of sourcing requirements, ranging from raw materials and packaging for FMCG, medical equipment for hospitals and machinery for power plants to routine administrative services such as security, staff facilities, insurance etc. The process of determining and fulfilling these highly specific needs included each strategic business unit (SBU) sourcing of suppliers manually.

The need for change

Despite conventional wisdom of the acclaimed diligence of the Manual Procurement Process (MPP), it was a time-consuming and labour-intensive approach. Much effort and expense went into ensuring the quality and integrity of the materials sourced through the MPP. As our corporate sourcing requirements escalated, the cumbersome MPP weighed us down, culminating in the decision by the management to seek a redress.

This prompted the management to move decisively away from the conventional decentralised MPP in favour of an automated alternative. It was a foray into unchartered territory, but the management remained steadfast in their resolve that change was imminent. The new software platform would primarily need to serve the complex sourcing requirements of a multi-dimensional conglomerate like Hemas. However, it should not merely be a replacement for the current MPP but also be a key value creator.

To justify the investment, the new system should be equipped to facilitate as far as possible a seamless transition from the MPP with minimal disruptions. This was by no means an easy task given the parameters that we had set. Many options to improve the sourcing processes were evaluated. Due to the substantial financial and non-financial benefits offered, a decision was made in favour of the Ariba Sourcing Module offered by Consus Consulting Group of India (CCG).

Methodology

The road map for change

The monumental task of the changeover process needed to be determined. A road map for change was developed.

The changeover process was driven with the support of the Board of Management (BOM), representing the Managing Directors of Hemas. It was their exemplary leadership, strengthened by the steadfast belief in the virtues of change that became the key drivers of the process.

As a first step, the strategic focus of the entire group was realigned to embrace the new sourcing module. The changeover process acted as the catalyst in redefining the overall group procurement policy. It was vital that the new system be successfully integrated, not only to maximise savings but also to ensure compliance, transparency and visibility in the procurement process of the group.

The BOM assigned a team of Champions across the group, responsible for a smooth transition, as change agents to ensure clarity and precision of project deliverables. The selection of Champions was done carefully, including representatives from each SBU across the group, hailing from multi-disciplinary backgrounds such as finance, engineering and marketing. In addition to their inherent expertise, it was vital that Champions possess the following skills and attributes:

Readiness Assessment Study

To supplement our business case, the Champions were commissioned to conduct a Readiness Assessment. This study would not only determine the group’s sensitivity to change but also act as a primary tool in the subsequent implementation of the change management process.

Core elements

•  Determining the underlying human impact: Change usually triggers a multitude of human behavioural elements that strain the boundaries of established culture by challenging the norm. It is natural for some to whole heartedly embrace the forces of change while others to completely reject it. We found that the change from our MPP to ASM was no different. However, we remained steadfast in our belief that effective change management would help in overcoming these challenges.
  
   
• Determining the type of change: We proceeded to delve deep in order to determine the scale of the changeover process. A study was done to determine the quantum of spend requirements that would be routed through ASM by analysing spend details for the FY 2010/11.The study revealed that approximately 75% of spend could be channelled through ASM leading to an estimated annual saving of Rs. 30 million. This necessitated an immediate and total revamp of organisational attitudes toward sourcing, resulting in fundamental changes to the existing procurement process
  
   
• Identifying the restraining forces: We found that proponents of the MPP had developed a unique mindset which was difficult to penetrate. Their cognitive skills had been conditioned by years of working with the MPP. Face-to-face negotiations were a key component of the MPP resulting in long established business relationships with suppliers. It was argued that since ASM was done on a software platform it could not effectively facilitate a like-with-like product comparison. They believed that this would compromise the quality of the raw materials sourced and ultimately impact the quality of the final output. It was believed that raw materials sourced through ASM would not conform to accepted quality norms. E.g.: raw materials used for toothpaste would have an impact on its taste. Despite the obvious competitive edge, the buyers were reluctant to move away from their comfort zones to consider an alternative supplier. Furthermore, advocates of the MPP stubbornly maintained their view that in certain areas, our volumes were insufficient to realise any significant savings by way of competitive price bidding in comparison to global multinational organisations. Under these circumstances, resistance to change was the unwillingness to deviate from manual process to the Ariba platform. They were reluctant to accept the subsequent paradigm shift with the implementation of ASM. Majority held the opinion that e-sourcing module could not be used as a practical solution for all types of procurement. ASM demanded a planned approach to sourcing, with the requirement to submit supplier details in well-structured forms enabling the buyer to clearly evaluate strengths and weaknesses of each supplier. Our staff was hesitant to follow this process of obtaining supplier information as they were more familiar with a procurement process led by face-to-face negotiations. The key deterrent at this point was the perception of the existing suppliers for initial preparation and the training required for the online auction process.
  
   
•  Evaluating existing processes: During the course of our study, we evaluated the existing procurement system of each SBU and identified that there were wide variations in prices and quality across the group for the same category of product or services. Our process mapping exercise focused on eliciting as much information as possible not only on the formal documented templates but also the informal practices in place.  
  
   
• Assessing organisational culture: Hemas, by virtue of its size alone, had accumulated a complex organisational culture that extended to a great many sub-cultural aspects. We proceeded to conduct an in-depth study on the organisational culture prevalent at Hemas. It was revealed that there were many different methods of sourcing adopted, not only within the Group but also within the same SBU, due to the fact that procurement was solely within the control of the procurement manager of the respective division. As a result controls were less effective because there was no uniformity in the procurement process. Lack of information hindered traceability of transactions. Certain staff had undue power over the negotiating process. Various arguments were made by buyers to justify the impracticality of changing the existing suppliers or opening the bidding process to new suppliers as they were reluctant to move to a new process opposed to their routine framework for procurement.

Phase 2 – Implementation and management of change

We then felt confident of our readiness to continue with the next phase of the change process. We re-evaluated our position and set out our identified philosophy for change. Our goal was to strengthen the driving forces and weaken the restraining forces so as to successfully manage change. The management reiterated the importance of meticulous planning at each progressive stage. It was vital to identify all possible loopholes and address these so as to avoid anyone circumventing the new system.

Our communication plan was designed to regulate the flow of information and highlight persistent dysfunctional areas that may exist. All bottlenecks of the changeover process were identified and ironed out by improving communication among the user groups. It was the responsibility of the Champions to ensure that all procurement requirements of the group were routed through the central sourcing unit (CSU) and auctioned on the online platform to provide an equal level playing field for the suppliers.

We began the implementation of ASM gradually. Packing materials were the first to be sourced through this module. Next, we sourced more complex products such as medical equipment, security services, raw materials etc. Subsequently, the entire HEMAS procurement requirements of photocopy paper, computers, and televisions were auctioned on ASM. Despite being in relative infancy, ASM is now responsible for procuring more than 80% of the group spend requirements.

There were a number of challenges faced during the implementation process. We continued to stress on the importance of our change philosophy and sought the guidance of the senior management when necessary. The management adopted a “top-down” approach to ensure that the crucial operational aspects of ASM were effectively filtered down to all stakeholders. The Champions played a pivotal role towards achieving this goal. Staff education was done through a series of familiarisation programs conducted by the in-house CCG representative. The sessions comprehensively covered all features of the system. In response to cultural issues that surfaced proactive measures were taken by the champions to inculcate a cultural mind shift. With the intention of easing the transition process, the management advocated an open door policy to facilitate greater communication between staff and the Champions.

Several coaching sessions were conducted to expose our existing vendors and suppliers to ASM culture in which they were educated on the drawbacks of the MPP and ensuing benefits of ASM. Recognising the imperative need for change, the management encouraged the staff through a series of consultative programs to encourage them to provide extensive support to existing suppliers and vendors in a bid to facilitate ASM platform.

Phase 3 – Reinforcing change

We recognised that an integral part of the change process is to ensure that offline transactions are minimised. Following a study done by our team of consultants, on photocopy paper bought by our SBUs, it was evident that major savings could be obtained by grouping the Group’s requirements according to the categories of goods and services purchased, would bring in significant savings. The analysis further justified ASM and strongly persuaded the BOM to send their spend details to the CSU.

There were many instances where the selection process was intentionally manipulated in favour of preferred suppliers. These issues not only drew attention to the possible loopholes in the system but also provided the impetus to initiate corrective action.

We ensured that the fundamental issues were duly targeted by corrective action. Firstly, greater facilitation in terms of training or ground support was offered to resolve the issues evolved. Should the issues remain unresolved, intense discussions and negotiations would take place between the Champion and the respective staff.

We witnessed the frequency in which the ASM is used for procuring has increased, reflecting a considerable degree of success resulting from strategically managing change. The synergies derived from combining change management strategies with ASM, resulted in a host of tangible and intangible benefits that justified the move from the MPP to ASM. Foremost among them is the Rs. 25 million saving in the first year alone resulting from routing procurements through ASM. The increased competitiveness supported by the multiple bid platforms was one of the key catalysts of these savings.

Conclusion

It was indeed a revolutionary move on the part of Hemas, as the first company in corporate Sri Lanka to foray into the world of online sourcing. We never doubted our ability to successfully manage the change and challenge the norm and emerge victorious. Our approach would be the yardstick used to measure the success of change management within an ever changing organisational paradigm. We are overwhelmed with the outcome of the past year since commencement of this project and have no doubt that the group would continue to consistently accrue the benefits from the system far outweighing the initial investment.