Redefining Procurement Series: Becoming a Great Leader

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Redefining Procurement Series: Becoming a Great Leader

Posted by Chris Gayner on Wed, May 18, 2011 @ 02:44 AM

For many years the procurement community has been talking about how it’s about to get a seat at the board, yet somehow it hasn’t got there yet – why?

In our previous post we defined leadership as 'organising a group of people to achieve a common goal' Wikipedia. If the first part of leadership’s definition is the who, then the second part of the definition, (to achieve a common goal), is the what, when and how.

Tim Cummins, during a recent interview*, proposes “I don’t think that the head of procurement is really going forward and trying to transform the understanding (from a finance perspective) about the need for change and the nature of that change. I think there are areas, for example, to educate the finance community about supply chain risk, getting your CFO to understand that there is a cost associated with low prices, and that cost is often in terms of the trust, reliability, the flexibility and quality of the supply base.“

The key to all this is communication, but more than just talking – showing that you really understand the business (your internal customers) drivers, inhibitors and inertias and working with the relevant stakeholders to achieve their goals. This can only be done by:

Understanding stakeholders needs and drivers: What are they trying to achieve and what are their pressures?
Understanding perceptions of yourself / your department: How can you change something if you don’t know what needs to be changed?
Aligning goals and objectives: Ensuring you are both aiming for the same target – letting your stakeholders know you are here to help not hinder.
Talking in their language: Stop talking procurement and start talking in a language your stakeholders can relate to (example, CFOs are interest in hard savings, risk management and spend control – not how your SRM program works)

In closing, I refer to my discussion with Tim Cummins again, in which I believe he eloquently sums up what procurement needs in order to become a great leader within business today:

“It takes a level of courage for the CPO to step forward and to seek to take on that bigger remit. I think for many CPOs it’s a concern about whether they have the right tools and systems; do they have the right skill sets within their organisation to actually take on the challenge that sits in front of them today? I do understand that hesitation, but on the other hand we never really get anywhere much if we don’t have courage.”

In your opinion, what else does procurement need to do in order to be seen as a business leader?

*Click here to read the complete interview with Tim Cummins, President for the International Association for Contract and Commercial Management (IACCM)

Tags: BPO and Outsourcing, Business Strategy, Redefining Procurement

Comments

As usual, Tim is directionally correct. While he makes valid points in his argument, the closing comment "we never really get anywhere much if we don’t have courage.” is very telling. Without courage of conviction, leadership does not exist. How you demonstrate the courage may vary, but without it, along with passion, I don't know how you would define yourself as a leader.

Posted @ Wednesday, May 18, 2011 7:57 AM by John Campi

This is a really interesting one. Given that Business Development (sometimes even Sales and Marketing as separate entities), Technology, Information all have their seats around the big table, why isn't procurement directly represented?

Well, most governance structures have procurement as part of their commercial structure, often under the CFO (although I've seen it under the COO in some small companies) with a purpose of managing and optimising the buying function, managing commercial risk and ensuring compliance (both legal and corporate). These functions do fit well under the CFO's supervision.

Most complex procurement activities will also have input from departments under the CTO or the CIO. Given the importance of supply chain efficiency for many industries, the importance of the procurement function is increasing in the CFO's radar, but that is not to say that the function may predominantly gain a seat on the board.

The question we should also ask is why should the CEO have to mediate the relation between the CPO (Chief Procurement Office) and the rest of the board members? And this is not to say that the head of procurement can't be promoted to the board, say as a CFO, if the organisation believes they are the right person;

Hope this gives some food for thought

Posted @ Monday, May 23, 2011 3:19 AM by Nuno Almeida

Well said Nuno, I think to your point about why should the CEO have to mediate the relation between the CPO and the rest of the board, more than often the CPO (and the wider procurement function in many organisations) has not had to interact with the business at this level - purely for the reason that procurement is still, relatively speaking, in it's infancy within many businesses.

As such, the skill sets that are currently retained within the procurement function are often missing this critical piece - engaging with the Board at a business level rather than a operational / tactical level.

So I agree, there is no reason why the CPO cannot sit at the board so long as they possess the business mindset in addition to the procurment mindset.

Posted @ Monday, May 23, 2011 3:35 AM by Chris Gayner

My feeling is because unfortunately "procurement function" is not considered a competitive differentiator. Similar to Accounting or even HR. Senior leaders feel that a COO can represent many of these functions adequately. Things are slowly changing though if you see Apple for instance...leaders in these roles have more say than ever before...

Posted @ Monday, May 23, 2011 3:37 AM by Mahesh Rao

Mahesh further to your interesting point about procurement as a competitive differentiator - I have spoken to several UK FTSE 250 organisations who are now just starting to realise that procurement can be the key to unlocking a much more competitive operating model - more over if you can CONSISTENTLY source goods and services below industry average, with less risk but maintain the right quality - surely this can add to your businesses overall competitive advantage?

Again, an interesting concept.

Posted @ Monday, May 23, 2011 4:23 AM by Chris Gayner

Hi Chris - Excellent question. Our customers rank in the FTSE1000 so we deal with procurement on a regular basis and I was very involved in the sales and marketing strategy for a startup outsourced procurement company here is my take (bulleted for brevity)

1. Most insitiutions do not view their procurement division as a valuable function. This is wrong, a mature procurement function properly managed DIRECTLY benefits the bottom line

2. Procurement in most companies needs to mature and be less paranoid. They need to understand that it's not just about "getting the price down" and "beating up suppliers". They need to engage in the bid process much earlier on and view existing and potential suppliers as true business partners

3. The way to do this is to lead from the top down - so the CPO needs to instil a sense of value to the function and change the bid/RFI/ITT processes to be more open and engaging.

4. Interesting stat from a seminar I went to recently 81% of the respondent companies to an RFI were successful by NOT playing by Procurements rules e.g. they insisted on seeing the actual business stakeholders or would "no bid".

So in short the Sales functions in companies such as mine and Procurement departments in large companies and enterprises need to ask the question "How can we help you communicate your value to your organisation" much earlier in the sales bid process. That's a win-win.

Posted @ Tuesday, May 24, 2011 2:38 AM by Shoaib Oosman

And that is what it is all about at the end of the day - understanding and delivering value (as defined by your stakeholder) back to the business.

Coming back to the initial blog post, Procurement need to start understanding the importance of communication internally and externally and develop a greater understanding of business drivers, pain points and objectives.

Thanks for the input Shoaib

Posted @ Tuesday, May 24, 2011 2:42 AM by Chris Gayner

I believe a major reason is that most Procurement professionals are too transactional, they see their job as "sourcing the right part, at the right time, at the right price". Despite being in an ideal position to see how good businesses (in theory their suppliers) are managed, they are too focused on satisfying the expressed short term needs of their immediate customers,
They come across as a service function that is peripheral, rather than as leaders that "manage internal & external resources & take accountability for extracting maximum & relevant value from the whole supply chain in an ethical & sustainable manner, whilst using minimum of Company resources & managing risk consistently, predictably & appropriately to achieve Company objectives".

Maybe we should look towards a CIPS wide definition of Procurement.

Procurement professionals also have to become sufficiently knowledgable & confident about their "customers" discipline to ask the "dumb" questions to check that what they are requesting is really what the Company requires. This may mean employing Marketers, Engineers etc into Procurement & training them.

Posted @ Thursday, May 26, 2011 5:58 AM by Kevin James

I believe a large part of the reason is that the profession itself is not recognised and the standard that is MCIPS needs to become more prevalent. Once we all as procurement professionals move away from believing procurement is just transactional in nature, or dare I say easy we will be stuck in the basement and not sit at board. We also too harsh on ourselves, I for one think we create obstacles to more MCIPS qualifications and thus setting a standard and getting further penetration by having an overly complicated qualification mechanism that primarily is a post graduate certification. We need our own degrees and undergraduate program and we need to create easier access to already degreed individuals moving towards a global qualification. Until we do that, we won't be taken seriously as well anybody can do procurement right?

Posted @ Wednesday, June 01, 2011 2:42 AM by Rafique Jassiem

I think this is a really interesting subject, and in the current CIPS qualifications the impotance of this is recognised. Yet it still seems so difficult.

Certainly in my experience two things stuck out 1) Many organisations previously (and may still do) site purchasing under finance. It was recognised that you needed a qualified Financial Accountant to ensure appropriate accounts, so as purchasing spent money they resided under the financial wing. The importance of the profession of purchasing got lost in the accounts and people have struggled to make its importance known! 2) When I first started working in manufacturing purchasing seemed to be an administrative task just to get the components. The important thing was making the goods and although we sold the goods I seldom heard people talking in the wider office about how much the components cost. Now things are different and it is recognised that purchasing can make a huge different to many aspects of the organisation.

I have found that working closely with your customers to understand their needs to crucial to develop the profile of our profession. We know how to do the deal, but it needs focus on the customer.

We need to try to tirelessly influence inside our organisation to explain why purchasing and its professionalism is so important. We have so much to offer to help support the challenges faced by the front line people. We can make a long term difference to the financial state of the organisation.

It is not just about having representation for purchasing on the board, because that could be provided by a Financial Director for example. It is about having a Purchasing or Commercial Director on the board to show how purchasing can contribute to the short, medium and long term strategy and health of the organisation.

Posted @ Wednesday, June 01, 2011 2:49 AM by Ann Moloney-Stagg

Procurement is defined by Scottish Government (and it is one I like) as 'the acquisition, whether under formal contract or otherwise, of goods,services and works from third parties'cannot get much clearer on strategic importance than that.

Posted @ Wednesday, June 01, 2011 2:56 AM by Karen Bowman

Hi Karen. I'm afraid the definition you quote is a great representation of what I believe is the biggest problem for procurement - and that is that Procurement too often focuses mostly on the supply of the goods or services.

Of course procurement needs to be managing this process. But to become a true strategic function and provide leadership to the business, procurement has got to be focusing most of its energies on internal stakeholders, understanding the business' needs, and ultimately influencing behaviour.

Remember - procurement typically has no mandate. Yet it has got to influence how £100m's of other people's budgets are spent. A successful procurement function demands strong leadership.

Posted @ Friday, June 03, 2011 7:27 AM by Tom Lawrence

Dear Tom

Agree entirely, working in an organisation where there is no mandate and where 'freedom of thought and expression ' is enshrined by statute (a university) in order to have any hope of managing the process we do have to engage, influence, understand and deliver typical £150m of money which our internal clients have often won by their academic endeavour. Leadership is essential.

Posted @ Friday, June 03, 2011 9:11 AM by Karen Bowman

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