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Procurement Pros: You Have Major Brand Vulnerability!

By David Pennino | |

    

Brand vulnerability is the degree to which a brand is exposed to risk. Companies have studied the subject for decades. Whether it’s misalignment of messaging and execution, a crisis of credibility, or a struggle to innovate and stay relevant, analyzing how a brand is perceived, with its various stakeholders, customers, and partners, is a critical, and often enlightening exercise.

Think of that analysis as “seeing the forest for the trees.” Those closest to their brand frequently lack clarity, drunk on their perceived success. They get so bogged down in the day-to-day tactics which helped them succeed at the outset that they lose sight of new, potential threats and vulnerabilities that could compromise the future of the brand and leave them in a challenging position.

While leaders always view their company as a brand—or brands—that need to continually evolve and adapt, rarely do individuals within the enterprise think of their roles this way. Brands don’t just manifest. They aren’t fully formed entities, waiting to be discovered. Strong brands are built. They are the result of individuals working in harmony towards a shared purpose. When people neglect their position as a brand, when they don’t evolve and adapt their roles, they do so at their own—and often the company’s—peril, ignoring how they are perceived by their superiors, colleagues, partners, and subordinates. Such a lack of self-awareness can lead to being marginalized, overlooked, or even replaced.

               

A Theory of Evolution: The CTO
        

So, what’s to be done about this phenomenon? We can learn from the brand journey of the Technology Leader in the Enterprise!

I started my career at Gartner in the mid-90s, where I witnessed brand vulnerability unravel in real-time, through the emergence of technology leadership in the global corporate landscape.

Think about it: before technology became omnipresent, corporations rarely employed a Chief Technology or Chief Information Officer. There was, however, an MIS Director. This Director had a significant brand challenge. Looking back on those days, the “Head of IT” usually had screwdrivers in their shirt pocket to un-jam the printers or repair the copier that was always breaking down. More corporate mechanic than CTO. They worked down in the basement somewhere and monitored the huge water-cooled mainframe. When they were seen in the hallways, it was usually pushing an AV cart. Their brand was tactical. Their binary code wasn’t 1s and 0s. It was broken and repaired.

And so, what happened to the “Head of IT” or the MIS Director? Some evolved, others were marginalized and then replaced. Today, the CIO and/or CTO have a seat at the top table. Those who adapted, who understood their role as a brand, were the ones who put down the screwdrivers, outsourced the mainframe, put on a sport coat, and now lead the organization on automation, innovation, customer experience, security, omnichannel management, and productivity. The CIO brand wasn’t created. It evolved out of the MIS Director of old, and it’s been constantly changing ever since.

Now that we’ve crystallized brand vulnerability in terms of individual roles and business functions let’s talk about procurement or “purchasing” as it is known to many. Procurement is facing an epic brand problem. One that rivals our friends from the 90s with the screwdrivers in their pockets. In almost every company we have had the opportunity to spend significant time with—over 100 enterprises in the last seven years—procurement is not viewed or understood correctly.

To corroborate our own experiences, we conducted qualitative and quantitative analysis with an objective third party to test our theories, and the results were conclusive: procurement as a function and the role of CPO has a major brand vulnerability issue, and it is, at least partially, their fault. Complicating things further, unlike IT in the 90s, the paradigm shift looming ahead of procurement won’t be obvious. In many ways, the brand trajectory of the CIO was inevitable. Advances in technology materially altered the way companies and their customers interact with one another. That momentum forced the IT function upward, out of the basement and into that seat at the top table. Procurement, specifically Indirect or “Goods Not for Resale” purchasing, doesn’t have the same tsunami of market dynamics fueling its evolution.

The enlightened CPO must find a way to elevate their brand identity. When we asked CEOs, CFOs, CMOs, and GMs of business units how they perceived procurement and the function of the CPO, the results shot off the page. Procurement is viewed as a tactical administrative function. Something akin to a necessary evil. In very rare cases, the function was considered strategic. For organizations in which that was the case, the success stories were incredible. Success stories like a major corporation with over two billion per annum in spend enjoying 360-day payment terms. That is not a typo.

               

The CPO Journey: Where We Are and Where We Need to Go
    

Disclaimer: In what follows, I am not judging the validity of the work being performed by procurement or the importance of the perceived blockage, I am reporting on the brand identity.

Our analysis has concluded that there are four distinct brand types for the procurement/purchasing function.

  1. The Chief “NO” Officer
    The procurement function operates as a tactical extension of the finance and/or legal teams. The perception of the business units and line leaders is that procurement slows them down by giving them reasons why they can’t proceed with their decisions at all, or as fast as they would like. The business looks at procurement as a blockage, a speed bump, a cop.
                        
  2. The Flaccid “Manage Through Influence” Officer
    The procurement organization is not empowered or mandated by senior leadership, or they haven’t been able to convert a mandate into perceived value by the business stakeholders. Their brand perception is that of “I am here to help if you will let me” and therefore they often get relegated to less strategic activities like office supplies or rental car contracts. Not the big stuff.
                         
  3. The “Kingdom” Builder
    The procurement organization has a blunt mandate and is standing in the way of business decisions, demanding that things need to go through them. They are taking over areas of the buying cycle like budget approval, legal approval, and supplier selection which may not always be in their power band of capability. The business perceives that procurement is on a “land grab” mission to control things instead of adding material value to procurements clients, to the business functions.
                      
  4. The “Unicorn”
    To steal from the venture capital community, the Unicorn is the rare executive who has achieved brand transformation personally and departmentally. They have become a productivity engine for their customers. This CPO is viewed as managing the company’s money and enabling their internal customers’ strategies. For these rare CPOs, legal matters (NDA and T &C processing) are to this exec what the screwdrivers and AV carts were to the rising CIO. They have solved for those legal issues with partners or capable managers so they could focus on the strategic matters.

Think about your organization. Whether you are in the buying function or you are a “customer” of the buying function, how does your brand stack up? In my travels, I talk about this analysis with leaders of nearly all the businesses I visit. Interestingly, I am rarely met with anger, disdain, or denial. Most often I am faced with either a moment of sudden realization or a somewhat defeated acknowledgment.

The critical question is, what do you do about it?

What can we learn from our IT brethren? What can we learn from the rare few in procurement who have achieved Unicorn status?

First, believe it is possible. I meet many defeated leaders who don’t think they will ever overcome dated procurement functions and the limiting perceptions among other business units. Do not despair. The Unicorns are out there, like the 360-day payment terms. They have become productivity engines for their internal clients. They are viewed as managing the company’s money. You can do all that too. You can change perceptions at a fundamental level. You can go full-Unicorn.

Second, you must let go of some things. What did the rising CIO do with the screwdrivers, the AV cart, and the water-cooled data center? Xerox took over copier repair. Software and its abilities replaced the necessity for AV equipment and its functions. IBM replaced the water-cooled mainframe and managed large computing operations. You can’t be a nail banger and an architect. You can’t mow the lawn and pick out the curtains. If you can’t stop working in your business, you will never be able to work on your business. Take time to assess the scarce and valuable resources at your disposal. Next, think of how those resources can be most effectively deployed to move the needle for your company. Now, ask yourself: what aspects of my role do I need to let go of to make that happen?

Third, pick what hill you want to die on. Buying organizations, simply explained, need to source, procure, traffic, and manage transactions for all the categories necessary for your company to be in business. It is not possible to be great at all four disciplines, across all the categories your company needs. Trying to is foolhardy. You are goal-diffused from the start, and flatly, you will fail. Take a stand on where you’re pinning your future. Are you going to be the best procurement operations department? Are you going to be the best sourcing department? Are you going to be great at all four disciplines highlighted above, but only for the categories that affect your company’s success? As Ron Swanson once said, never half-ass two things. Whole-ass one thing.

Fourth, upgrade your financial understanding mojo! Break-up with dullards like “savings” and “cost avoidance.” Embrace share-holder value, revenue, OPX, CAPX, EBITDA, and profit. The cumulative benefit of a savings achievement is a cash benefit in CFO speak. An incremental savings achievement is an EBITDA benefit in CFO speak.

Take this real-life example: A long-tenured senior procurement executive that we have the honor of knowing, who happens to be well on his way to Unicorn status, has saved his company over 400 million dollars through his world-class team’s work. Let’s say they sell widgets to respect confidentiality. Right in front of his CFO, we asked pointedly: with these outstanding results, did procurement make more money? Did they receive more equity? If so, that 400 million dropped directly to the bottom line. If a salesperson in your company sold enough widgets to increase profits by 400 million, they would probably never have to work again. While uncomfortable at first, the CFO’s reaction was positive.

Another client we have the pleasure of working with created a 15-million-dollar savings on a marketing program. The procurement leader proactively sought out approval from the CFO to provide at least 50% of the benefit back to marketing to earn the marketing leaders’ trust. To prove that procurement was here to drive more marketing and to make their budget go further, which ultimately grows the company and drives shareholder value. The CFO? He approved 100% of that savings going back to marketing. A Unicorn is born.

When we in procurement change the conversation to productivity, profit, EBITDA, shareholder value, we are well on the path to Unicorn status.

               

Becoming the Unicorn
      

Now we know what to do, and why we need to do it. The question then becomes, how? Where do we begin the procurement re-branding?

To steal from Michael Jackson, “I am starting with the man in the mirror.” Change the paradigm. Think more strategically. Begin the dialogue with your peers and superiors.

  1. Organize. Craft your dialogue and measure your performance around you and your team’s multi-faceted value equation.
    1. Economic value: You and your team manage the company’s money. You make sure their money is well spent and goes further than they expected.
    2. Innovation and growth: You and your team enable additional investments in innovation, customer acquisition, client centricity, and geographic expansion.
    3. Time: You and your team allow your business partners to focus their time on the things they care about most, the things they were put on this planet to do, which are also the things that drive your company’s future – marketing, product development, store development, etc.
    4. Risk: You and your team ensure that your business partners are leveraging suppliers who are qualified for your work, that those partners won’t land you on the front page of the paper for shady practices, and that you are covered in the event of a problem.
              
  2. Partner. Find firms that extend your reach, increase your ability to handle more work and to do it faster. Focus on execution, not advice. You need to be proactive, not reactive. Your supplemental resources should solve problems, anticipate needs, and be accountable for the results.
        
  3. Automate. Data will set you free. Know what your firm is buying, who they are buying it from, how much they are paying for it, why a supplier wins versus why it loses. Your data will change your interaction with your key constituents and make measuring your value to the organization substantially easier.

Unicorn status is achievable. Sure, we will have to work harder than our IT colleagues did, but we’re also better equipped to evolve and adapt. Today is the day we take control of the procurement brand, ditch the proverbial screwdrivers, and secure our seats at the top table long into the future!

If any of these procurement brand vulnerabilities sound familiar to you, if you’re living through those blockages and limitations on a daily basis, if you’re an aspiring Unicorn, or you’ve already achieved that rarefied status, we want to hear from you in even finer detail. We want to gather like-minded executives for a round-table discussion about how we can bring this evolutionary roadmap to life. If you are interested in participating, please reach out to [email protected]. Hope to hear from you soon!

 


“The insights here are myriad. Start with the four distinct CPO brands. While my sense is that there are shades of gray between them, I see all four present across nearly any industry. The advice for using metrics the CFO cares about is critical. Without a Procurement Finance team embedded within our procurement department, historical gaps between procurement and finance within our enterprise would never have been closed. And I have witnessed firsthand how the to-dos of Organize, Partner, and Automate can move an organization towards its goals, positively impact the bottom line, and save everyone valuable time.”

Steve Kesinger – Chief Procurement Officer, Nordstrom

 


“This type of proactive, strategic thinking has helped to move our organization forward and earn credibility with both internal and external customers. The observations and action planning noted here should be embraced by any leadership team focused on delivering performance.  Evolving and staying relevant – becoming the Unicorn – ultimately has to be a personal choice made by your CPO, and or an Executive sponsor, to ensure there is collaborative focus on growing efficiency, profitability, and ultimately shareholder value.  If the CPO is not focused on advancing strategic goals, then they’re going to go the way of the MIS Director and your business and associates will pay the price.”

Tim Johnson – Chief Financial Officer, Big Lots