CPO Masters of Complexity (Part 1)

It sure seems like most everyone’s life is getting more complex. When I casually ask friends how they’re doing, the response is usually something about being ridiculously busy and barely being able to keep their head above water. In this age of constant connectivity, rampant over-scheduling at work and home, and constant barrage of information, complexity seems like the new norm.

The same is true for chief procurement officers (CPOs). According to our eighth annual “Global Chief Procurement Officer Survey,” CPOs largely see procurement-related risk on the rise — nearly 60% of the 481 respondents indicated that risk has risen either significantly (19%) or somewhat (42%). This is part of a broader theme of increased complexity that came out in the survey findings, where we profile complexity in four main areas: external complexity (headwinds coming from outside of the four walls of procurement), internal complexity (challenges of managing internal relationships and alignment with business objectives), talent complexity (building effective procurement teams and operating models), and digital complexity (defining and executing on digital strategies that are aligned with broader digital transformation efforts). In this post, I will focus on the first two areas of complexity. A subsequent post will discuss the last two areas.

External complexity has risen to the fore recently, with forces like trade wars, climate change and a potential economic slowdown driving what many businesses fear most — uncertainty. The top risk cited by survey respondents was the specter of an economic downturn (42%), with a trade war not far behind (33% overall, 48% for manufacturers). Interestingly, 37% cited managing complexity with mega-suppliers as a key area of risk, indicating that supply base consolidation in certain industries is changing the balance of power and forcing CPOs to rethink strategies for managing these suppliers. This insight corresponds with go-forward CPO strategies, such as supplier collaboration (28%) and restructuring of supplier relationships (25%) as two of the top four reported planned strategies.

So how are companies effectively navigating these external forces? In the survey, we introduce the concept of complexity masters, procurement organizations that are in the top quartile of both performance and relative complexity. When we dug into the results, we found that these complexity masters were more proactive in addressing external risks: 58% said they were completely or to a large extent prepared to address these risks (versus 41% overall), and 24% said they had completely or to a large extent planned to shift sources of supply (versus 14% overall). So, proactive planning in the face of uncertainty is key, as is being more aggressive about executing on that plan, although even complexity masters seem to be hedging a bit on shifting their supply.

Then there’s the digital angle, as digital capabilities are critical for getting visibility into potential external risks and their likelihood of occurring, as well as into possible alternative sources of supply. Here the survey found that high-performing procurement organizations had demonstrably stronger digital capabilities than their peers.

Internal complexity is also top of mind for CPOs and presents its own set of challenges around managing key stakeholder relationships and building procurement’s credibility and scope of services. In fact, internal complexity came in as the second highest perceived risk among survey respondents. Progress has been slow in this area, as only 26% of respondents rated themselves as excellent strategic business partners, up from 24% last year.

More so than external complexity, internal complexity has a good side, which stems from procurement expanding its purview, getting involved in budgeting/planning discussions as well as in areas like innovation, outsourcing/automation, and third-party risk management. While this expanded role drives complexity, it’s generally seen as a good problem to have.

How do complexity masters deal with internal complexity? They are almost three times more likely to rate themselves as an effective business partner (73% versus 26% overall), not only because they tend to do a better job of establishing strong relationships with internal stakeholders, such as IT, finance and manufacturing based on deliberate stakeholder engagement strategies, but also because they have greater executive advocacy. And digital capabilities play a role here as well, with greater access to data and analytics fueling more effective, data-driven discussions with internal stakeholders and greater internal credibility as a strategic partner.

So, while external and internal complexity continue to challenge CPOs, there is a roadmap to managing this complexity more effectively — and to taking on more good complexity in the process.

Deloitte’s eighth annual “Chief Procurement Officer Survey” is available online by clicking here.  Join us for a webcast on Nov. 13, where we will discuss the report’s top findings across the four areas of complexity.

Ryan Flynn is a principal with Deloitte Consulting LLP and a lead author of Deloitte Consulting’s 2019 “Global CPO Survey.” He can be reached at rpflynn@deloitte.com.

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