My first Op-Ed, Open Letter to the C-Suite, appealed to the C-Suite to hold Procurement accountable for not investing in technology. The blog referenced a Gartner perspective that only 22% of procurement leaders have a long-term digital strategy. I touched a nerve, invoking comments from a few readers suggesting there are procurement leaders - the Magical CPO - that understand how to navigate the C-Suite to get the budget for technology investments.
To give credit where credit is due, Nikesh Parekh, CEO of Suplari (Now Microsoft), is the source for the term Magical CPO. It describes a procurement leader that understands how to build business cases and secure budgets for technology investments that improve their department's efficiency and effectiveness while supporting the needs across all business disciplines. The Magical CPO persona, by definition, is juxtaposed with the technology laggard. If you saw my first Op-Ed, I noted that 78% of procurement leaders are technology laggards without any digital automation strategy.
The Magical CPO persona
Let’s unpack the Magical CPO persona to agree on common qualities. My views are based on my observations and experiences over a 30+ year career in procurement. There is no Wikipedia page for Magical CPO nor a Google search that prompts any relevant hits - I checked. While I understand there are more sources than Wikipedia and Google, the point is that there is generally no standard persona for the Magical CPO. Here’s my interpretation of what the Magical CPO must possess:
Greg Tennyson, SVP of Strategy & Procurement, Fairmarkit
Let's start with a bit of a history lesson. Have you heard of Robert Rudzki?
As the co-author of the 2005 book Straight to the Bottom Line®: An Executive's Roadmap to World Class Supply Management, Rudzki knows a thing or two about the subject matter about which he confidently writes. Between 1977 and 2005 – 28 years, he was SVP and CPO for notable brands Bayer Corp. and Bethlehem Steel Corp. Be sure to note his dual finance and procurement role.
Based on his expertise – which includes an MBA in Finance from the world’s oldest and most prestigious business school, Rudzki identified the five critical finance terms every purchaser should know. In short, his bridge between finance and procurement was to have the latter refocus on areas such as ROIC, Cost of Capital, and P/E Ratio.
His reasoning was supported by a 2006 article that asserted, “Too often, finance executives in Corporate America simply don’t believe that purchasing departments are really bringing in the savings they claim" because “financing and purchasing don’t speak the same language.”
This linguistic disconnect was further emphasized in a 2007 news report indicating the following:
Less than 20% of CFOs consider the work of CPOs and their staffs as having a very positive impact on competitiveness.
Additional insights from an excerpt of the research paper referenced in the same news report also indicate that:
Mary Zampino, Vice President – Content, Research & Analytics
Accounts Payable function is fundamental to the operational and financial success of many organizations across the globe. Yet it continues to be viewed as a cost center.
It was never uncommon to hear of documents buried in paper trails, missed discounts and strained supplier relationships, etc. But recently, the pandemic added to these woes and proved that the ways in which many Accounts Payable teams still operate are not just dated and costly, but may also put the health and safety of employees at risk.
Stuck in the dusty alcoves of the back-office and bogged down by a myriad of time-consuming, manual tasks, an un-optimized AP Function is host to a slew of redundancies, avoidable costs, and frustrating friction areas.
Not recognizing and dealing with these redundancies will become increasingly costlier to businesses – competition is already at an all-time high and teams are being asked to deliver more every year. And in addition, issues like climate change mean that uncertainties and global disruptions will only become more frequent with time. In this backdrop, organizations that still haven’t got on the AP Automation bandwagon need to ‘level up’ to survive.
Fortunately, as per the latest bodies of research, these problems aren’t just easily rectifiable but they’re also ones that are likely to pay the most dividends once solved. Case in point: Gartner’s research found that AP (APIA in specific) is one of the best applications of artificial intelligence in a business, both in terms of business value and in terms of feasibility.
A CFO-CPO relationship, like any other, is not perfect and is often rooted in a lack of trust and miscommunication, which, at times, makes it seem beyond repair. The CPO promises savings and talks about adding value, but the CFO only sees costs and finds the P&L showing increased spending. This obvious gap between what procurement claims and what finance sees deepens further because the language and terminology used are not aligned. As a result, misunderstanding and communication breakdowns happen.
Before exploring how to make the relationship between procurement and finance work, it is crucial to note how procurement has evolved from having the penny pincher reputation to becoming the heart of supply chain management. Organizations are now starting to see it as a key driver for competitive advantage. With various value-adding superhero functions, it has emerged from being just a cost-cutting function to having its own voice with a newfound organizational influence and corporate visibility. Mastering its potential and knowing its strategic and critical contribution will ensure a competitive advantage in today’s dynamic global business landscape.