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- November 17, 2016
The role of CFO is changing. So too is the role of CPO. And, ever since the great recession, the two have become more allied than ever before, to the mutual benefit of both, according to a new report by Ardent Partners.
As CFOs become a strategic partner to the CEO and the business units, many are finding support in a strong partnership with procurement. Having leaned on procurement to cut costs during the recession, enlightened CFOs are now leveraging the office of the CPO more effectively to generate value that goes beyond just cost savings.
Procurement, for its part, has been enabled in recent years by new technology to gain better visibility and control over all indirect spending.
With a more complete data set to deliver better analysis and recommendations, CPOs in best in class procurement organizations are finally getting that long sought after seat at the table with executive leadership, and turning spend management into a business imperative.
Why isn’t that happening in every organization? Why aren’t all CFOs leveraging procurement more? What are the struggles that CPOs face in getting CFOs to support procurement with tools and resources? What can we learn from CPOs and CFOs that have partnered successfully?
Those were the topics of discussion on a recent Coupa-sponsored Ardent Partners webinar, “CPO Roundtable: Strategies to Engage the CFO and Make Spend Management a Business Imperative.” Andrew Bartolini, Managing Partner and Chief Research Officer at Ardent led the discussion with Coupa Executive Advisory Board members Mike Jacobs, Vice President and CPO at Staples; David Hearn, former CPO of Juniper Netorks and Chief Advisor at CPO Advisement Services and Jack Miles, Managing Partner at Mainspring advisors. Here is an excerpt of that conversation.
Andrew: How can we elevate spend management to the level of business imperative? Procurement is not just here to save money. We’re here to make the business more successful. Where does savings fit in?
Jack: I would suggest that procurement talks about savings way too much. Procurement adds value in a ton of ways, from governance, to building relationships to protecting people from themselves on terms and conditions agreements. I think looking at those is better than just focusing on savings.
Mike: When you get in front of the executive team, I see eyes glaze over when I focus too much on savings. You need to show it, but the more you can talk about other things like revenue contribution, customer satisfaction, supply security and M&A support, that's really what gets the attention of the executive team.
Dave: Savings also presents a challenge because of the ambiguity in how it's defined. Procurement savings doesn't necessarily hit the general ledger. That creates some challenges.
Andrew: CPOs have many challenges, but they can be eased and improved by a strong partnership with the CFO. How do you get the CFO to approve, and ultimately sponsor, a procurement transformation business case?
Mike: The first question is, what does a procurement transformation business case involve? There are likely some very significant personnel changes, some structural changes to the organization, and investment in new talent.
There's potentially some investment in technology. There is likely to be some mandate for collaborating with business stakeholders. There are potentially policy changes and above all else is there likely a savings plan that goes around all of that. You need the CFO's cooperation to put together what is a pretty radical transformation.
We tend to think, why wouldn't you put more money into this because of the great return you get out of it? But I've learned over the years inside corporations that there are headcount limits. There are budget limits. CFOs, even though they appreciate the value proposition, operate with the mindset around the actual G&A costs.
Dave: I like the "Trojan Horse” strategy. If your procurement transformation business case is standalone, it may not be enough to be more important in other projects. So, look to attach to other cost savings projects. That's the real win.
But there are other Trojan Horses too. At Juniper there was a project to look at compliance. I looked at how, by transforming our procurement processes, we could support compliance initiatives. Anywhere you can make the transformation business case a subset of a corporate business transformation, you're going to be able to jump on that train much more easily.
Jack: I think another way in is through the process you have with the people that you're looking to support. In many cases, some of the businesses will actually be your partner in trying to work on getting the resources for you.
Andrew: Procurement has come a long way. In 2006, one out of every three CPOs was running their department without a formal strategic plan in place. A decade later almost every CPO is using an annual or multi-year plan. Unfortunately, our report found that two of three CPOs in 2016 lacked tight alignment between what they're working on and the overall business objectives. Why are so many procurement departments out of alignment with the focus of the business, and with overall enterprise objectives?
Jack: The procurement strategy and plan has to support the business strategy and plan. That can manifest itself in a whole bunch of different ways. In one organization that I was in, I found that the businesses were actually looking for our help to make introductions with some of the executives that we worked with on procurement transactions. So, we began to help the businesses in that way and it became part of our strategic plan. Now, is that in the basic box of what procurement does? Many folks would say no. Yet, it's a kind of engagement with the business that helps them with their strategy. If that's important to the business, it should be important to the procurement organization.
Mike: Jack is exactly right. We often get asked by the sales folks to help link the supplier and customer side. Is it something on my radar all the time? No, but it certainly is a great way to collaborate with the business.
Andrew: We have an audience question about whether this is collaborative or it's something that CPOs should take upon themselves.
Dave: I think you have to start with the goals of the company and then the goals of the CFO and then roll down the CPO goals from that.
Now, the CFO is going to have a goal on savings and financial savings. That's pretty simple. But maybe they also have a goal to expand to new geographies. You better have a procurement goal on how you're going to help do that.
Mike: What we need to realize is that all of our business stakeholders have a P&L to manage and they have their own negotiations with the CFO over what that P&L looks like.
Our head of marketing, for example, may have some marketplace objectives, and some cost reduction objectives that they’ve worked with the CFO on. Now, that's where procurement comes in. We embed ourselves in that.
So, my team has a role then in each of those businesses and we do a roll up of all of that. But, I’m very Zen-like in my approach. The decision is up to the business, and so is how transparent they want to be about the savings.
Andrew: Let me ask a follow up to that. Sometimes that is a deterrent for those in the business to actually engage procurement. They figure, "Well, we can just get the savings ourselves and redirect it how we'd like and no one is the wiser." Do you see that as something CPOs and procurement teams need to address?
Jack: It's an ongoing challenge and frankly it's one of the reasons I've always suggested to stop talking about all the savings because at the end of the day, are you saving money, or creating an environment where projects might be able to get done because less money was spent?
If you have a finance organization that runs behind procurement and starts pulling money back, you get to a point where nobody really wants to do business with you because you're the front man for the pickpocket.
Dave: I think Jack is on track there. I worked in an organization once where we spent man-months producing a 27-page typewritten definition of savings covering every scenario possible of where saved money would go.
Not only did it waste a lot of time, it also set us up as the budget police. I don't feel that's a great role for procurement because it conflicts with business partnerships. We want the business to work with us.
Andrew: The big question here is why do so many groups still struggle to make spend management a business imperative?
Dave: Many of us have had this vision of looking at total spend management for a long time. When I think back to the beginning of my career, it was so hard to get the data on spend across the company in all the different pockets, whether it be purchase orders, or purchasing cards, or TMA, travel card. They were all different places.
If you can't go into a management team, a business team and show them their entire spend, in an easy to comprehend way, you're going to have a difficult time making it a business imperative.
Over the years it's gotten easier for us, although it's not perfect yet, but there are good spend management platforms out there -- I implemented one at Juniper Networks -- that helped me then go into the marketing team and say, "Hey, here's your total spend."
Now people can get their arms around it, and they must. But if you're not going in with a total view, you're not going to be able to convince the rest of the business to make it an imperative.
Mike: Dave talked about having visibility into spend, and I think there's a backward looking view of spend, and ways to automate that.
I think that the shift that we’re working toward now, is how do we use the tools that are available in the marketplace now to get ahead of the demand, to see the demand coming in real time and work with our stakeholders in order to have influence of that spend in real time.
Jack: I think you also have to take a look at demand management. Most procurement organizations that are worth their salt have gone through a lot of the major categories and added some value in improving price performance.
Where you can add value in organizations is to look at what they're consuming. I've always used the diet analogy. You can buy all the food at the best prices. If you eat too much, you get fat. Consumption is one of the things that's really important to look at--what people in the organization are buying and why.
This can include travel, it can include services and a whole host of things. When you do that, you become a bit of a barometer to an organization. You create more of a partnership with your stakeholders and you become more of a needed function because you're adding some of that value, not just counting nickels and dimes on transactions. You are more of an imperative.