Procurement and sourcing are vital activities in all organizations. Since 2007, a seismic shift has occurred in Global Sourcing Land. The experience economy, with its profound implications, has gradually supplanted the service economy, demanding immediate adaptation.
Many Chief Procurement Officers (CPOs) have not kept up; they have not adjusted their best practices to succeed in this transition.
A CPO who thrived in the service economy (1980-2007) could now be a liability in the experience economy. The failure to recognize the value of employee, supplier, and customer experience could lead to significant organizational damage. The risks are real and substantial.
If CPOs are not actively looking to implement XLAs (Experience Level Agreements), they are missing the boat. Relying on traditional SLAs (Service Level Agreements) and KPIs (Key Performance Indicators) can do more harm than good without this crucial adjustment. XLAs and audience experience strategies are beneficial and essential for success in the experience economy.
The Differences Between the Service Economy and the Experience Economy
The transition from a service economy to an experience economy represents a fundamental shift in how organizations create value and engage with audiences. Here are the key distinctions between the two:
| Winning in the Service Economy | Winning in the Experience Economy |
|---|---|
| Focus on service delivery | Focus on creating meaningful and memorable experiences |
| Prioritizes efficiency and cost | Prioritizes emotional engagement and value creation |
| Relies heavily on SLAs and KPIs | Relies on XLAs and audience experience strategies |
| Focus on inside-out optimization of supply chains | Focus on the outside-in creation of valuable connected ecosystems |
| Winning on the transaction | Winning through the relationship |
In summary, the experience economy represents a shift from focusing on service delivery to creating meaningful and memorable experiences for audiences. This evolution requires organizations to rethink their strategies, prioritize emotional engagement, and innovate how they interact with audiences.
Enlightened CPOs: What Does This Mean?
Shift in Focus
Procurement officers are increasingly required to move beyond merely sourcing goods and services at the lowest cost. In an experience economy, the emphasis is on creating value through experiences. This shift means procurement must consider product and service quality and emotional impact, aligning purchases with the overall audience experience strategy.
Supplier Relationships
The nature of supplier relationships is changing. Procurement officers must now foster collaborative partnerships with suppliers who can contribute to the audience experience. This change means selecting suppliers based on cost and their ability to innovate and enhance the overall experience offered to audiences.
Integration of Technology
As organizations focus on experiences, procurement officers must leverage technology to gather insights about audience preferences and behaviors. This data-driven approach allows for more strategic sourcing decisions that align with the organization’s experiential goals.
Shorter, More Dynamic Lifecycles
The half-life of an SLA is ten years. The half-life of an XLA is nine months. Why? Because of the Gravity of Average Performance. Audiences learn, get used to service offerings, and get bored. Can you imagine running a modern business on an SLA created before iPhones existed, before the internet was pervasive? How crazy would that be? Yet that is precisely what many CPOs are trying to do.
What is the XLA Institute Initiative?
Solve the XLA/Experience Challenge
The current world of XLA and experience management has emerged through “forming and storming.” Each supplier has created its proprietary approach, definitions, and standards. Each organization has reinvented its procurement wheel. These developments have made designing, comparing, contrasting, and evaluating XLAs difficult, specifically when organizations need to implement XLAs at scale.
Use the Neutrality and Power of the Community
The XLA Institute represents the power of the experience community. The Institute includes the buy-side professionals from procurement and sourcing, the sell-side professionals from managed service providers and global systems integrators, and the experience management practitioners.
Create the XLA Charter
The Institute has started the XLA Charter Initiative. It is a collaborative work that lays out the core principles of a commercial relationship between the sourcing, supplier, and partner ecosystem. The first session occurred in the Netherlands, and the next will be in the UK. Further sessions in the USA and Brazil will follow.
Evolution to a Revolution
We will start with principles as they emerge from the sessions. These principles will set the stage for XLA creation and collaboration and will be accepted and understood by both sides. The next step will be to codify these principles into standards and best practices. Although each XLA will be unique to the organization and its defined audience, you can review, audit, and compare the process and outcomes.
Help Create a Brand New Day
Although traditional procurement and sourcing are fading, the future looks incredibly bright for forward-thinking CPOs, suppliers, and partners.
We encourage anyone eager to tackle this significant challenge to sign up for, contribute to, and benefit from the XLA Charter Initiative offered by the XLA Institute.
