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Throwback Thursday – How to Avoid Procurement Corruption and Fraud: The Fraud Triangle

Benjamin Franklin said, “An ounce of prevention is worth a pound of cure.” When preventing procurement fraud, the Fraud Triangle is an organisation’s key tool.

The Fraud Triangle

The Petrobras scandal in Brazil has shown the potential for corruption and fraud in procurement. In light of this, our Thursday throwback takes us back to Hillary Ohlmann‘s article on preventing procurement fraud and corruption using the Fraud Triangle.

Corruption & The Fraud Triangle

In light of the Petrobras corruption scandal in the headlines this week, our Thursday throwback this week

Donald Cressey is credited with creating the fraud triangle, which outlines the theory behind why people commit occupational fraud. Cressey identified the three legs of the fraud triangle as pressure, opportunity, and rationalisation.

The Fraud Triangle

Let’s take a look at steps your organisation can take in order to address these three areas and avoid procurement corruption and fraud.

Pressure

The pressure factor is essentially what motivates someone to commit fraud. Usually the motivation is financial in nature, and falls under one of two categories: personal or professional.

Personal pressure examples:
  • unpaid personal debts
  • desire for status symbols (money, house, car, etc.)
  • inability to pay bills
Professional pressure examples:
  • need to meet productivity targets
  • need to prove financial gains
  • feeling job is at risk

How to mitigate pressure:

1. Adequate compensation

While adequate compensation will depend on the organisation, country, and individual employee, procurement employees should not be at the bottom when it comes to compensation.

Procurement professionals, at all levels, require a specific skill set to effectively do their job, and their compensation should reflect the value they bring to the company.

2. Realistic performance KPIs

This requires good communication with all stakeholders. Set KPIs and then review them frequently to make sure your procurement goals are realistic.

3. Adequate procurement budget

One way to avoid procurement corruption and fraud is to make sure your procurement department has sufficient funds for staffing, tools, and training. Being forced to cut corners can quickly lead to unethical decision-making.

4. Company-wide no gift policy

Suppliers often give gifts to procurement as a way to build relationships and show goodwill. Yet, these gifts may make it hard for procurement officers to remain entirely neutral. If Procurement is not allowed to accept gifts, enact the same policy for all departments as a way to reinforce a company-wide ethics policy.

In some parts of the world, it may be difficult to go 100 per cent no gift. If you do decide to allow Procurement to accept certain gifts, such as lunch or small tokens under a specific dollar amount, make sure the policy is crystal clear and communicated to all employees.

5. Recognise employee value

Adequate compensation is one way to recognise employee value, but other signs of appreciation can also go a long way. If your company has a no gift policy, perhaps set aside a portion of the budget for a procurement dinner, or event to celebrate when certain objectives are met.

Opportunity

The opportunity to commit fraud has to meet two basic standards. The person must have the technical know-how to take advantage of the system, and the ability to keep it a secret. You can decrease the opportunities for fraud by:

1. Implementing a transparent procurement process
  • Adopt an e-procurement solution – E-procurement software is the best way to make sure your procurement data is transparent and easily accessible for audits. You can also assign permissions within the tool, making it easy to allow top management access to all processes, while also limiting who can add suppliers, change supplier contact information, make awards, etc.
  • Educating your employees about the process and how to identify red flags – While it may be a given buyers within the procurement department understand the sourcing and purchasing process, buyers on the outside may not have such a clear understanding. Anti-fraud measures require all hands on deck.
  • Monitor the data in the system – Implementing e-procurement software is just the first step to a transparent procurement process. You’ll need to continuously monitor the data in your chosen e-procurement solution and the ERP to look for any irregularities.
2. Segment purchasing responsibilities

Divide responsibilities to keep any one person from having too much power over purchasing decisions. You may also find it beneficial to rotate responsibilities on a regular basis, but when you do so, make sure to update any employee permissions in your e-procurement solution.

For example, some companies rotate procurement employees between categories to avoid any one person having too much close contact with suppliers.

3. Adopt a four-eyes rule for approvals

Schoolyard bullies use “four-eyes” as an insult, but when avoiding corruption and fraud, the four-eyes strategy is best practice. More eyes on decisions means it’s harder for would-be fraudsters to keep their crimes secret.

4. Perform regular and surprise internal and external audits for all purchases

Audits are not a sign of mistrust. Consider them more like a doctor’s check-up. You should hope that everything checks out, but if you note any irregularities, you can take action to straighten them out before significant damage is done.

5. Manage both suppliers and their subcontractors

Your supply chain doesn’t stop with your suppliers. It’s likely they’ve hired subcontractors. The business practices of these subcontractors will reflect on your business.

Unfortunately, many companies have learned this the hard way. Your company should have a Supplier Code of Conduct, and signing off on it should be mandatory for all suppliers and their subcontractors.

Rationalisation

Rationalisation is the process of excusing one’s acts, and finding ways to justify behaving in a way that you know to be unethical or criminal.

It can take a number of forms:

  • An exaggerated belief in one’s value (e.g. I’m entitled to this because I work hard.);
  • A belief in a greater good (e.g. I’m doing this for my family.);
  • Dissatisfaction with the company (The company is cheating others, so I can cheat the company.);
  • Or comparisons with others (Everyone else has nice things. Why can’t I?).
How to avoid the pitfalls of rationalisation
1. Hire ethical employees

This one looks like a no-brainer, but it’s easier said than done. However, if ethics are important to you (as they should be), they need to be discussed from the very first interview. Research your potential employees like you research potential suppliers. Step away if anything looks fishy.

2. Model ethical behaviour at the top and reinforce it through company-wide policy

It’s all about company culture. How can you expect employees low down on the ladder to behave ethically if the top management is constantly cutting corners and making ethically dubious decisions? Don’t fall into a “do as I say, not as I do” mindset. Give your employees a good model to follow.

3. Adopt a zero tolerance policy for fraud and corruption

There’s the carrot, and then there’s the stick. Just as you would outline expected behaviour, so, too, should you outline punishments for breaking the rules. Also, don’t make idle threats. If you have a zero tolerance policy, then it should be zero tolerance. If you’re not prepared to follow through, adjust your policy to reflect the true consequences for fraudulent actions.

Part of procurement corruption and fraud prevention should be based on the realisation that, yes, it can happen to your organisation. No company is immune.

However, those companies with the lowest cases of fraud and corruption have taken steps to prevent it before it happens. If you’re waiting for a big scandal to break before mitigating this risk, then you’re already too late.

Procurement Professionals Going Mobile with Procurious App

Procurement isn’t 9-5 any more. Stay connected with all the major issues on the go with the new Procurious App.

Procurious App

In today’s modern, and highly connected, world, big issues like Brexit and supply chain disasters don’t neatly end at 5pm with the working day.

Whether at their desks or on the road, procurement and supply chain professionals need to stay on top of the latest challenges and opportunities, and take action 24/7.

But, now these dedicated individuals can relax (at least a little!) thanks to the new Procurious app. With a few taps, Procurious members can easily gain insights from their colleagues, invite their peers to get involved, stay in touch with suppliers and customers, make decisions and add value to their organisations, at home or away.

A Mobile Profession

“Today’s procurement professionals are always on the hot seat, managing business-critical issues,” said Tania Seary, Founding Chairman of Procurious.

“At the same time, these professionals, and especially millennials, are increasingly mobile, preferring to network, work and engage from their phones. The new Procurious app responds to growing demand from our members to support them wherever they are. It helps to provide them with the insights and collective experience of a worldwide procurement community.”

From e-learning videos to discussion groups, the app is easy to navigate and puts all of Procurious’ resources for networking, skill development and career advancement in the palm of members’ hands.

Download – Get Involved

The Procurious app brings all the functionality and great content of the Procurious site to your finger

Download the mobile app to:

  • Network with 16,000 curious, ambitious procurement professionals from around the world.
  • Discuss everything from achieving social responsibility goals to choosing contract document assembly software through lively forums.
  • Read our Blog to access more than 800 insightful posts. From the latest market intelligence and opinions, to tips from some of the top influencers around the world, we have it all!
  • Learn a new skill! Find dozens of e-learning videos on crisis management, winning the war for talent, negotiating, and more.
  • Messaging—Connect privately to build relationships, arrange discussions or share information with your peers.
  • Join a Group, from the Institute for Supply Management® (ISM®) to IT Buyers & Category Managers.
  • Shape the future of procurement by sharing your ideas at digital events like the Big Ideas Summit. Or mark your calendar to participate in our upcoming Boot Camp, an exclusive podcast series with daily insights to help procurement professionals get in the best career shape of their life.

If you’re a curious, ambitious procurement professional, don’t let travel slow you down! Download the Procurious app through the Apple App Store. Stay involved and in touch no matter where in the world you are.

If you want to see more of the Procurious app, stay tuned next week…

Share the news on Twitter: Join the global #procurement movement to #mobile with @procurious_ http://apple.co/1TWiAGx

What Can Procurement Professionals Learn From Young Professionals?

Generational stereotypes are frequently unfair and unkind. From traditionalists to young professionals, there is much to learn from each other.

Young Professionals

This article was written by Dee Clarke, Davidson Projects & Operations.

With people living and working longer, the days of two to three generations making up a workforce will soon be a thing of the past. For the first time, we will start seeing workplaces with around five generations working side-by-side.

Loosely, Forbes Magazine defines the five generations that will soon be working together as:

  • The Traditionalists (born prior to 1946);
  • Baby Boomers (1946-1964);
  • Gen X (1965-1980);
  • Gen Y (now referred to as Millennials); and
  • The iGeneration (born after 1997).
Generation Stereotypes

Interestingly, Millennials, Gen. Y, Digital Natives (whatever you want to call the generation born between 1980 and 2004), represent almost a third of the global population today. They will comprise 75 per cent of the global workforce by 2025.

There are plenty of stereotypes about each group. The Baby Boomers who scorn social media, the Gen. X who don’t like authority, the Millennials who are impatient about promotions and getting ahead, and the iGeneration who are attached to their smartphones.

While there are some consistency in these traits, Jeanne Meister, co-author of ‘The 2020 workplace’ says that it is important as managers to move beyond the stereotypes, and get to know each person as an individual.

Mindful of Millennials

This could not be truer than within the procurement sector. As someone who specialises in sourcing talent in this sector, I have lost count of how many conversations I have had of late with clients and candidates regarding the hot topic of age.

And millennials are the hot topic of the moment.

There seems to be a general consensus in the media and public that Millennials are lazy, entitled, self-absorbed and will unlikely stay in any job for long. Personally, I believe there are many great exceptions to this mass generalisation, and hiring managers within procurement need to be mindful of this.

I recently had the pleasure of meeting two young professionals who were exceptions to the rule. I met Sandra Silva at a CIPS networking event. As I’m sure you would know, these events are normally attended by procurement professionals, currently working in the industry, to network and discuss market challenges, and perhaps learn something from a key presenter.

A young Sandra was studying her Masters in Supply Chain Management at Queensland’s Griffith University. She had relocated here from Colombia after completing her engineering degree.

What caught my attention was how committed Sandra was to start her career in procurement, and most importantly how determined she was to take the reins when it came to her career planning and progression. She was leaving nothing to chance.

Sandra attends regular industry networking events. She had sought out an industry mentor and was applying for internships, while continuing her studies. A few months later when I met her, she showed her determination and dedication to her career when she told me she had taken on an internship and a part-time entry level procurement position.

Diversifying Talent

The next example was when a colleague asked me to meet with a young man, James Young, who was seeking career advice in my area.

James simply defied every stereotype millennials face. James came to meet me on his lunch break. He presented well and, although he had already secured a contract position with another firm, he was looking at his long term career and direction.

Before finishing high school, James had completed a couple of short internships. While attending university, he attended networking events and connected with people within many different industries to identify the right one for him. On completion of his degree he applied for graduate programs with the big four consultancies.

Through our meeting he listed his plans, and how he was going to diversify himself so he was a valuable asset to any future employers. Most of all he talked about what he planned to do to consistently upskill and further develop his knowledge.

Learning from Young Professionals

Both Sandra and James showed determination, drive and willingness to go above and beyond the normal approach to secure the right career for them.

I believe this determination will not just stop there but will lead their careers to the top, these were not the actions of ‘lazy’ millennials, but two future CEOs.

So what can we all learn from these two young professionals?

Generally speaking, in the past most people ‘fell’ into procurement, starting with backgrounds in engineering, law or accounting to name a few. They then somehow became involved in projects, or saw the opportunity to add value with cost savings in better buying strategies.

While the industry has become more professional, and there are now specific qualifications and university courses, many have just moved from one role to another, letting opportunities dictate their next career move.

Bringing New Ideas

Just like these two young Millennials, we need, as an industry, to take charge of our career, and continue to develop our skills. We need to expand our networks, and not be afraid to take on an ‘internship’ or mentor, to ensure we not only survive, but thrive the future world of work.

Furthermore, we have to stop letting age stereotypes dictate how we approach work, or manage the growing number of generations we will work with.

FCIPS accredited Alan Robertson, who has more than 20 years procurement experience across private and public sectors, said Millennials will bring new ideas to organisations. And we need to listen.

“Otherwise we won’t take advantage of their skills such as online networking/blogging and asking plenty of questions,” Mr Robertson said.

He also added that “a ‘general’ trait of Millennials is that they like to try new ways of working and improvements, so don’t leave them to get bored. Companies will lose them if they don’t let them be free to use their adventurous spirit.”

Dee Clarke has more than 10 years’ experience in recruitment across the Australian and Irish markets. During this time, Dee has forged a strong expertise in Procurement and Contracts and is an Affiliate Member of CIPSA.

Dee is a Senior Consultant within the Projects & Operations team, which delivers the right technical and project expertise for any stage of a project or asset’s life cycle.

Corruption & Slavery Threaten to Overshadow Olympics

As the 2016 Olympics kick off in Rio, ongoing corruption and slavery scandals threaten to overshadow the event.

Brazil Corruption Slavery

The 2016 Rio Olympics opened on Friday evening with a lavish opening ceremony, watched by a global audience of billions. Over the next two and a half weeks, 10,500 athletes from 207 countries will compete for medals in 28 sports.

However, the Olympics could be overshadowed by corruption and slavery scandals currently engulfing Brazil.

Corruption Scandal Widens

There has been widespread criticism of the money being spent to hold the Olympics in Rio. Much has focused on where money could have been spent to tackle poverty and social issues present in the city.

However, one scandal that has rolled on for over a year relates to massive corruption in the awarding of contracts. Petrobras, Brazil’s national oil company, and it’s ruling Workers’ Party (PT), are at the centre of allegations of one of the largest corporate frauds in history.

Petrobras was nationalised between 2002 and 2010, with the PT appointing its own candidates to high-level executive positions. These executives secretly diverted funds, valued at up to 3 per cent of all new oil contracts, to the PT and its coalition partners.

Senior Politicians Implicated

The corruption probe, nicknamed “Operation Carwash“, continues to widen. Plea deals have now implicated more than 480 politicians and executives.

It is alleged that these individuals received over $6 billion in bribes from a cartel of Brazil’s biggest builders. The money was traded in exchange for at least $50 billion in Petrobras contracts.

Suspended President Dilma Rousseff has been found guilty of budget fraud by a senate committee. Her predecessor, former President Lula da Silva, has been ordered to stand trial by a federal judge for money laundering and hiding assets.

Rousseff’s campaign strategist, Joao Santana, was also arrested for allegedly receiving $7.5 million in bribes from Petrobras. However, due to delays in Brazil’s legislature system, it could be a while before these cases are heard.

Slavery Rife in Brazilian Cities

Alongside the corruption and fraud in Brazil, new figures released this week suggests that slavery is still a major issue in the country.

The Walk Free Foundation has reported that there are an estimated 161,000 people working in slavery conditions in Brazil. This figure is up nearly 4 per cent from 2014.

Brazil has seen an influx of immigrants over the past decade from other Latin American, and African, countries. The issue is most prevalent in rural areas, but instances are occurring in major cities too. There have been more slavery cases reported in urban areas than countryside since 2014.

Official statistics show the mining sector accounts for 31 per cent of slavery cases discovered in Brazil, followed by construction (18 per cent) and agriculture (15 per cent).

“Blackballing” Companies

However, the Brazilian Government has earned some positive press in the way it is tackling slavery. They have created a “dirty list” of 300 companies who could lose access to public contracts as forced labour has been found in their supply chains.

The list was briefly suspended in March this year, although it was reinstated in May. The dirty list, and strategies that go along with it, have helped to free over 50,000 people from slavery conditions between 1996 and 2013.

At a time when the eyes of the world are on Brazil, and Rio, the ongoing work to free workers caught in forced labour conditions represents a glimmer of hope in an otherwise bleak political climate.

Are you in Rio for the Olympics? Or have you been involved in procurement or supply chain for the Games? We’d love to hear your experiences and showcase them on the Blog.

We’ve been collating all the major headlines from the past week to keep you up to date…

UK Interest Rate Cut Bad For Savers & Pensions

  • The Bank of England announced a decrease in UK interest rates to 0.25 per cent, the lowest rate ever.
  • It comes at a time of lower than expected growth in the UK economy.
  • The cut heaps further pressure on pension schemes already facing huge deficits from the shrinking economy.
  • It also means that a greater number of accounts, including business accounts, are expected to not see any form of interest on savings.

Read more on The BBC

Mercedes-Benz Vans to Open New South Carolina Plant

  • Construction on a new plant began last week in North Charleston, South Carolina, to produce Mercedes-Benz’s iconic Sprinter Vans locally.
  • The move will significantly cut lead-times for the German automotive giant. Previously US-based plants only assembled vehicles from ‘kits’ sent over from Germany.
  • Parts suppliers including the Auto Truck Group and the Knapheide Manufacturing Company, are expected to establish production sites in the region.
  • Mercedes-Benz reported delivery of approximately 28,600 vans to US customers last year.

Read more at Automotive Logistics

Brexit Leads UK Retailers to Source More Home-Grown Products

  • Fashion industry publication Just-Style reported that one-third of British retailers predict they will source more from domestic suppliers following the Brexit vote.
  • Research published by Barclays has found that 52 per cent of retailers also expect to increase supply chain activity in India.
  • 43 per cent of British retailers have indicated they anticipate a reduction in goods sourced from the EU.  
  • Despite the Brexit vote, European manufacturing actually improved over July. According to data firm IHS Markit’s Purchasing Managers Index, figures rose to 53.2 in July from 53.1 in June.

Read more at Just Style

Phone Battery Life Could Be Used to Track Users

  • The battery status API, introduced in August 2015, has been found to be capable of tracking individual users online.
  • API allows site owners to see the percentage of battery life left in a device, as well as the time it will take to discharge or recharge.
  • Although currently being used to enable low-power versions of websites, researchers have proved that it could be used to spy on users.
  • Privacy campaigners have argued that companies could use this data to also monetise battery levels, with users making different decisions when faced with a low battery.

Read more at The Guardian

Management of a Global Supply Chain in Emerging Markets

Managing a global supply chain is complex, and fraught with risk. So what tactics can you use to minimise this risk?

Global Supply Chain

This article was written by Rob Barnes, Founder at PrimeRevenue.

In many ways, sourcing goods and services internationally is easier than ever, with the internet making it possible to research, source and communicate with global suppliers from the comfort of your desk.

But in reality it isn’t always that simple. Setting up and managing an global supply chain is a complex, and often risky, business. Without careful planning, local expertise and meticulous management, there’s a lot that can go wrong.

Not only are you dealing with numerous rules, regulations, taxes and constantly fluctuating currencies – all of which have the potential to significantly impact your bottom line. You also have cultural and language differences to contend with, which, in the world of business, can be daunting and confusing to say the least.

On the other hand, getting it right can give you a huge competitive advantage, with cost savings and higher quality or unusual products just a couple of the potential benefits.

So how can you make sure your global supply chain works effectively, while minimising the risks to your business? Here’s a few pointers:

Strategic Planning  

Planning and management of a global supply chain affects the whole organisation, not just certain departments. That means ownership must come from the top, and involve all areas of the business, from procurement and finance, operations and logistics, to sales and marketing.

Don’t allow teams and decisions to become siloed. Make sure there is transparency across the business. Otherwise you’ll be missing important pieces of the puzzle, and find that your supply chain isn’t delivering the value you need, either for the customer or the bottom line.

Local Expertise

Knowledge of the local market is crucial to ensure you understand what to look for in a supplier and how to handle local business practices, from taxes and duties, to employment law and health and safety regulations.

If you don’t have this local expertise internally, consider hiring somebody who does. Or look to bring on a consultant who can guide you through what, and who, you need to know.

Prioritise Relationships  

The foundation of a successful supply chain is building strong relationships with as many elements of the chain as possible. While the internet can help you at the research stage, it’s crucial to visit suppliers regularly, to make those personal connections, scope out their operations in person, and discuss ways of maximising efficiency and collaboration.

In many countries, personal relationships and networks are even more important than in the UK, so it’s in your interest to prioritise this valuable bonding time.

Sales Forecasting

Forecasting is crucial when sourcing products globally, to avoid ending up with too much or too little inventory to deliver on what you need.

This is partly due to timing – your goods are going to take longer to arrive from far flung locations – but there is also a cost element, with taxes and duties to pay every time you move your goods.

Accurate forecasting means that you’ll be transporting the right quantity to arrive at the right time, to deliver on projected demand. You’ll also avoid wasting money on warehouse space by over-ordering.

Technology

Technology is your friend when managing a global supply chain, helping you to streamline processes and minimise unnecessary administration.

Look for a supply chain management solution that works across the different markets you’re operating in, so you don’t need to work with numerous systems.

You can also streamline your invoicing and payment terms using a supply chain finance platform, avoiding the need to negotiate these on a case by case basis, and improving consistency and transparency across suppliers.

Performance Tracking

Just one disruptive link in the chain can impact your whole operations. Make sure you implement a system to measure the success and efficiency of each supplier regularly – delivery times or product quality for example.

By doing this, you can spot any warning signs early on and be ready to replace an underperforming supplier if necessary.

Have a Plan B

Even with top notch processes, you can never be sure what’s going to happen, so have back-up suppliers ready to go in case of any unexpected disasters. This will keep your supply chain running smoothly and avoid lots of unhappy customers.

Focus on Long-Term Sustainability

To minimise risk in the chain, look for ways that you can support your suppliers both financially and logistically. Make sure your lines of communication are always open, so any potential issues can be aired quickly and easily.

You can also help your partners manage their cash flow through supply chain finance, allowing them to choose to be paid more promptly if and when they need. This is particularly useful for suppliers in emerging markets.

This reduces the need for them to take out expensive bank funding or overdraft extensions, minimising costs and risk in the long-term.

Supply Chain Finance from PrimeRevenue and AIG caters to thousands of mid-market, non-investment grade companies, by providing financing, with the credit risk insured by AIG’s market-leading trade credit insurance. It enables suppliers to take early payment less a small discount, while enabling buyers to standardise and potentially lengthen their payment terms.

Big Ideas Summit 2016: Big Idea #8 – Manufacturing’s Next Generation

Paul Markillie believes a change of image is necessary for manufacturing in order to attract the next generation of talent.

At the Big Ideas Summit 2016, we challenged our thought leaders to share their Big Ideas for the future of procurement.

From ideas that have the potential to change the very nature of the procurement profession, to ones that got the assembled minds thinking about the profession’s impact outside of the organisation, the response we received was amazing.

The Next Generation

Paul Markillie, Innovation Editor at the Economist, shares his big idea to change the out-dated, and incorrect, image of manufacturing to attract the next generation of professionals into it.

Paul believes that one way to get new professionals interested in manufacturing-related jobs, such as procurement and supply chain, is to add it to the school curriculum. This gives students access to modern design software to make them aware of the possibilities in manufacturing as a career.

Catch up with all the delegates’ Big Ideas from the 2016 Summit at the Procurious Learning Hub.

Want to find out more about Big Ideas 2016? And maybe what we have planned for 2017? You can visit our dedicated website!

If you like this (and you haven’t done so already) join Procurious for free today. Get connected with over 16,000 like-minded procurement professionals from across the world.

Throwback Thursday – Why Are CPOs Scared of Social Media?

Face your fears! Although procurement is getting the social media message, there is still plenty scope for CPOs to be doing more.

CPOs Scared of Social Media

It’s Thursday, so it’s time for a trip down the Procurious content memory lane! Procurious has been going for over 2 years, and we feel like we’re making headway with social media in procurement.

However, sometimes it feels like we’re Sisyphus, pushing the (social media) boulder up the hill, only for it to roll down again. That’s why, although this is a year old, we could still easily ask why CPOs are scared of social media.

Running Scared

Noel Gallagher, he of Oasis fame, said earlier this year that musicians are “scared of social media”. We think CPOs are too.

We carried out some rudimentary research into the Twitter presence of the CPOs of the world’s “market leading” brands. The results were telling.

We searched Twitter for the CPOs (or equivalent) at Apple, P&G, Unilever, Coca Cola, GlaxoSmithKline, LG, Reed Elsevier and Shell. We couldn’t find a Twitter account for any of them.

Its not just CPOs either, it seems the whole C-suite really don’t care for social media. Research conducted by CEO.com and DOMO suggests that only 8 per cent of CEOs have a Twitter account and that a staggering 68 per cent of CEOs have no social media presence at all! A CEO without so much as a LinkedIn account? Are you kidding?

Interestingly, Mark Zuckerberg is the only CEO in the Fortune 500 who is present across the five leading social media platforms, Twitter, LinkedIn, Google+, Facebook and Instagram (given he owns the last two, I guess he had a head start).

Why are CPOs so anti-social (media)?

Sure, social media is a generational thing. Younger people ‘get it’ because they grew up with it and older people tend to struggle to understand it. Now let’s be honest, most CPOs fall on the older end of the youth spectrum and hence are operating from a disadvantaged position. This however, is no excuse to ignore social media.

Like it or lump it, social media has become a critical part of our social fabric. It’s where we go to interact with people, inform ourselves and most importantly for businesses, it’s where we go to make our judgements and voice our opinions on brands.

We’re Judging You

While a traditional procurement leader may not see it, people are forming opinions based on their social media activity (or rather, lack thereof).

Recruiters will look at a candidate’s Facebook page to get an understanding of who they are. Employees, suppliers, customers and shareholders are also researching corporate executives to determine if they’ll make a good boss, business partner or are worthy of investment. Those that are not present on social media, miss the opportunity to put their best foot forward.

In the case of the companies I listed above, I’ve already established an opinion (a negative one) about them based on the fact that they don’t have a socially active CPO.

In all likelihood, the opinion I have formed is incorrect and uninformed. However, the lack of social presence has led me to subconsciously make certain assumptions about those businesses.

Socially Connected Leaders

To state the obvious, the business world has changed. Gone are the days of unknown senior executives ‘connecting’ with people through ads in local newspapers. The modern business environment is hyper-connected and driven by information.

The advent of social media has led people to expect access to celebrities. And business executives are now seen as celebrities. Richard Branson, Tim Cook and Mark Zuckerberg are the faces of their brands. The fact that their celebrity shines so bright also means they are incredibly effective marketing vehicles.

A company’s brand, as well as its understanding of its customer base and the market it operates in, now depend on its social presence. Put bluntly, there is an expectation, from customers, shareholders and the press that leaders will be active and accessible on social media.

Socially Active Leaders

Not only is there an expectation that leaders will be active on social media, there is strong research to suggest that socially active leaders are better at their jobs.

Brandfrog, a professional branding company, released a study in 2014 highlighting the importance of social media in the perception of company leaders. Below are some of the high level findings.

  • 75 per cent of US respondents agreed that CEO participation in social media leads to better leadership. This figure is up from only 45 per cent in the previous year.
  • 77 per cent of US respondents agreed that C-Suite executives that actively engage on social media create more transparency for the brand.
  • 83 per cent of US respondents agreed that leaders who actively participate in social media build better connections with customers, employees and investors.
  • 82 per cent of US respondents agreed that executive use of social media establishes brand awareness.
  • 77 per cent of US respondents believe social media is a powerful tool for building thought leadership and enhancing the credibility of C-Suite executives with stakeholders.

The report lists many more stats, similar to these, that clearly spell out the case for CPOs and others in the C-suite to start interacting on social media.

Get Involved Already!

Social Media won’t be optional in the near future – it’s not a passing trend. CPOs need to understand that in order to gain the respect of their clients, their industry and their staff, they simply must be present and active on social media.

The good news is that the bar for CPO social media participation has been set so low that there is a huge opportunity to get in early and capitalise!

So here is our call out to CPOs – sign up! It can be Procurious,  Twitter, LinkedIn, Google+, Facebook, or Instagram. Who knows, you might even enjoy it, everyone else does!

Adapt and Thrive – Success in Cross-Cultural Negotiations

Adapt and survive is often a key strategy in business. It turns out that it’s just as important in cross-cultural negotiations too.

Adapt and Survive

In our previous articles on cross-cultural negotiations, we had heard what our experts had to say about preparing for cross-cultural negotiations, and the importance of building relationships before negotiations even start.

In the final article in this series, we hear from our experts on how to adapt for negotiations, and how best to handle negotiations with people from their own nationalities.

Preparing for a negotiation – Middle Eastern Challenges

More and more companies are heading to the Middle East as part of their primary business and supply strategies.

However, the cultural differences between Europe and, in particular, Saudi Arabia are stark. Getting to grips with these differences is key to creating good business relationships, and having successful negotiations in the region.

The Roundtable were asked for their thoughts on how to prepare for a first cross-cultural negotiation in Saudi Arabia. They shared what information they would aim to collect, and how they would collect it.

One key element mentioned was to understand the hierarchy and power dynamics of the organisation. Thierry Blomet talked about needing to understand how the organisation is mapped out, and how it fits with the various stakeholders in the country. As Saudi Arabia has a very different, rule-driven, culture, it’s important to understand the dynamics of the organisation and the people.

This view was echoed by Jonathan Hatfield, who added that it’s important to have diversity in your own teams, to help prepare for going into different geographies. The more diversity in your team, the better prepared you are for the global market.

The conversation then turned towards how individuals could better adapt to different cultures by being more aware of their own behaviours, and how to change behaviours to be in line with local customs.

The importance of “cultural mirroring” was put forward by Carine Kaldalian, in particular regarding dress code especially when dealing with a country with strong rules like Saudi Arabia.

Giuseppe highlighted the importance of knowing some etiquette elements that may offend the other party, like which hand to use to hand over your passport, and not showing the soles of your feet to others.

Adapt Your Behaviour

In the modern, digital world, collecting information on other cultures is far easier than it was in the past. Ali Atasoy suggested using both two common websites as prime source of information.

First Wikipedia, to understand the country, social conventions, and recent history. Then LinkedIn, to understand the individuals you would be meeting and have some ‘icebreakers’ prepared.

However, once the information has been collected, it needs to be put to good and effective use. The extent to which individuals should adapt their own behaviour was subject to some debate.

Bérénice Bessiere argued that Europeans frequently underestimate the capacity of Asian business people to adapt to European culture. The common thinking is that it’s them who will have to adapt their behaviour.

The importance of avoiding stereotypes was raised again by both Matthias Manegold and Jonathan Hatfield. Both highlighted the potential mistake in thinking that all the people in a single culture will be the same.

The different norms of different generations, and the constant evolution of cultures, mean generalisation should be avoided. However, by being aware of this, adapting behaviour and building up trust, you will create a better relationship, and any hiccups will likely be forgiven.

Negotiating with Nationalities

The final part of the Roundtable discussion focused on the participants’ views on the key advice for negotiating with people from their own countries.

It was a lighthearted way to end the discussion, but the points raised were both interesting, and highly applicable.

  • Turkey (Ali Atasoy)

Be prepared to explain why you have chosen to do business with this supplier. Any uncertainty, or lack of a valid reason, may lead to the supplier being offended by the approach.

  • Switzerland (Stéphane Guelat)

Punctuality is a huge thing, so be on time. Also, negotiations will frequently focus on product, quality, and other factors. Price is unlikely to be a key focus.

  • United Kingdom (Jonathan Hatfield)

Don’t arrive at the negotiations and be very aggressive, because you will lose your audience. Also don’t assume that you will become a business ‘partner’ immediately – this is something that has to be earned.

  • Lebanon (Carine Kaldalian)

If they have the upper hand, expect the other party to be late. It’s all part of the power play in the negotiations. Expect to be invited to dinner, even before a tough negotiation. The social side of business is very important in Lebanon.

Also, expect some heavy bargaining, as Lebanese are natural born traders.

  • Germany (Matthias Manegold)

Be on time, be credible, and be trusted by the other party. You need to demonstrate that you are interested in the other party’s well-being and outcomes, not just your own.

Small talk is unlikely. Germans will only ask “how are you?” if they are interested. It’s not a throw-away line, like in the UK or the USA. You must walk the talk – doing what you say you will is very important.

  • China (Xin-jian Carlier Fu)

A smile doesn’t necessarily mean that they agree with you, they might just not want to let you down. Don’t make assumptions about the deal or how the other party is feeling about it.

Also, don’t over talk. Know that the other party is listening, but maybe are just looking for the right way to respond.

Beach vs. Coconut

The final comment fell to our facilitator Giuseppe, who showcased the difference between the peach culture and coconut culture. A beach culture, often associated with Americans, is easy to get into, but difficult to in-depth, while a coconut culture, often associated with Germans, is hard to get into, but once you are in it is worth the effort!

And with that, the Roundtable was complete. It provided a fascinating insight into cross-cultural negotiations, cultural diversity, and how procurement professionals can best prepare themselves for cross-cultural interactions.

If you want to find out more, you can get in touch with Procurious, or with Giuseppe Conti at Conti Advanced Business Learning.

This roundtable was organised by Conti Advanced Business Learning (www.cabl.ch), a Swiss training company that specialises in Negotiation & Influencing training. Giuseppe Conti, has over 20 years of Procurement experience and 10 years of negotiation teaching experience at leading Business Schools (including Oxford, HEC Paris, IMD and ESADE).

Investor Confidence & Debt – A Study in Trans-Atlantic Contrasts

It’s a time of contrasting fortunes for trans-Atlantic businesses, as high investor confidence is matched by high debt.

Investor Confidence

Trans-atlantic businesses are always going to see some contrasting fortunes, given the diverse nature of the market environments. However, two new reports published this week suggest that these contrasting fortunes may have more impact than usual.

Despite a period of ongoing uncertainty in the UK, a new study has shown that investor confidence in UK SMEs remains high. Over 50 per cent of UK investors have stated they will support SMEs through private investment, even as confidence drops in shares, bonds and property.

However, in the US, another report suggests that companies are failing to maximise favourable conditions to lower their debt levels. A lack of improvement in supplier payments, and inventory management, has left overall working capital performance at its lowest level since 2008.

UK SME Investor Confidence

Despite the uncertainty surrounding financial markets and a variety of investment products, the majority of British investors are resoundingly confident in the country’s SMEs as an investment vehicle.

The research was commissioned by private equity house, IW Capital, and crowdfunding specialist Crowdfinders, and surveyed 1,000 UK investors. The survey revealed that over half (52 per cent) of investors said they would support the UK’s small and medium-sized enterprises through private investment channels in the wake of the referendum vote.

This equates to over 12.9 million potential investors for UK SMEs, and comes at a time where investor confidence in traditional assets, such as shares, Government bonds, and property, has dropped significantly.

The Lloyds Bank Investor Sentiment Index has helped to demonstrate the impact of the post-Brexit economic climate on investor confidence levels across the UK.

In mid-July 2016, the Index fell to its lowest level since it was launched in March 2013. Property (down by 35.3 per cent), government bonds (down 15.5 per cent) and UK shares (down 21.7 per cent) all experienced notable declines in investor sentiment.

Young Investors on the Rise

Encouragingly, 70 per cent of the younger age bracket of investors – 18-34 year olds – said they will consider investing in SMEs post Brexit.

Furthermore, the highest proportion of investors in a regional comparison who would back SMEs post Brexit was based in London. A significant 68 per cent of investors in the capital said they would support small businesses through private investment.

Luke Davis, CEO of IW Capital and Co-founder of Crowdfinders, commented on the report’s findings. “Following Brexit, Britain has been in a state of limbo, with consumers and investors unsure how the economic landscape will change over the coming months and years.

“What we can take from this research is that there is a silver lining from a business perspective as our nation’s investors are willing to support SMEs in the wake of Brexit, something that cannot be said for other investment classes.

“In times of economic uncertainty, ensuring support for the nation’s private sector – particularly the SMEs who make up 99.9% of all private businesses – is of paramount importance.”

US Companies Taking on Debt

Across the Atlantic, the situation was less positive. According to a survey from REL, a division of The Hackett Group, large US companies have increased debt levels, rather than improve working capital performance.

The survey looks at the performance of 1,000 of the largest public companies in the U.S. during 2015. It saw corporate debt rising significantly for the seventh consecutive year, as a result of low interest rates. Debt was up 9.3 per cent in 2015, the equivalent of $413 billion.

Since 2009, the total debt position of the companies in the survey has increased by over 58 per cent.

Working capital performance worsened, with a deterioration of 2.4 days or 7 percent in Cash Conversion Cycle (CCC). It is now at 35.6 days, the worst since before the 2008 financial crisis. These figures suggest major inefficiencies in managing their collections, payables, and inventory processes.

The working capital improvement opportunity of companies in the survey now stands at over $1 trillion, or 6 percent of the U.S. GDP. However, this can only be achieved by the companies equalling the performance of industry leaders.

Oil and Gas Performance 

A significant factor in this year’s overall results were the continuing low oil prices. This caused oil and gas companies to increase reserves, dramatically worsening both inventory and overall working capital performance, and dragging down the performance of the entire survey group.

Commenting on the results, Hackett Group Senior Director Craig Bailey stated, “Once again, low interest rates gave companies a perfect excuse to ignore the hard work of optimising receivables, payables, and inventory. This leaves over a trillion dollars unnecessarily tied up in operations. Instead of doing the hard work of transformation, most simply leveraged their future with more loans.”

Hackett Group Director, Ben Michael, added, “Eventually, interest rates will rise again, and there are signs this may happen soon. Then many companies may find themselves in dire straits, after seven years of growing debt and worsening working capital performance. Smart companies are getting out ahead of the curve now, and starting making the changes they need to squeeze unnecessary cash out of these key areas.”

You can access the full report, and results analysis, plus findings for European companies, on The Hackett Group website.

Want to have your say on these reports? Let us know your thoughts on these two surveys by commenting below. 

Away from the world of investor confidence and company debt, we’ve tracked down the key headlines in the procurement world.

NATO IT Division to “Splurge” on Defence Procurement
  • NATO’s Communication and Information Agency (NCI) has announced it will award €3 billion (US$3.3 billion) worth of cyber, air and missile defence contracts.
  • This is the first time since 2009 that NATO has increased expenditure. 
  • Proposals include a €2.5 billion satellite communications contract, advanced software procurement, and further strengthening of NATO’s air defences.
  • The spending increase comes at a time of scrutiny into NATO finances.

Read more at The Register

Nuclear Supply Chain Collaboration
  • Nuclear supply chain organisations from the US and Canada have signed a memorandum of understanding on cooperation this week.
  • The MoU will help to facilitate collaboration and innovation among nuclear suppliers and research organisations in both countries.
  • Focus areas include the development and deployment of advanced reactors and small modular reactors, job-creation and combating climate change.
  • The agreement comes ahead  of the major annual summit for utilities procurement professionals, who are due to gather in September for ISM’s UPMG2016 conference.

Read more at World Nuclear News

Aerospace Supply Chains Under Pressure
  • Boeing and Airbus supply chains were in the spotlight at the Farnborough air show, as pressure grows on both companies to deliver record numbers of aircraft.
  • This is putting increased pressure on already stretched suppliers, and is leading to concerns about supplier treatment.
  • Suppliers are expected to sign long-term supply agreements, promising both regular price reductions, and accepting unlimited liability should something go wrong, or face losing business.
  • It also comes at a time when Boeing have started delaying payments to some suppliers by up to a month.

Read more at the Financial Times

New UK Nuclear Power Plant in Doubt
  • A project to build a new nuclear reactor at Hinkley Point has been put on hold by the UK Government.
  • Despite EDF directors voting to proceed, the Government has delayed a decision until a further review in the Autumn.
  • The project cost is estimated at £18 billion, but could rise to £30 billion when further subsidies are paid.
  • Much of the debate centres on the guaranteed price for electricity produced by the plant being over double of current electricity prices.

Read more at The Guardian

Big Ideas Summit 2016: Big Idea #7 – Disrupting Linear Thinking

Alex Kleiner says that procurement organisations need to throw off their linear thinking to increase flexibility and collaboration.

At the Big Ideas Summit 2016, we challenged our thought leaders to share their Big Ideas for the future of procurement.

From ideas that have the potential to change the very nature of the procurement profession, to ones that got the assembled minds thinking about the profession’s impact outside of the organisation, the response we received was amazing.

Alex Kleiner, General Manager, EMEA at Coupa Software, says that organisations as a whole need to throw off their linear thinking and increase flexibility and fluidity.

This transition will allow organisations to eliminate barriers to collaboration, but also enable procurement to focus more on alternatives to savings, such as usability, people, or even lives saved!

Catch up with all the thought leadership and ours delegates’ Big Ideas from the 2016 Summit at the Procurious Learning Hub.

If you want to find out more about Big Ideas 2016, and what we have planned for 2017, you can visit our dedicated website!

If you like this (and you haven’t done so already) join Procurious for free today, and connect with over 15,500 like-minded procurement professionals from across the world.