Internal power battles causing costly spending "black holes"

Power battles and internal politics are contributing to a spending "black hole" that is costing companies hundreds of millions of pounds each year, according to new research.

The third annual European Spend Agenda survey, conducted by Vanson Bourne for e-procurement company Ariba and the London Business School, found that a lack of a central and board-level purchasing function is leading to a scattered - and costly - approach to procurement.

Out of 225 heads of purchasing questioned across Europe, half admitted to only minimal control over who buys what within their organisation.

The main problem appears to be spending on marketing, consulting, IT, travel, temporary staff and facilities management, which are usually handled by the head of each individual line of business. Half of the survey respondents said they had less than 25 per cent 'visibility' in these areas, which account for a massive proportion of a company's overall outgoings.

Jamie Anderson, programme director and researcher at the Centre for Management Development at London Business School, said the main problem is that most heads of purchasing are not represented on the board - the survey found only 51 per cent are at the top table.

"The number one problem is an inability to influence others within the organisation. Of those who report to the board they report a much higher visibility of spending. Purchasing is an issue that needs to be flagged at board level," he said.

Roy Ayliffe, director of professional practice at the Chartered Institute of Purchasing Supply, said that despite the key role purchasing can play in saving money, most CEOs are more likely to turn to their finance and sales director than the head of purchasing.

"It comes down to where a lot of CEOs originate - finance, sales and marketing, and operations. So they are focusing on the bits they know best," he said.

Another issue is that decisions on what systems should be used to manage procurement are usually made by the CIO or IT director rather than the professionals who will be using them, according to Anderson.

Graeme Opie, research director at Vanson Bourne, said the issue of corporate governance and corporate social responsibility may force purchasing and procurement to the board level.

"Organisations need to understand what their companies are purchasing and spending on things like services and consulting. That is a corporate governance question," he said.