It is not news to anyone that procurement traditionally struggled to get its voice heard at the top of an organisation. This has been, in part, down to a lack of recognition of its significance within the top echelons of a company, but also to a reticence among procurement executives to make their points, needs and strategy suggestions known.
There has also been a lack of business partnering, that is, working closely with other departments and executives to solve challenges that both procurement and the wider business face.
However, this gloomy and insular scenario is rapidly changing. In a recent industry survey, Korn Ferry, an executive search and recruitment firm, said CPOs are increasingly commonplace in organisations and are increasingly positioned near the top of the leadership pyramid. It found 82% of CPOs claimed to have direct access to the CEO – up from 60% in 1999.
In Deloitte’s Global CPO Survey 2017, three-quarters of respondents said they have executive support. A similar number of respondents, meanwhile, said they had procurement team members embedded incross-functional teams, although they has made little progress since 2016 in terms of their involvement in decision-making in areas such as new product development and corporate risk planning.
As such, the Deloitte survey noted procurement still had much to do to “move rapidly from establishing trusted-operator status to being a business cocreator”.
“High-performing procurement teams are involved in strategic business and supplier collaboration activities, ranging from mergers and acquisitions to corporate risk planning and new product/service development,” the study stated. “However, a significant number of CPOs and procurement leaders acknowledge that they have a business partnering skills gap that needs to be closed.”
Break the walls down
The days of silos are clearly disappearing, but what else can procurement professionals do to make their voices heard in the C-suite and on executive boards? Jose Oliveira, principal at procurement consultancy Efficio, says the depth of influence a CPO can have within an organisation depends largely on the nature of the business itself.
“We have seen more executive influence in sectors such as manufacturing but, generally, there has been a lack of understanding at board and C-suite level about procurement,” he says.
“That is changing. Procurement is moving up the agenda as businesses look to the function to help them cut costs, deliver value and develop innovative products. Because of globalisation, they have more of a focus on the complexity of outsourcing arrangements and business risk issues, such as data protection and disruptions to global trade, through events such as Brexit. The board wants to listen.”
Lucy Harding, partner and head of the procurement and supply chain practice at executive recruitment firm Odgers Berndtson, agrees that the opportunity is there for the taking as procurement grows in stature.
“Boards are much more aware of the value procurement brings and they want to invest in the function,” she says.
“But it is not just about delivering savings, it is about access to innovation and insight among the supply base. They want to know if they are working with the right suppliers and meeting corporate social responsibility goals. There is more recognition across these areas.”
Oliveira says CPOs are delivering these messages primarily through COOs and CFOs.
“They are the CPOs’ executive sponsors. They represent procurement on the board, although we are seeing more CPOs being called directly to the board to discuss their initiatives and plans,” he says.
“That is a change from how it worked previously, where CPOs or procurement leaders had to almost ask permission to get their ideas heard at a higher level. They always had tonnes of ideas, but they found it difficult to challenge other areas of the business in areas such as spend. So, having the COO raise their agenda makes a big difference for procurement. We are seeing more procurement projects being approved at board level.”
He adds CPOs are focused on helping to shape sourcing strategies within an organisation, looking at the awarding of supply contracts and driving new innovations.
CEOs and CFOs used to think they had the necessary procurement skills and knowledge, and that CPOs did not need to be represented on the board – that view is now being proved wrong
“The word is now out on the value of procurement, and many companies are reaping the benefits of investing in the function and making its voice heard at the C-suite and on the board,” he says.
“CEOs and CFOs used to think they had the necessary procurement skills and knowledge, and that CPOs did not need to be represented on the board – that view is now being proved wrong.”
However, to communicate better with members of the C-suite, CPOs must work on their soft skills, as well as leadership and communication skills.
“They have to be able to listen and be able to give assurances that their procurement projects are valuable and aligned with the overall business strategy,” says Oliveira.
Robin Jackson, chief executive of procurement consultancy ADR International, believes there is a considerable gap in CPOs’ capabilities in this area. “CPOs don’t speak C-level language around shareholder value. They don’t understand that a key requirement of the C-suite is about driving up EBITDA,” he says.
“They have no idea, they don’t have the skills and that creates a barrier for procurement to be at the C-suite or board level. Ask a purchasing manager how shareholder value can be impacted in a business and they might say something about innovation, but it is also about speed to market and increasing sales revenues and product quality. They don’t see the link between their procurement strategies, a company balance sheet and the profit and loss (P&L) account,” he says.
“You can sit at the C-suite level and say ‘I buy things cheaper’, but you need broader strategic thinking to keep all stakeholders happy. If a CEO heard a CPO say: ‘I can save you cash, but it will also benefit the balance sheet and cash flow in these certain ways,’ they would be gobsmacked.
“I have read articles or heard talks every couple of years about whether CPOs should be on a board. That will not happen until they understand the link between what they do and how it helps the overall organisation’s finances,” he says.
His point is picked up by Odgers Berndtson’s Harding. “CPOs rarely sit on a board. They have interactions and dialogues and access, but not a permanent seat,” she explains.
“It is important that when they get to the board, they are business relevant and they understand the broad picture. Is it strategically important and can you communicate that? Can you articulate your strategy and values and make it relevant to the whole business and link to organisational goals?
“Speaking the language of the business is key to not just being asked on a single occasion to talk to the board but to being invited back more regularly.”
She believes some CPOs understand this dynamic, but others are “still very much in a silo. They are in a procurement world, speaking procurement language. They have to step away from being a functional leader and move towards being a corporate leader”.
Harding urges CPOs not to sit and wait to be asked to present to the board or engage more with members of the C-suite.
“Seize the day and look for opportunities. But don’t just talk about performance metrics when you get the opportunity. Be seen by others in the C-suite as somebody leading a function that is delivering organisational value,” she says.
One step beyond
So, what do procurement executives think of this? Philip Thomas, former CPO at Allied Irish Bank, says he reported to the board via his COO.
“He sat on the executive leadership team and most of the reporting I did to him was less about how costs could be taken out and more about how suppliers were complying with new regulations and the transparency of outsourcing,” he says.
Thomas does not feel aggrieved that his position was not at board level.
“It is very difficult in a sector such as banking to justify being on the board. In sectors where there is fundamental supply chain risk there may be more of a case,” he says. “I do believe, though, CPOs could add value where a business is investing in technology and automation and determining future strategy. What temporary or permanent resourcing will you need and how can you provide insight and value to procurement data which will help the whole organisation? CPOs are starting to build this knowledge.”
We don’t have to push as much as we used to. There is more of an open door where we can present and update to the executive leadership team. They are asking us in
He believes one inhibiting factor is the dearth of experience and talent underneath the CPO.
“When it comes to thinking strategically, the skills begin to thin out very quickly as you move down the procurement chain.”
Clive Rees, CPO for the Americas and EMEIA at Fujitsu, also has a reporting line to the chief executive via the COO. “I am one step below the executive leadership team,” he explains.
“It would be good if CPOs were on the board as you would have the opportunity to more directly influence the CEO and leadership colleagues. But, my function is well supported by Fujitsu as it is, so there is not such a pressing need in our business. I do not feel I am losing out in any way.”
Rees explains he has a mandate from the CEO to focus on reducing costs to help the group’s P&L, as well as to help improve sales.
“We have regular reviews with the CEO and CFO and, if we prove our worth, they engage us more,” he says. “We also, along with other departments, produce a mid-term plan, which is a three-year horizon looking at how much we can save over that period, how to minimise risk with suppliers and how we can develop relationships with suppliers. We also determine what investment we require. This information goes to the president in Japan via the CEO.”
Rees says there are more opportunities for procurement chiefs to make their voices heard than ever before.
“We don’t have to push as much as we used to. There is more of an open door where we can present and update to the executive leadership team. They are asking us in, wanting to see and hear about our projects,” he says.
“There are still some barriers. We find that internal lawyers want to pick their own external lawyers. We have learned that it is best not to tell them what to do. We leave them to select their choices, but we also work with them to assist.”
It is all, ultimately, part of the evolution of procurement.
“It’s about influencing, not controlling,” Rees says. “It’s about consultation and collaboration. You can’t have an attitude of ‘we know what’s best and this is what you should do’. You will be excluded if you do that.”
Tentative seat on the board
So, could we see CPOs represented more prominently on executive boards in future? Although he believes it is certainly possible, Rees maintains the role is not broad enough to be worthy of a dedicated place.
However, talented CPOs should not be downhearted. “I can see CPOs going into executive roles just not as CPOs,” says Harding at Odgers Berndtson. “There are some really talented individuals who could take on other executive roles within an organisation.”
That could, in itself, be a positive development for procurement. Former CPOs entering new executive positions, be it as CFO or COO, will understand the value of procurement and will be eager for its voice to be heard more often and more loudly at board level.
It is up to procurement executives to prepare themselves for more responsibility. They must think about how they can be more relevant to the business on a strategic level. “Stop whingeing about the lack of influence you have and start delivering. You will be given a place near the top table if you add value,” says Rees.
First featured in PLQ Volume I: Issue IV, now available to members on the Procurement Leaders app, ready to download here from iTunes and Google Play
This article is a piece of independent journalism, written by an experienced journalist and commissioned exclusively by Procurement Leaders.