Outsourcing Excellence Award – Best EU – Universal Music and buying team
No one knows the music industry is changing better than Universal Music, the largest music company in the world. “We’ve seen more change in the last two years than we did in the last 20,” says David Bryant, CFO.
The current situation
“The market situation made us question everything,” continues the CFO.
This is a radical change from just a few decades ago “when costs weren’t at the top of everybody’s list,” says Bryant. Until a few years ago, the music business enjoyed high margins, burgeoning sales, and growing profits. “Our financial success fostered a culture of focusing on creative flair rather than commercial best practice,” says Bryant. “In order to maintain our commitment to A&R (Artists & Repertoire, the lifeblood of the business) and marketing, we needed to cut costs.”
The situation was complicated because each label had adopted its own procurement policy. That meant the same suppliers served different parts of the company on different terms. “There was no consistency in purchasing policy,” says Bryant. “We knew we had to upgrade our procurement capability rapidly to meet the organization’s need for savings,” says Bryant.
The first question: to outsource or do procurement in house
The first decision was to determine if Universal Music wanted to create its own group purchasing department. “We didn’t think our internal department would be able to cover all the bases,” says Bryant. Outsourcing allowed Universal Music to tap into the wisdom of experts whose expertise the music company could not develop easily on its own. “We realized we would have a bunch of generalists with nobody an expert in any particular field,” he says.
To cut costs as needed, Bryant realized “we needed experts within narrowly defined fields.” An outsourcing supplier could also provide the cost benefits faster. “We needed to act quickly to achieve these cost savings in a difficult and volatile environment,” says Bryant.
Universal Music looked at three suppliers. It went through a thorough tendering process. “buyingTeam had the most compelling offering,” he says.
Even more important, buyingTeam had the requisite “chemistry.” Bryant says it was paramount the supplier had employees “who could integrate into our business. We didn’t want consultant types. Someone in a suit and tie really couldn’t engage our staff,” says Bryant.
“They were good communicators, and we liked their relationship style,” says the CFO.
Moreover, buyingTeam was willing to invest in capital, says Guy Strafford, client services director for the procurement service provider.
Strafford explains that buyingTeam’s model is to implant some of its purchasing staff on site; then a galaxy of niche experts in a universe of products and services support them from the home office.
This is exactly what the service provider did. It embedded two full-time employees into the staff at Universal Music; today there are six buyingTeam procurement experts there. “They work the same hours as we do,” says Bryant. This went a long way “in helping overcome the ‘them versus us’ mentality,'” he adds.
To make procurement important, Bryant formed a new Group Purchasing function; its first assignment was to hold internal road shows. These were briefing sessions to explain the role of the group and how it could support Universal Music’s activities.
The partners held an internal competition entitled “Grand in Your Hand.” The Group Purchasing team asked Universal Music staffers to come up with their own ideas for cost reduction. “This made Group Purchasing’s aims important to them,” explains Bryant.
Simultaneously, buyingTeam developed a purchasing extranet, which facilitated ordering and provided a crucial channel for feedback.
“buyingTeam came in and scored some quick wins. They exceeded our expectations at the outset, which helped speed their acceptance,” says Bryant.
buyingTeam benchmarked purchases so “we could quickly see the opportunity for some significant savings,” recalls Strafford. “Our basic service is to help Universal Music buy better,” he continues.
Given the need to save money, Bryant says there was “some initial apprehension” about spending money on an outsourced solution. “At the time, procurement outsourcing was still a relatively new concept. Many of our employees saw this as a leap of faith,” he explains.
Bryant says he agreed to sponsor the project, which demonstrated senior-level support from day one. “My sponsorship positioned the Group Purchasing initiatives as strategically important,” he notes. “More significantly, we had complete backing from Lucian Grainge, our chairman and CEO, which made a huge difference.”
In addition, outsourcing was a tectonic business shift for Universal Music; “we had a challenging time,” recalls Bryant. He says typical Universal Music employees are “competitive and autonomous.”
In particular, the labels “enjoyed their freedom and felt purchasing couldn’t understand their needs.”
The solution was “to hammer out the message continually.” Because buyingTeam had big, early wins, the Global Purchasing team “kept coming back to the wins. buyingTeam continuously delivered, which made the people at the labels realize they could save money with a bit of cooperation,” says Bryant.
At the same time, the board of directors hammered home the message differently. It put managers under financial pressure because they tightened their budgets in the struggle to survive. “It was a combination of our pressure and their wins that convinced the doubters,” says Bryant.
Bringing new areas of spend under management such as creative costs (launching a new band) posed a key challenge as the relationship progressed. “This area had always been off limits,” says Bryant. Until outsourcing, these costs weren’t straightforward and never policed. “But we realized it was vital to bring this under management if we were going to make an impact on the business’s cost base.”
Why this relationship works
buyingTeam’s model of integrating its people into its buyers’ operation has been particularly successful here. “I think of them as my own purchasing department. I don’t think of them as outsiders,” says Bryant.
He says the service provider has done a stellar job of selecting the right people “who can talk the same language as the people on the labels.” Being able to sing in the same key is a rare ability that Universal Music prizes in buyingTeam.
Bryant says the supplier “has made sure there are no barriers between us.” He also says it’s easy to handle disputes. “We feel free to call a spade a spade or say this isn’t good enough. We have a healthy openness. We don’t have to worry about each other’s feelings.”
Continual challenge has been the bedrock of this relationship. He says buyingTeam “is very good at giving us a wake-up call. And we don’t have to resort to the contract at all.”
“We want the relationship to evolve, not stagnate,” says Strafford. “This relationship has never stood still. We are constantly developing into new areas.” That increased involvement is reflected in Group Purchasing expenditures: they have grown almost 900 percent.
“There comes a point when it’s difficult to produce the same amount of savings you had initially,” says Bryant. Today, the two partners constantly look for new opportunities. “Now they question everything we do. This continual challenge has led us into new areas beyond the traditional scope of purchasing,” says Bryant.
For example, Bryant says buyingTeam has even gone beyond the traditional procurement boundaries. “They have played a significant role with organizing our distribution in the future.”
The CFO describes a remarkable metamorphosis in the outlook of Universal Music employees. “Now our people look to buyingTeam for support. For example, they ask them to help them with their budgets. That’s proof that this outsourcing has worked,” he says.
Bryant says all corners of his organization “continually tap into buyingTeam’s experts,” especially in the telecom and marketing areas. “When in doubt, we go to buyingTeam.” He adds in the beginning, buyingTeam generated 90 percent of its own work. Today, 70 percent comes from Universal Music’s businesses asking for help.
Saving money through better purchasing has allowed Universal Music to continue its level of investment in artists. Bryant calls these savings his “strong defense. The more money we can save, the more money we can channel into A&R and marketing.” He says protecting the company’s bottom line is crucial because it needs capital to compete for new artists. “We have to strongly monitor our expense side to protect our artistic side. buyingTeam helped us do this,” says Bryant.
Outsourcing has given Universal Music a first-mover advantage. The CFO says its competitors are “just beginning to tackle this challenge now because the environment has forced them to. We’ve been doing this for a long time now,” says Bryant.
This outsourcing relationship has led “to a real improvement” in two-way communication between Group Purchasing and the wider organization. “We now have strong relationships in place with all the label finance directors as well as business unit heads,” the CFO reports.
Now Universal Music has a unified, clear, company-wide approach to purchasing in the UK. It is using that as a model for change in its European operations.
“A clear testament to its success is that we never considered taking procurement back in house,” he says.
The results speak for themselves. “We demonstrated that effective procurement not only saves money but also leads to better supplier relationships, improved goods and services, and more efficient processes. Together we have brought value to the business in areas that traditionally we thought we could never influence,” says Strafford.
“This relationship has not only delivered against the agreed-upon service levels but it has also fundamentally changed the way Universal Music operates for the better,” concludes Bryant.
Lessons from the Outsourcing Journal:
- An outsourcing supplier can provide knowledgeable employees who also fit into the artistic environment of the buyer. This is crucial for outsourcing success in procurement.
- An outsourcing supplier can put its procurement people in the buyer’s procurement department and then support them with a wealth of experts. The on-site help can eliminate an us-versus-them attitude.
- Getting user buy-in is typically difficult in procurement outsourcing. Executive support, contests, and early wins help prove the efficacy of the model and facilitate obtaining buy-in.
- Outsourcing procurement gave the buyer first-mover advantage and provided savings that helped it with its core business?music.