IBM 2014 CPO Report: Its Biggest Weakness Is Also Its Biggest Strength Pierre Mitchell - December 15, 2014 6:24 AM | Categories: Analysis, Learning / Research, Procurement Research | Tags: L1, Process and Best Practice IBM recently released its 2014 Chief Procurement Officer Study, which boasts an impressive sample size of more than 1,000 senior procurement leaders at firms greater than $1 billion in size. Like the 2013 IBM CPO study, it was led by IBM’s internal research group, The Institute for Business Value, and the execution was outsourced to a third party so that respondent details would be confidential and not shared with IBM services groups. The process is one we here at Spend Matters adhere to ourselves (i.e., the details of anyone participating in a study stays confidential and never shared with anyone). Overall, this is a proper piece of research that we wholeheartedly support. The 2013 CPO study was a fairly traditional one in terms of asking procurement leaders to self-assess themselves on a variety of capability metrics. IBM then created a “top performer” group (more of a “top capability” group, really) based on these self-assessments for influence, innovation and general capabilities. As you’d expect, the leaders did lots of things better than their peers, and they even had a slightly higher profit margin as a percentage of revenue (7.12%) than the overall study group (6.19%). So, perhaps, the procurement capability advantage helped support the enterprise performance advantage, but maybe not. We are leaning more toward the former. Why This Year’s Report is Different What sets this 2014 CPO study apart, however, is that it used a single enterprise performance metric to separate the “procurement role model” group from the rest. IBM took the top 20% in revenue growth and top 15% in profit improvement and compared these participants to their industry peers. It combines industry-normalized growth (which is great), but doesn’t include absolute profitability. This isn’t perfect, but not too big of a deal because it does demonstrate a bias toward firms that are in the midst of positive transformation. It’s also easier to collect this data than absolute revenue or profitability numbers – especially for private firms. The downside of this approach should be obvious. First, the “procurement role model” group doesn't really contain procurement role models, but rather, enterprise role models or at least enterprise top performers. The other challenge is that for all of the rest of the study questions where the role models do many things better, it isn't clear whether this is because the company has a superior R&D group, corporate culture, VC funding or other attributes that are not really driven explicitly by procurement. In other words, procurement is succeeding and great because the whole company is great and succeeding. Regardless, the study is still noteworthy – you can’t claim that this is a myopic procurement study about low-level practices that lead to better procurement metric performance on classic procurement value propositions. The study is “pure” in its enterprise performance focus, and the practice metrics hold a little more weight because of it. It also doesn’t try to be a half-baked benchmark cloaked in a topical research study. CPOs have no time for 100-question surveys. If they do, they’re probably not doing their job properly. What you see in this study is a focus on a much more “balanced scorecard of supply” in terms of how procurement is trying to help the enterprise tap supply markets for revenue growth, innovation and competitive advantage. The top priority for the role model group was “contributing to revenue growth and enhancing competitive advantage.” This is usually the top CEO objective, and it was only the No. 3 priority for the non-role-model group (the “underperformers”). The underperformers’ top priority was “getting involved in [the] purchasing decision early.” This study really conveys and embodies the focus on procurement-business alignment that smartly taps supply market power to enable superior supply performance (and business performance) outcomes! Procurement performance management is ultimately derived from supply performance management. Additional Insights From the Study The role models in the report were clearly “gate openers” rather than gate keepers, and 38% of them said among their top 3 priorities was to “introduce innovation from suppliers and other sources,” compared to 20% from the underperformers. The role models also exhibited much more of what I call “strategic procurement” (i.e., procurement having input into the business strategy) versus performing a procurement strategy that merely tries to support a business strategy already determined without meaningful procurement involvement. Fifty-five percent of role models “convinced senior leaders to enter new markets or lines of business based on an identified opportunity” compared to 36% for the underperformers. Sixty-two percent of the role models also “brokered new relationships with suppliers that introduced new ideas and innovative thinking” as compared with 39% of the underperformers. The study compares the level of adoption across 6 different procurement innovation initiatives that we recommend you check out. The final area of focus in the report dealt with procurement technology, specifically focusing on analytics. The latter area had of the most interesting results: 41% of the role model group had advanced analytics “integrated into procurement actions” as compared to only 16% of the underperformers. Both groups have an opportunity here to improve, but the difference between them is huge. This is great news for IBM. We are expecting some big things from IBM in 2015 and beyond related to cloud-based advanced analytics integrating with procurement applications and workflows – particularly surrounding compliance and risk analytics. We say don’t be afraid of big brother Watson (“IBM” is only one letter off from “HAL” in Stanley Kubrik’s 2001 Space Odyssey) and we look forward to the innovations coming out of the lab and into the supply chain. Bottom Line This is a very good report that’s worth checking out. It’s short, too – only about 10 questions – which helps with getting CPOs to participate! We also have some recommendations for IBM for next year’s study that will help improve the focus and quality even more, but that’s an offline discussion. Still, we’d like to applaud IBM for a job well done in creating something different than the usual yada yada yada. Related ArticlesOur Seasonal Case Study as Market-Informed Sourcing Saves Christmas... 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