What Does the Board Want From its CPO?

In the first part of a two-part series, we look at what organisational boards are expecting from CPOs and the procurement function.

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Purchasing, Procurement, Strategic Sourcing, Category Management, Spend Management, Supplier Relationship Management…the list goes on.

The Procurement profession has created a myriad of titles over the last decade, which can be confusing to those not involved in the function. To complicate matters further, the role of procurement varies by industry depending on its strategic dependence on third party suppliers.

Regardless, the “bread and butter” role of procurement remains a valuable function of any business – to source fit for purpose goods and services and to deliver on time, in full and at the right price to meet the business needs.

Procurement has been moving up the corporate structure, gaining visibility in the Boardroom over the last decade or so. Today, it is increasingly viewed as a function that can offer significant strategic value. Effective strategic procurement has become a Board priority.

Establishing Good Practice

For some CPOs, their focus is on limiting exposure to commodity price fluctuation and managing supply chain risk. This comes not just in the form of supply chain disruption but increasingly reputational risk, exacerbated by the social media phenomenon. For others, it is harnessing innovation from the supply base. In addition there is the ever present expectation to deliver cost savings.

The challenge is to deliver this within a complex matrix of geographical regions and business divisions. The Procurement Leader of today must exhibit a high level of leadership capability, personal gravitas and cultural dexterity. Creating the balance between global strategy and local need is an ever present conundrum.

Establishing good procurement practice is fundamental to building the trust with business stakeholders and the Board. Building strategic partnerships with suppliers can prove vital in stormy economic times and constrained supply markets, and will be a valuable competitive advantage in a more buoyant global economy. Increasingly important is the on-going management of suppliers in terms of service delivery and cost management.

More focus is required to harness supplier relationships that drive innovation as an enabler to improved quality, productivity and speed to market.

In the second half of this series, we will be looking at what a Board looks for when hiring its CPO, and what they are expecting from these individuals once they are in place.

Why TMCs Need a Dramatically Different Sales Approach

Ever notice how Travel Management Companies (TMCs) have a hard time selling their value?

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This article was first published on WordPress.

It’s not a complicated value proposition.  “We’ll help you book travel at low prices and help your travellers on the road, so you’ll save money and sleep better.”

That’s a pretty easy benefit statement to grasp, right?  So that’s not really the problem.

Two Big Problems

TMCs compete on the wrong metric, and they sell to the wrong people.

First, the metric they compete on is price, namely the transaction fee.  Price may be the metric of choice for the procurement crowd, but it is the worst metric for those TMCs who add real value.

On to the second problem. TMCs sell to travel managers and procurement managers.  Is it traditional? Safe? Expected? Sure, but still wrong – in this way:

Travel managers are very important stakeholders, and they need to have a clear understanding of how one TMC differs from another. Same goes for the procurement managers – these folks are charged with negotiating contracts that deliver real value to their organisation.

And yes, it’s hard to imagine how a TMC could win much business by ignoring either of these VIP stakeholders. So it’s not about ignoring or minimising these key parties.

Find the VVIPs

Instead, it’s all about selling to the VVIP stakeholders – the men and women who manage big travel budgets – the folks who are fully accountable for making the tough decisions about whether or not to trade down to a harsher travel policy, knowing they’ll lose good people by doing so.

These are the people TMCs need to sell to – the guys and gals who own the travel budgets.  It’s their necks on the line for making good decisions about sending Sally to Sydney in Coach or in Business. They wrestle with the tradeoffs of higher airfares and hotel bills in return for more loyal road warriors.

Which brings us back to the first problem.  Instead of price, TMCs must sell the value of their expertise.  But not in the current/classic/me-too way that passes today’s RFP 101 test.

Sell the Bigger Picture

Instead, TMCs must sell their ability to deliver broader business value.  Value that goes way beyond that measured by traditional travel metrics.

TMCs must learn to sell the kind of business value that P&L owners care about.  Hint – it’s not about your best in class online adoption rate.

TMC execs, you gotta think and then sell in terms of travel impact on metrics that P&L owners care about.  Of course they worry about their travel budgets.  So showing how to conserve them is necessary – but it’s not sufficient.

Focus on the Total Cost of Travel

The other part of the equation is that of the impact of travel on road warriors.  All that wear and tear has a cost – a real, quantifiable and significant cost.

So it’s simple – TMCs need to show travel budget owners how good their TMC is at helping them to minimise the total cost of travel.  Not just the supplier costs, but also the real, quantifiable and significant costs of traveler wear and tear.

Getting a company to minimise the combination of these two costs is true travel program optimisation.  Any other claim about “We’ll optimise your travel program!” is typical TMC marketing hooey.

The Better Approach

Let’s make this easy.  If you’re a TMC sales exec, and you have a prospective account in mind, find out who manages the biggest number of their road warriors.  Say it’s Joe, their EVP of Sales. Here we go:

You get into Joe’s business.  “So, Joe, which of these issues regarding your road warriors are you having any trouble:  Retention? Recruiting? Productivity? Health? Safety?”

The beauty is there is no dead-end answer.  If Joe calls out one of these issues, off you go down the trail of explaining the options for improving that part of the traveler’s experience.

If Joe says “Nope, we’re good on all that”, then you’ve got license to ask about old-school ways of controlling travel costs, and hopefully bring up a few new-school ways to keep things fresh.

The point is you, the TMC sales exec., get to – need to –  have a much more relevant discussion about how travel is impacting the guy’s business.

This is a much better way of framing the value of a TMC. You’ll be talking to, and quietly selling, to the real decision makers, and I’ll bet dollars to donuts that they never ask about your price…at least not in that initial conversation.

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Scott Gillespie is the Co-Founder and Managing Partner at tClara, helping travel and procurement managers build more valuable travel programs, as well as the author of Gillespie’s Guide to Travel+Procurement.

Why Procurement’s Time is Now: An Interview with Tony Megally

The Source’s new Managing Director, Tony Megally, shares his views on the state of Australian procurement talent and what it takes to set up an effective retention scheme. 

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It seems that Australian businesses have begun to realise the value that a highly functioning procurement team can bring to an organisation.

Obviously, this is reliant on the ability of procurement leaders to attract the right talent to the function. How do you feel about the current stocks of procurement talent in Australia?

There is definitely a short supply of high quality procurement professionals across the local market. It seems that organisations are either doing their best to retain top procurement talent or competing to attract talent. Industry related experience in some sectors, for example FMCG and Retail is increasingly becoming an essential requirement, and that is adding further challenges in the recruitment process.

Organisations are focussing on the talent shortage by looking to hire from offshore markets. We are increasingly receiving mandates from our clients to reach out to procurement communities across the UK and South East Asian regions.

As the procurement function continues to mature, what do you see as the critical skills and capabilities that procurement professionals need to possess today?

No matter how technical and analytical your skills are, employers are looking for commercially minded procurement professionals with strategic agility and strong business acumen who can communicate, influence and add value to stakeholders.

A great procurement function serves the whole business and the traditional procurement skill set is not enough. Procurement professionals should look to continually develop their interpersonal, strategic thinking, networking, influencing and leadership skills.

There is a lot of talk about Millennials at the moment, both in terms of how to attract them and once you’ve done that, how to motivate them to perform. Do you have any insight into how procurement teams might manage employees from different generations?

I think the challenge for many CPO’s and Senior Procurement Leaders is understanding which generations are represented in their team and what their expectations are, and how they will best perform and progress their careers. This will all help with succession planning or more broadly, talent management.

For example, Gen Y/Millennials will probably respond well to becoming a “champion” of a particular project or subject matter, having a strong mentor, a clearly defined career path and access to senior decision makers. We are starting to see an interesting management trend emerge with Millennials acting as social media advisors to their less digital savvy Gen X and Boomer leaders.

This reverse mentoring role is enabling greater collaboration and innovation amongst diverse generations in the workplace and giving Millennials a sense of empowerment and ownership.

Holding onto great talent is as important as attracting the right people to work in your business in the first place. There is no point signing great talent if you don’t have a plan in place to keep them.

Do you have any observations as to what makes a good talent retention policy? Is there anything in particular that the top talent is looking for in order to stay?

Having interviewed thousands of candidates over the years, it’s very clear that money alone won’t retain top performers.   People want to feel valued, trusted and respected. They are looking for on-going personal and professional development opportunities and to work within a flexible team focussed environment where they can make a meaningful difference, and be recognised for their contribution to a team’s or organisation’s goals.

Poor leadership is one of the top reasons many people leave, even top performers. A good talent retention policy is certainly nice to have however in a fiercely competitive market not everyone will stick around. I strongly believe that CPOs and Senior Procurement Leaders who are inspirational, engaging, communicative and authentic will win in the end!

Queen Bee Syndrome debunked: the sting isn’t where you think it is

Historically, successful women have run the risk of being characterized as the “quintessential ‘bitch’ who is concerned not at all about others but only about herself”.

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Women regarded as successful attract negative reactions that focus primarily on their interpersonal capabilities. Meryl Streep’s character in The Devil Wears Prada is often used to illustrate the point. The supposed source of the character Streep portrays is Anna Wintour, who is described as having an aloof and demanding personality, earning her the nickname ‘Nuclear Wintour’. Closer to home, Peta Credlin is characterized similarly.

While we might all be able to recognize this pattern, up to date research indicates that the sting doesn’t come from women in senior roles.

But first: what is a Queen Bee? In organizations with few senior women, expectations about behaviour and style are firmly male. Women take care and men take charge. Queen Bee syndrome is used to describe the “bitch who stings other women if her power is threatened” and the term is used to blame senior women for not supporting other women.

The power of the dominant group is attractive. Where women are in the significant minority, there is enormous pressure to join with the majority group, which causes ‘insider’ women to become hostile to ‘outsider’ women. As a personal survival mechanism some women become as ‘unwomanly’ as possible and react with hostility to other women. They become part of the dominant group (men), sometimes take on dominant group member characteristics, and exclude members of the non-dominant group.  Queen Bees are seen to hold on to their power as the ‘token woman’ by denigrating other women as ‘emotional’, expressing anti-female attitudes, and avoiding female-focused programs and gatherings.

Such women who perform well in male gender-stereotyped roles are generally not liked: they attract negative reactions that focus primarily on their interpersonal capabilities, and their lack of warmth in particular. Both women and men see them as less desirable as bosses, compared with men described in similar ways.

In just-released research Dezso and colleagues examined the under-representation of women in the top executive teams of US S&P 1,500 firms over a 20 year period. They found that the presence of one woman in a top management team reduced, rather than increased, the chance that a second woman would be appointed to that team.

As that seems so counter-intuitive, they explored the potential causes further, and explicitly tested the Queen Bee hypothesis. Was it this syndrome that prevented a second woman getting into the top team? They examined organizations with a female CEO: according to Queen Bee syndrome, if the person with the top job is a woman, it should be less likely that another woman will be appointed to the top team. The reverse was in fact the case. A second woman was much more likely to be appointed to the top team if the CEO was a woman. In addition, firms appeared to hire women into senior management roles in response to actions by their female board members.

Where does the sting come from then? The researchers suggest an ‘implicit quota’. They argue that firms gain legitimacy if they have women in top management. However, the marginal value they gain after one woman is appointed declines with each successive woman “whereas the perceived costs, from the perspective of the male majority in top management, may increase with each woman”.

What can you do?

1. Accept a broad range of leadership styles.

2. Challenge the myth whenever you get the chance. Cite the research.

3. Support, and make supportive comments about, women who trail blaze.

Five Gems from Eva Wimmers’ Innovation Workshop – Part 2

The Faculty’s Hugo Britt recently attended a one-day workshop with Eva Wimmers, former CPO of Deutsche Telekom, on innovation in Procurement.productivity-innovation

Last week I shared the first two of five ‘gems’ I took away from Eva Wimmers’ thought-provoking working on Innovation in Procurement. Read on for the remaining three insights from this world-class CPO:

  1. Make time to discuss innovation with your “ideas suppliers”

As part of her “dialogue rich” approach to Procurement, Eva recommends that category managers make the time with suppliers to talk exclusively about innovation. That means there’s no talk about contracts or pricing; just ideas and brainstorming. Visit your suppliers and make an effort to personally meet the brains of the operation.

This means you’ll be making valuable direct contact with engineers, programmers and other boffins and can chat with them directly about their ideas. Importantly, making this contact will start them thinking about what they can do for you. The key, Eva tells us, is to think of your vendors as “ideas suppliers”, make time to discuss innovation, and always be willing to listen and learn.

  1. Diversify your supply base to include SMEs and startups

Deutsche Telekom is an enormous organisation, and before Eva’s tenure as CPO it had fallen into the same trap as many similar-sized companies: big only deals with big. This mindset is driven by concerns that only large organisations have the capacity to meet your needs, while risk-mitigation policies around team size and insurance are often put in place that limits Procurement’s ability to engage with smaller organisations.

Eva reversed this mindset at DT by declaring that innovation Procurement requires vendors of every size and shape. The benefits of working with SMEs and startups include:

  • faster provision of products and solutions
  • new idea generation (“ideas suppliers”)
  • customised and specialised solutions
  • getting a glimpse of future disruptive technologies
  • app solutions to fix your legacy IT problems
  • cost control and cost savings
  • savings in personnel costs
  • relationships with individuals at the supplier.

In Eva’s words, “We do not care how big an organisation is, as long as both the solution and the organisation are scalable and financially solid’”. She uses Dropbox.com as an example of a small organisation with less than 50 staff that wouldn’t even have shown up on many organisations’ radar, yet now it has world-wide take-up.

  1. There are risks, but they can be managed

We know that small vendors are often faster, more flexible and more cost-effective, but what are the risks? Eva says that CPOs need to equip their teams to work with SMEs and startups to overcome the following negatives:

  • Higher financial risk than big suppliers
  • Risk of takeover slowing down the process
  • Smaller account teams
  • Often no international linked account team and support
  • Under-developed processes
  • Lack of scalability
  • Increased risk of bankruptcy through illiquidity
  • Change of key people endangers product
  • Continuity of solution depending on engineers and programmers/individuals.

Eva worked with her team to mitigate the risks of interacting with SMEs and startups at DT by implementing the following:

  • Requesting financial due diligence including detailed revenue overview. Invite the CFO to explain the finances in detail to ensure full transparency.
  • Requesting an overview of concurrent projects with other customers.
  • Using incentives rather than penalties to ensure you don’t cripple your suppliers.
  • Spending significant time on explaining your product needs and definitions as SMEs may be unused to the needs of large organisations.
  • Requesting counter-proposals from vendors, such as “What would you change to save 30 per cent on cost? What would you change to gain speed?”
  • Locking-in the availability of key individuals from the vendor teams by name in the contract.
  • Contractually requesting key engineers’ availability by name.
  • Including a first right of refusal to buy company (in case of bankruptcy) – sometimes buying is cheaper than migration to any supplier (talk to your legal team about insolvency law).
  • Defining termination rights in case of a supplier takeover.
  • Reducing the amount of interfaces at the supplier.
  • Defining one overall point of escalation at the supplier.

In summary, Eva argues that CPOs can’t afford to limit their supply base to large organisations if they wish to drive innovation. Use risk mitigation strategies to protect your operation and focus on having the right level of contractual protection for each innovative supplier. Make the time to convince your risk-averse stakeholders of the benefits of working with smaller suppliers of products, solutions and disruptive ideas.

Procuring innovative products and profiting from the ideas of innovative companies requires behavioural change in your Procurement teams. Concentrate on driving early involvement, deeper knowledge of your products and vendor landscape, closer alignment with business stakeholders, and true dialogue where you see eye-to-eye rather than just pressing for the best price.

Innovation needs to be driven with and by smaller new companies as much as by larger incumbent organisations. In short, it’s about having “an idea that pays”.