You Got the CPO Gig. Congratulations! Now What Will You Do?
Bringing on a new chief procurement officer (CPO) can be a formidable task, and not just for the person in the role. It is a test for the whole organisation. Do we want to continue with the status quo, or to see things change?
Of course, many will say we want to see change, but unfortunately, it is not guaranteed that the change will be for the better. Things may even deteriorate.
New CPOs who do well are those that carefully recalibrate the procurement function, modernise it, and bring their team and the organisation with them on the journey. They are people who see it as an opportunity to prove how organisations source, secure, and relate to their suppliers, and can build competitive advantages.
Here’s how they do it…
First, the modern CPO knows that spending is a big chunk of the balance sheet, so it must be managed strategically. The agreement of fellow executives on this view needs to be ensured early on, and in practice, it most likely starts with a recruitment conversation.
An incoming CPO needs to take temperature checks across the organisation. They need to know if there is a shared understanding of how procurement might play its part. And not only by adding traditional procurement value but by creating competitive advantage as well.
So, a more strategic approach means the status quo of simply driving savings and ensuring compliance will be overlayed with a more mature approach of aligning procurement functions with corporate objectives, managing risks in the supply chain, and improving ‘the procurement experience’ for both external and internal users of the function.
The organisation’s strategic objectives should guide the procurement team to ensure that the metrics used to measure procurement performance are relevant and reliable. And, more importantly, they are also meaningful to the wider executive team.
An incoming CPO at a global manufacturing business knew they were taking on a mature function, as there had been considerable work put into ensuring the business was operating in the top quartile for benchmarks on efficiency and effectiveness. However, a major surprise was that despite the ‘high performance’ the function was not rated by the business they were serving. For the business, the experience was poor, and the importance procurement placed on certain performance areas was not fully aligned with meeting the company’s strategic objectives – a rethink was required.
A framework is your friend
The organisation’s objectives will also guide a modern CPO in determining where value can be created, to determine exactly what strategies should be pursued. To do this, a 360-degree perspective of the organisation is required. A comprehensive framework for analysis will cover all dimensions of the business, from governance to technology, people to processes, and data to organisational structure. Why? Because invariably, buying decisions touch every part of the business. And value can be unlocked or created anywhere in a business. Leveraging a clear framework creates visibility and consistency in the approach to improvement.
One new CPO we worked with within the construction sector used this approach to assess the maturity and the effectiveness of the procurement function. They found that teams were highly compliant with the documented process. But while measuring against their better practice framework, they quickly identified that negotiations weren’t happening optimally. By incorporating a simple step into the sourcing process, teams started realising 4-8% better pricing on average from suppliers, which is a major improvement.
Don’t forget the people part
Finally, there are two important cultural dimensions to the success of a CPO in a new organisation, and they are esprit de corps and empowerment.
Esprit de corps is a fabulous French term meaning ‘the common spirit existing in the members of a group and inspiring enthusiasm, devotion, and strong regard for the honour of the group.’
Esprit de corps is precisely what a healthy, high-performing procurement team must have. Just as charity starts at home, so does collaboration. A modern CPO is a leader, and their team has a dynamic, proactive posture. Rather than react to the requests from other parts of the business, they take the initiative, they are researchers and investigators, bringing ideas from the outside world back into the business.
Inside the business, the team is motivated by the idea that they can empower people in other parts of the business to perform better. The procurement team is a living testament to the adage, ‘If you’re not serving a customer, you’re serving someone who is.’ With this perspective, the new CPO will see much greater collaboration starting to occur with other parts of the business, as well as greater compliance with procedures and practices. Why? Because it is a genuine win-win. Often, focusing on these two cultural elements can yield some of the biggest benefits for an organisation.
Coming into the CPO role, it can be easy to get consumed by the day-to-day activities of the function, dealing with a constant flow of requests, analysis, and negotiations, amongst many other things. The new CPO should not only focus on how to keep the engine running, but also look at ways to boost performance and make changes – they can’t waste any opportunity!