The Perfect Partners - CIOs and CPOs tackle disruption together
Ten years ago, most organizations -- midsize to enterprise – viewed procurement in simple, linear terms. There was a lot of process around evaluation criteria and the RFP, and then a major partner was selected. That might be an IBM or HP, but the name almost didn’t matter. The process was more about “checking a box” than it was about collaboration and alignment. The procurement team then stepped aside, apart from a few check-ins and updates. Then they would get ready for the next cycle, or the next procurement need. Boxes checked, right?
If you’ve been working in enterprise in the past half-decade, though, you know this model is changing. For one, disruption is real. No one is immune to it, and that includes both legacy players and industry sectors. We talk about disruption in a lot of different ways, but, let’s be blunt: companies who disrupt legacy players tend to be better at decision making, in large part because they aren’t as weighed down by bureaucracy. The majority of companies that reach a $5 Bn valuation have between 9-14 layers from the CEO down to the lowest level. That’s a lot of filtering, and that slows processes down. Those are the companies that get disrupted.
Equally, those 9-14 layers involve a lot of silos, making IT procurement more complicated. Most Chief Procurement Officers -- who were themselves once a silo -- are now having to work with CIOs, CTOs, CMOs, and other teams. They are managing dozens of relationships internally, as well as the traditional external relationships -- the RFP candidates -- and the upstart vendors. In addition to those complexities, procurement is now being challenged to drive value (innovation, TCO, enhanced collaboration) and not just focus on the cost-out, which was the main value proposition years ago.
It’s a much more complicated, dynamic space than it was even 10 years ago.
It’s more about getting the steps right
So what now?
One of the more promising partnerships we’ve seen in managing this space is between a CPO (Chief Procurement Officer) and a CIO. Some of the best ideas for success resulting from this dynamic include:
Bash down the silos: Here’s a not-so-fun fact: Machiavelli actually predicted business silos -- back in 1513. A lot has changed in the intervening 500+ years, but silos still exist. Too often CPOs and CIOs have to come together and start viewing concepts in a territorial sense -- i.e. “us” vs. “them.” That doesn’t work. It slows down decision making and leaves you vulnerable in key spots where you need legitimate end-to-end solutions. Work together. Worry less about who “owns” what.
Collaboration and Alignment: Let’s look at a depressing title from Harvard Business Review -- “Only 8 percent of leaders are good at both strategy and execution.” We’ve seen this to be true. In RFP contexts, process rises to the top. That requires a lot of focus on execution, which is beneficial, but you cannot lose sight of strategy, and/or stop discussing it with internal partners. Collaboration has become the new competitive advantage.
Communication: We’ll keep this simple, because even though it’s a soft skill, it should be the bedrock of everything you do in business. Clear, concise, and contextual communication pays dividends.
Matrix reporting: We usually recommend a solid line to the CPO and a dotted line to the CIO for anyone touching procurement. Matrix management is commonly associated with revenue per employee (long term) and gross profit margin, and there’s a reason why: matrices break down silos, resulting in better decision making. At its core, most of our work (and almost all of procurement) is about effective decision making, not sequestering information to increase personal relevance.
Now let’s turn to each role inherent to this process, starting with the CPO. What does success look like? What must be the focus?
Know the business: Typically, (not always), the CIO is more closely connected to the business functionality than the CPO. It’s impossible to get that “seat at the table” on really big discussions if you don’t know the business and the numbers that drive it. Learn that, and rely on the CIO for gaps. Strange to say this, actually, given CIOs ten years ago were also not at the table.
Play the bad cop role properly: CPOs sometimes chase the extra five percent when they don’t need to, and overplaying the bad cop role causes problems in key stakeholder relationships. The CPO should know the balance between driving value for the organization while not creating long-term damage to supplier and business/IT relationships. As Kenny Rogers famously sang, “... know when to hold ‘em, know when to fold ‘em…”.
Now for one final step - what does CIO success look like in the procurement process?
Embed the CPO team and help them learn the business side: This is crucial -- and while it’s work, it makes the end result much better.
When there is internal misalignment, have a mechanism for efficient and effective resolution. Have a process that efficiently and effectively resolves the issue at hand to keep the decision process moving and the silos and “us vs them” at bay.
Respect competition: Relationships matter, but competition is a good thing. Upstarts exist because upstarts did something better than the legacy providers. That’s how they began capturing business, even if the market share is smaller. Listen to them. Understand what they’re offering. See if you’re interested.
The final piece of this puzzle is a question we hear a lot. People will ask some variation of: “We’ve always had procurement through IT … should we centralize it?” Basically, this is a legacy process question about silos: if you have good communication, process, alignment, and execution, it absolutely doesn’t matter where you house it. The most logical play we’ve seen is CPO/CIO collaboration, but if you’re doing what you need to be doing and evaluating your options logically internally and externally, it can be housed anywhere. It’s more about getting the steps right.