THE BUSINESS REVIEW FOR PROCUREMENT LEADERS
This issue of CPO Agenda focuses on value and influence. For the procurement function these two things are inextricably linked, because unless you are able to add real business value, at both an operational and a strategic level, you cannot expect to achieve lasting influence within your organisation.
For Clive Gallery and Duncan Brock, value ultimately means “sustainable shareholder value”. Whether you like it or not, they argue, stock markets, fund managers, analysts and investors around the world are looking for short-term financial performance. This means, in turn, that CPOs need to do a much better job than they have in the past of demonstrating to their senior executive colleagues and others how procurement activity positively impacts key metrics such as gross margin and free cash flow. The growing number of CPOs who have migrated from the finance function will have an advantage here, as they already understand and speak this language. Those who don’t will have to learn it.
Procurement professionals are not alone in this respect. As marketing academic and consultant Robert Shaw explains, many marketers are now under pressure to show a return on investment from their often sizeable budgets.
Of course, financial performance is only one dimension of procurement’s
potential contribution these days. But, as the panellists who took part in
the inaugural CPO Agenda Executive Debate make clear, if you don’t deliver
the cost savings your business demands, you can’t expect to play an influential
role in key strategic areas such as mergers and acquisitions, innovation, supplier
collaboration and outsourcing.
I’ve always found it rather odd that, in most cases, procurement isn’t
routinely involved in the latter. After all, what could be more core to a
procurement specialist than committing large amounts of their company’s
money to a third-party provider? It’s even implicit in the term – outsourcing.
The sad truth is that many business leaders simply haven’t trusted
their procurement people to get the job done on important deals such as contract
manufacturing.
Brian Slobodow of Johnson & Johnson is an exception. In our “Tactics” article, he explains how CPOs need to adapt their approach to be successful in this emerging area, and urges more of them to “get in the game”. On a similar note, Booz Allen Hamilton consultants Simon Harper and Dave Phillips describe a model that they believe can help CPOs to play their rightful role in make-buy decisions more generally.
A great example of this is provided at Computer Sciences Corporation in the
UK, where the procurement team’s credibility and standing was such that
it was able to veto a £300 million outsourcing deal proposed by no less
than the company’s CEO. Value and influence rolled up into one.
Geraint John
geraint.john@cpoagenda.com
