Procurement is under immense pressure to transform and reinvent itself. The role of the Chief Procurement Officer (CPO) and their teams in the future will look very different to how it looks today.
Matthias Gutzmann, Founder of Digital Procurement World, chatted to some procurement leaders and the conversations that ensued suggest that CPOs are at a turning point with four potential paths to follow: up, over, down or out.
There are a few reasons for these (new) roles and future paths. One such reason is that we are entering a new era of digital transformation. Owing to advances in areas such as robotic process automation and artificial intelligence, transactional and routine activities that used to be procurement’s focus are increasingly being automated or outsourced. Cognitive technologies are already changing how procurement operates today.
It would seem that procurement has become a victim of its own success. In many companies, strategic sourcing has run its course – the low-hanging fruit have been harvested several times over and savings opportunities are drying out. The old paradigm of cost reduction and cost efficiency is coming to an end. In fact, according to consulting firm Vantage Partners, some of today’s strategic sourcing methodologies and principles will become obsolete, even counter-productive, in the future.
So, what are the four pathways envisaged for the CPO of the future?
1. Up: CPOs are promoted into new roles
CPOs are moving up into new roles with responsibility for end-to-end customer experience and other growth-orientated functions.
In 2017, Lenovo’s former CPO, Gerry Smith, went from CPO to Chief Executive Officer (CEO) when he took over the top position at Office Depot. And there are many more examples.
Many of the skills developed by progressive CPOs correspond to what businesses look for in a CEO. It is thus more than likely that in the future there will be plenty more (progressive) CPOs taking over the role of CEO.
2. Over: CPOs take over new responsibilities
In this pathway, CPOs, typically, keep the same title but are given additional responsibilities over other areas, such as transformation, supply chain or enterprise growth initiatives.
These are progressive CPOs who are driving value beyond savings. They are business leaders who proactively shape their company’s success by strategically acting beyond their function. They have the ability to develop strong relationships, both internally and externally, and have transformed their procurement organisations into key pillars of enterprise strategy.
At Bombardier, Chief Transformation and Procurement Officer, Jim Vounassis, is leading both the global transformation and procurement organisations.
When CEOs and CPOs aren’t well aligned, CPOs face less-promising pathways.
3. Down: CPOs lose influence and authority
CPOs can find themselves on a downward path for a variety of reasons. Often, they remain trapped by outdated paradigms of cost reduction and cost efficiency, and are unable to influence and inspire engagement within the rest of their company. They often lack commercial acumen, don’t speak the language of the business and are unable to link procurement strategy and deliverables to the corporate agenda.
CPOs with a sole focus on cost savings will struggle to stay relevant and survive in the future.
4. Out: CPOs leave organisations
CPOs move out of organisations for many reasons. Sometimes they don’t fit with the direction the company is going. Sometimes it’s because they want to drive growth and innovation but cannot get their board to recognise the need. In other cases, they are not given the mandate and resources to lead initiatives and transformation.
In another future scenario, CPOs and their teams are laid to rest because technology has developed so dramatically that most procurement processes are fully automated, making procurement as we know it obsolete (KPMG, 2016).
Which pathway are you on?
At Vizibl, we believe that CPOs and their teams have a unique opportunity to take on an increasingly strategic role within enterprises and that the current emphasis on cost savings should be expanded to include a focus on solving business problems. Delivering business outcomes can only be achieved by actively including suppliers in problem-solving and building long-term mutually-beneficial supplier relationships. This requires new metrics and key performance indicators (KPIs) that go beyond cost and performance as well as a mind-shift away from the entire business engaging with suppliers in new ways.
In order to move up and over, CPOs need to foster new perceptions and expectations across an enterprise. Most CPOs today recognise that procurement is much more than just cost savings, but the rest of an organisation doesn’t know this yet, including most CEOs. CPOs thus need to define a broader vision for procurement as the orchestrator of growth and prove that procurement can be a revenue generator.
This will require a new set of (soft) skills, particularly around leading change and selling new ideas to businesses. It will also require strong alignment with key stakeholders, a new playbook for success and an internal rebranding of the function. According to Brad Berke, Vice Chairman: Global Supply Chain Officers at Korn Ferry, “only about 10% of CPOs today are capable of being true business partners to the CEO and the rest of the executive leadership team”. In other words, the skills and competencies of today will not be enough to deliver on tomorrow’s strategies.
There is thus a huge opportunity for CPOs and their organisations to be more relevant in the future than today. On the flip-side, there is also the risk of being less relevant in the future than today. Technology is killing jobs and reducing headcount, however, those jobs are mainly routine transactional tasks. Ultimately, technology is enabling procurement to develop from a transactional function to a strategic function, allowing CPOs to focus more on strategic (business) objectives.