Procurement Organisation and Structure – Why It Matters For CPOs

I was a CPO in three large complex organisations over a ten-year period; one was divisional and multinational;  a public sector body was national but huge and complex; and the third was somewhat international but with highly autonomous business units. So how to structure the procurement organisation was important to me for that time, and I came away believing that these are key issues in terms of driving the success or otherwise of procurement.

Now some people say “You can be centralised, decentralised, or anything else, and as long as you have good people you will be fine”.

It is likely that what is really meant by this argument is not that it doesn’t matter, rather that different structures can work in different organisations (which is absolutely correct). Indeed, different structures might even be equally effective in the same organisation. That is also true; in some organisations, a number of quite different structures might all work adequately.

However, it is undoubtedly true that for many organisations, some structures will not be effective for procurement. Anyone who has tried to implement even a partially centralised procurement function, let alone a fully centralised command and control model, in a highly decentralised business will understand that.

The key to designing an appropriate procurement structure is therefore to make sure it is aligned to the wider organisational strategy, culture and goals. It seems unlikely that anyone would argue against that! But there are two other reasons for thinking carefully and clearly about this issue.

The first is around the motivation of procurement staff.  The clarity of the overall structure is key, and by that we include aspects such as staff having clear role responsibilities, reporting lines and deliverables.  It may sound crazy, but I have seen more than one organisation where staff struggled to answer questions such as “who do you report to” (blurred or matrix reporting) or “what are your core responsibilities and objectives”?

This does matter, as everyone who has studied Maslow and Herzberg understands. The Maslow hierarchy of needs and Herzberg’s Two Factors postulate that humans need to have certain basic needs fulfilled (“hygiene factors”) before they can move up the pyramid and focus on other higher needs and goals (“motivators”).

Those basics around understanding my job, who I report to, are actually quite low on the hierarchy of needs. They’re not as basic as food and safety, but neither are they at the top of the pyramid with “self actualisation”. So our people need to have those needs addressed, to feel comfortable and secure in their basic jobs, if they are going to go on and think about the more fulfilling aspects of the role.

Then we have the stakeholder aspect. Every competent procurement function understands the importance of working with, influencing and managing the stakeholder base. Yet too often, the basics of stakeholder management are not in place.  So I came up with a variant on the hierarchy of needs, which I called the Hierarchy of Stakeholder Needs. Now I’m not sure these definitions are exactly right, and this clearly does not have the intellectual underpinning of Maslow and Herzberg, but the point is sound.

The hypothesis is that if stakeholders don’t understand the basics of how they are going to work with procurement, it is hard to see that they are going to be enthusiastic about more taxing and strategic activities; joint working groups, innovation initiatives, shared cost reduction programmes and so on.

If stakeholders don’t understand the rules and policies around procurement, if they don’t know who they should talk to in procurement (which is where clarity of structure comes into it), then we have problems. Once they understand these basics, then we can show them that we can help them achieve their business goals, and ultimately act as partners and trusted advisers.

This suggests that as well as clear communication with stakeholders, and appropriate governance processes, clarity around organisational structures is key, whether the chosen model is centralised, decentralised, matrix, or whatever. The people working within the procurement structure must understand how they fit into it. But it is just as important that the stakeholders of procurement understand how they relate to the overall structure and the procurement players within it.

First Voice

  1. Piyush Shah:

    A very good attempt to link structure and effectiveness in procurement. In most cases the procurement structure is an outcome of two reasons – (1) An unplanned organic evolved structure because of top management neglect (2) Coerced structure because of some top management fetish. Very rarely is purchasing structure designed to suit the purchasing environment or to suit the skills and competencies of the purchasing officers.

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