This year isn’t starting out as expected. So far, 2016 feels a bit more like 2009. Commodities are in free fall, exchange rates are creating shock waves, and the financial markets are producing in a downdraft. Against such struggles, which chief procurement officer would you want leading your team? And what playbook does your team need? One thing is clear: Procurement performance is no longer an unknown and there are indeed standouts. My fantasy procurement pick for CPO would be Peyton Manning.
The great recession revealed which procurement organizations were the most agile and able to seize opportunities to sidestep downside financial risks. And some of those strong teams have kept improving. Value-management-driven procurement practices are evolving and strengthening. The early adopters are delivering sustained levels of high-impact performance.
A.T. Kearney’s research into procurement productivity began in 2009, and we have seen the top quartile performers continue to build momentum. Today’s top players are respected business partners as they have delivered more than seven times the annual returns of their companies — and many are averaging 10 times as much, with a line of sight to even higher levels of performance.
Many of these leaders have elected to use a new playbook to drive this performance while others are benefiting from the adoption of “zero-based budgeting,” which creates a catalyst for stronger procurement practices. Leaders have skilled up strategic resources to improve spend management and increased the velocity and creativity of their sourcing activities. At the same time, they are completing the technology-driven transformations of their operational procurement activities and reducing the costs of their transactional work. These procurement teams found CPOs with the smarts, skills, and longevity of Peyton Manning, a leader able to establish strong brands within their organizations and partnerships with their CFOs.
But for the remaining procurement teams in the league, it’s business as usual. They are either in the middle of the pack delivering accretively (around three times revenues) or stuck in the bottom quartile, proving unable to demonstrate sufficient value to cover the carrying costs of their team roster.
These performance groups have not been challenged to redefine their game, and 2016 may be that wake up call. These teams are not progressing. Rather than having Peyton at the helm, they have opted to let Bill Murray be their quarterback, leaving themselves stuck in a Groundhog Day predicament will not go unnoticed against the growing recognition of procurement leaders in what looks like a turbulent period ahead. These static and struggling teams are present in every division (industry and size are not indicators of success). It is time for the Bill Murray CPO to steal a few pages from the Peyton Manning playbook.
Transparency and accountability are a big part of the training regimens used by today’s top athletes. The Peyton Manning CPO invites the stakeholders to practice, where all of the team members can weigh in and everybody’s stats are visible.
No spend is off limits, and the stronger athletes run the plays with active support of finance. Every play is recorded and assessed. Only forward movement counts (hard savings). Winning means doing better on the scorecard than the opponents (competitors). Building the franchise is about consistently winning over time.
Private equity firms held their portfolio companies longer during the recession, and they found strengthening procurement was critical in delivering value. The juggernauts of M&A did the same — the implicit transparency of zero-based budgeting creates the forum to explore and justify all enterprise spending for need and effectiveness. The proven success and prowess of the likes of ABI and C3 are being emulated.
With six years of benchmarking procurement performance and our companion research capturing the CFO’s views of procurement, there is a clear picture of advancing leaders and the opportunity for the profession to build a stronger platform. The 2015 research, “Building a Bolder Legacy – The Procurement Mission is Under Way,” published jointly by A.T. Kearney, ISM, and CIPS, explores the growing discrepancy between advancing procurement leaders and those who have yet to build strong, value-management-driven behaviors and robust CFO partnerships.
Procurement is clearly a function in search of improved performance, consistency, and more predictable results. Procurement processes may not be able to be managed as precisely as manufacturing or supply chain activities, but as we have seen sales and marketing become transformed with the introduction of CRM tools and big data, so too can procurement rise to a new level of play. The report shares vignettes from procurement leaders — the Peyton Manning CPOs, who have or are building great franchises. There is no reason that the discipline required to win cannot be applied to raising the performance of the average and weaker performers to the level of the leaders whose team members are driving an average of $1.3 million in hard benefits per person.
We anticipate that leaders will continue to increase their performance advantage because their teams are strong, their performance is visible, and their impact and contributions celebrated. They are learning to manage their activities more systematically and that is driving confidence, credibility and performance.
Hopefully, 2016 hopefully will not be the déjà vu replay of 2009, but the turbulence ahead appears as though it will create headwinds. But we can still expect a continuing shake out in the ranks because challenging seasons make the games and the outcomes more visible and the winners more revered. In the case of procurement, giving the right person the ball is critical to success. And those organizations that can find their Peyton Manning may soon have a few Super Bowl trophies of their own.