IBM CPO Study – What Makes a Procurement Role Model?

This year’s IBM CPO report was launched last week, titled The journey to value: Transforming procurement to drive the enterprise agenda. One of the biggest in the industry, with an impressive sample size of over 1,000 senior procurement leaders from firms greater than $1B in size, it should be – and is – a useful and interesting resource. You can get hold of a copy here.

My colleague at Spend Matters US, Pierre Mitchell, has written an excellent post about it on the Spend Matters US site. Pierre ran procurement research activities at the Hackett Group, so he is a real expert on research techniques as well as procurement matters. Here’s how he explains the new methodology used this year.

The 2014 report was very different though in that it used a single enterprise performance metric to separate the “procurement role model” group from the rest: top 20% in revenue growth compared to their industry peers and also top 15 percent in profit improvement also relative to industry peers. ..

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 other 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”.

So the report defines organisations as being procurement leaders by the success and growth of the organisations those procurement functions are part of. Is this reasonable? We’ve asked the question before – does Apple get quoted as having the best supply chain operation in the world because it really is the best, or because it is the best company in the world, mainly through innovating and marketing great consumer products, and people just therefore assume the supply chain side must be great too?

Whilst that is the drawback with the IBM report, what is good about this measure though is that it does see procurement as part of the wider organisational picture. It might be unfair to say that, in effect, you can’t be a procurement “role model” if you happen to be trapped in a lousy business, but on the other hand, the ultimate test of great procurement must be that it helps the organisation to succeed generally.

Anyway, this definition does seem to draw out interesting findings in terms of what those top organisations see as procurement priorities. What comes though most strongly is how procurement in those cases is trying to help the enterprise use markets and suppliers to drive revenue growth, innovation, and competitive advantage – not just control costs, manage risk and compliance and support operational efficiency (important as all those things might be).

So the top priority for the role model group was “contributing to revenue growth and enhancing competitive advantage”. This is very aligned with what is likely to be the Board and CEO’s goal, we suggest. But it was only the third priority for the non-role-model group (the “underperformers”). The underperformers’ top priority was “getting involved in [the] purchasing decision early”.

Logically, procurement (in the private sector at least) must exist to help drive shareholder value – if that isn’t our over-riding objective, it should be. But many procurement functions seem to forget that. This study re-inforces the view that this is what matters, and we’ll come back to some more specifics from the report soon.

First Voice

  1. James Clawson / iPayables:

    Great article on procurement. Even though procurement is an important part of an organization it makes up only a part of the success of that organization. It helps to see that organizations need to define their priorities as far as procurement is concerned.

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