The introductory article for this series on “what is important for procurement today” dealt with several polarizing “myths” regarding procurement. On the surface, these “myths” are grounded in sufficient fundamentals to have become entrenched within procurement’s strategic fabric. Reshaped and cast differently, I suggested that these myths will collectively lead to a relevant and insightful set of elements that define what is important for procurement today and in the future.
The initial “myth” surfaced in the article speaks to the importance for procurement to have a seat within the C-suite to assure relevance and success. Recast, my perspective is that it is the leadership of procurement who must demonstrate relevance and a successful trajectory for procurement, and while this achievement may propel the chief procurement officer (c.p.o.) into a C-suite role, such a development is simply an outcome rather than a prerequisite. In this first follow-up article, the focus is on leadership as the centerpiece element for procurement. It is clear to me that leadership is the single most important factor driving procurement’s success. The challenge for chief executive officers today is finding a leader who can frame today’s complex procurement agenda appropriately for the company and its shareholders. I am convinced that leadership is not simply “an important ingredient in a recipe.” Instead, it stands as the dominant factor behind whether procurement will succeed or fail in a company, failure meaning the absence of success with no middle ground.
I recently met with a c.e.o. who told me that in his company’s case “procurement needed to change” and that it wasn’t an “if” or a “when” but a “now,” because for him “it is simply a matter of survival.” The executive went on to tell me that change needs to start with great leadership so that procurement becomes immediately relevant for the company. He said that he needs a leader who can transform the company’s procurement department into a team that “thinks as the business thinks and is a step ahead of five years in the future, just as his business needs to be today.” Recognizing what is possible for his company, this c.e.o. has framed procurement leadership appropriately while recognizing the value of a leader and of a leader’s agenda.
In ProcureCon’s 2017 Annual CPO Survey, GEP’s chief operating officer Jagadish Turimella is quoted saying, “We’re noticing a large trend toward procurement transformation that is being driven by the C-level… beyond the c.p.o., it’s driven mostly by the c.e.o. and c.f.o. who are interested in driving both effectiveness… and efficiency.” The question being begged for an answer is, “Why are c.e.o.s, c.o.o.s, and c.f.o.s driving procurement transformation?” Have companies invested in the right c.p.o. capabilities, and are the c.p.o.s today who have these capabilities provocative enough to drive these things themselves?
A real tension exists today between the imperative that suggests that procurement leadership must be at the heart of driving procurement success and whether there is a fully stocked c.p.o. leadership community at the level required to make this happen. In the “2016 Procurement Stakeholder Study,” the Hackett Group said “only 16% of procurement organizations are valued by their stakeholders.” It’s highly unlikely then, that procurement in the other 80-plus per cent of companies is being led by someone who has transformed procurement into something that meets the executive’s expectation of thinking “as the business thinks and is a step ahead of five years in the future as I expect the business to be.” If companies and their C-suite executives want procurement to be something different than what it has been, then they need to recognize that the leadership of procurement needs to lead differently than it has.
The prevailing perspective is that procurement today should be doing a lot, and a lot more than what the majority in the space seem to be doing. A potential C-suite client interested in transforming their enterprise approach to procurement recently told me that it was time to move procurement from “negotiating contracts with suppliers to …” and they didn’t quite know what the “to” could be. There are many companies today where procurement’s role and brand is still the “negotiator of contracts,” a focus on driving costs lower through the art of negotiating. This is concerning. Procurement’s role must reflect a vision that is established to create favorable return on investment for the company. The strategies that are deployed by procurement must find origin in company business strategy and result in a value contribution that parallels the company P.&L. fully from top to bottom. The leadership required for this mandate differs greatly from the leadership required under the “negotiating with suppliers” agenda of the past.
I would expect that great leadership in procurement today has a foundation built from functional knowledge along with traditional leadership capabilities and set within a framework that mirrors the needed role to play within the company. It is likely today that c.p.o.s in the 16% of companies referred to in the Hackett study have a much different framework than the other 80-plus per cent. It is very likely that these companies have c.p.o.s possessing the ability to frame the appropriate agendas for the business such that business strategies live through procurement strategies, and procurement is delivering value against a formative value proposition. I’ve suggested in discussions that we think about the past role of a c.p.o. as something clear but very linear, with the mandate handed to them from above. The future role of the c.p.o. will need to be dynamic, and their remit the result of demonstrated development and ownership rather than directed mandate. The days of c.p.o.s leading input cost reduction initiatives across a company’s spend base should be giving way to the c.p.o. who can plan for the significant shifts a company will be facing in the future and orchestrate a procurement agenda that will be best prepared for it. C.p.o.s will need to be capable of challenging norms in terms of the role and the brand for procurement in their companies. The significant shifts, whether geo-political, customer and consumer, culture and technology, or the planet and sustainability, will require procurement’s agenda regarding supply market and suppliers, cost and risk, and sustainability and responsibility to be different. This changing landscape will mandate a c.p.o. who has the capability to step outside the traditional “c.p.o. box” and lead in areas that procurement has not led before.
The bottom line is that procurement leadership in an increasingly dynamic world will require a broader mix of capabilities, some the same and some different than in the past. There are thousands of books written and trainings built around leadership capabilities, and my approach isn’t to augment or re-write any of them. The best way for me to advise on the capabilities for procurement leaders is by looking at the management imperatives for procurement as I see them, and there are four very broad ones: the changing dynamics of the end-to-end scope; new horizons for digitization; people, their needs and capabilities; and global instability.
C.p.o.s are being challenged to define their scope and reach. Progressive c.p.o.s have taken their procurement efforts outside the traditional boundaries of accountability and control while the majority remain entrenched in the cyclical cost reduction efforts around company materials and services. C.p.o.s will be challenged to convert business objectives into value add, and the extent that they do this across the full P.&L. will define success. The c.p.o. will need to define their “end-to-end scope,” whether it is as simple as demand to supply, or as broad as farm/origin to consumer. The ability for procurement to influence across a broader scope will challenge a c.p.o.’s empowerment, and this is exactly what c.e.o.s are expecting. C.e.o.s are looking for c.p.o.s who can create a value proposition that continues to challenge the bottom line, can control company operating expenses from a demand and supply side, and can impact the top line through a deep understanding of the business and an unparalleled external reach.
The digital movement has been upon us for several years now, and the progressive c.p.o.s have taken three steps: 1) They have removed the uncertainty regarding spend and the demand side of it. 2) They have assured that an effective and efficient solution is in place for source-to-pay. 3) They have developed a roadmap for the future built around additional efficiency and asset investment tied to strategic category management. C.e.o.s should be looking for c.p.o.s who can match the efficiency that technology can offer with the effectiveness the business requires and the decision trade-offs that will yield the best R.O.I.s going forward. As the digital movement matures, the next horizon will be “digital re-invention,” and c.p.o.s who already have embraced the transitional opportunities of digital today will be well positioned for the benefits “re-invention” yields tomorrow.
Progressive companies are already well into roadmap design for the type of skill and talent that will be required as the digital movement matures. On the supply side of this challenge, people are reacting to the need to re-invent themselves or at least assure that they have initiated careers in areas that put them in charge of automation decisions rather than losing out to automation themselves. The approach that c.p.o.s will take relative to the pool of resources available will be well planned and will parallel the decisions made regarding end-to-end scope and the digital roadmap. Being able to judge talent always has been a differentiating strength, and in the future differentiation will be found in how well the talent chosen fits both the roadmap planned and the capabilities of a dynamic talent and skill pool.
The c.p.o. in the future will be expected to approach risk as they never have before. One of the many major shifts expected over the coming decade will result from an incredibly unstable world. C.e.o.s will expect c.p.o.s to guarantee the supply of materials and services on a seamless basis, at a transparent cost to the company, and at no cost to a sustainable planet. The reputation of the company will remain paramount, and the imperative for the c.p.o. will be to assure that everything that can have an effect from the outside world is within their influence of control.
Success for procurement will be measured by how well it has delivered against a value proposition that provides business strategies and goals needed for the business to thrive. Success will take great leadership, irrespective to where procurement reports, and will require of a c.p.o. differentiation from the past. The business and their c.e.o.s will require c.p.o.s to possess the capabilities to provide the framework and the plan because they won’t be handed it, be expected to implement the plan because they know how, and be able to lead outside their “traditional box” because they see this as their mandate.