The Changed Role of the Chief Procurement Officer
After decades of focusing exclusively on cutting costs, CPOS are finally coming into their own as valuable contributors to an organization’s overall strategic direction and business growth.
Organizations are now looking for CPOs to deliver value in new ways. Progressive CPOs have expanded their remit from a focus on cost leadership to enabling innovation, agility and supply reliability. Procurement leaders have access to more advanced analytical tools and emerging technologies, raising data-driven decision making to a new level and enabling collaboration at scale. This new leadership is even more critical as organizations face increasing volatility and complexity, including the specter of Brexit and global trade wars.
To further understand their evolving roles, we looked into our proprietary database and analyzed the psychometric data of leading CPOs. Through our Hogan Assessment tool, we uncovered what differentiates top-tier CPOs now and what all CPOs will need to thrive in the future.
Today’s Best-In-Class Procurement Leader
Procurement officers in most large organizations are no longer just tactical operators. The role is increasingly focused on supplier relationships and has shifted from transactional to strategic: influencing margins, shortening time to market and contributing to innovation. CPOs are going beyond a one-on-one relationship with their direct suppliers, and, instead, they have become responsible for developing ecosystems outside their organization.
Given these changed responsibilities, it is not surprising that when we examined the psychometric profiles of best-in-class CPOs relative to other executives, we found leaders who score significantly higher on relationship building, lateral thinking and change management.
Tomorrow’s CPO: New Responsibilities and Opportunities
As the CPO’s mandate continues to evolve and grow, CPOs will soon need new skills to match. The next generation of CPOs will be called upon for innovation, digitalization and to help steer the organization through volatility and complexity. They will continue to demonstrate strategic, innovative, determined and results-oriented leadership traits, as well as further develop their political savvy and influencing skills.
CPOs of the future need the skills to address the following areas:
The procurement function is becoming more strategic, and CPOs need to fill those bigger shoes. This means understanding the overall business drivers, having a longer-term view and innovating the way the function is running. Currently, the most common leadership traits in procurement are acting as a role model, collaborating internally and externally to deliver value and delivering results. Conversely, strategic leadership traits such as positive disruption, leading digital transformation and innovation are not commonly found among today’s CPOs but will need to be developed quickly.“I’m out there looking for ways to keep improving and keep adding value. I spend 25% of my time there speaking with other CPOs, leaders from industry and technology companies, so I can find out how they’re thinking around these challenges and how they’re motivating their teams.”
—Bob Murphy, CPO of IBM
Organizations can no longer afford to operate in isolation. Instead, they function as part of an enormous global network. CPOs must navigate a complex web of stakeholders, including suppliers, customers, internal colleagues, and external organizations and partners. The route to sustainable advantage lies in exploiting the strengths and competencies of various stakeholders to achieve greater responsiveness to market needs. As a result, best in-class CPOs have shifted to “systems thinking” and use their skills in relationship building and influencing to partner with suppliers and sometimes even competitors.
Today’s multinational organizations are part of multitiered global supply chains linked together in complex webs of relationships traversing multiple jurisdictions. These intricate networks can mask dangerous vulnerabilities: A problem in one area can quickly ripple up and down the supply chain, leading to severe reputational damage. Companies are also facing a growing number of regulations and an increased awareness among consumers around the sustainability of the goods they buy. Consumers and regulators today hold companies responsible not only for their own practices, but also for those of their suppliers. To meet their demands, CPOs must be prepared to increase transparency of the sustainability and compliance of their suppliers.
While prospects of a digital transformation in procurement look promising, the reality is that most organizations have not yet captured the opportunities those tools will deliver. Procurement leaders need an understanding of how they can capture the benefits of those new tools for their own functions and across the organization.
Beyond the procurement function, CPOs will increasingly be called upon to enable digital efforts across the organization, including honing an ability to source in-demand digital products like robotics and artificial intelligence.
Procurement leaders of the future will need to lead a different type of organization. New technologies could reshape what current procurement teams look like and how the procurement organization is structured. New roles are being introduced to the firm, and talent with an analytical or data science background is entering procurement teams. Unassisted, or cognitive, procurement holds the potential to also replace elements of traditional procurement teams.
THE WAY FORWARD
Embracing the new direction of the CPO is no longer an option due to the competitive forces in every industry today. It is imperative for leaders to assess how they leverage the procurement function and where they are in terms of maturity of the function, as shown in Figure 1.
Figure 1. Transformation of the Procurement Function
CEOs and boards of companies should proactively assess their procurement leaders and broader procurement teams and think about their future pipeline in the short, medium and long term. Ask these key questions:
- Does our procurement leader have the necessary skills and capabilities to bring our procurement capabilities to the next level?
- Does our organization have the right organizational enablers to ensure the procurement function can transform, including the right digital skills and the right culture to drive adoption?
- Do we know the strengths and weaknesses of our current procurement talent pool?
- What are the right KPIs for the procurement team going forward?
Leaders who start this process now will be in the best position going forward—able to snatch up the best talent, cultivate the best culture to adopt change and implement new technologies first. The evolving CPO role has already brought significant benefits to companies with the right vision, and the future will be no different as procurement continues to bring in value.
CHUI C. LEE leads Russell Reynolds Associates’ Procurement practice in Asia Pacific. She is based in Singapore.
MARIEKE VAN DER DRIFT Marieke van der Drift leads knowledge management for Russell Reynolds Associates Operations and Supply Chain practice. She is based in Singapore.
PAMELA YAU is a core member of Russell Reynolds Associates’ global Leadership & Succession Practice. She is based in Singapore.