Situating your procurement organization correctly can make or break a new CPO. It is important to choose the right focus areas given the prevailing procurement environment.
In a permission-based procurement environment, business units maintain the decision-making power and can choose to 'opt-in' or 'opt-out' of central initiatives.
There will typically be cultural and brand loyalty towards the business unit rather than towards the parent or the central unit. Sometimes, there will be historical apathy or hostility too. And if the corporate DNA is not likely to change, then making this is one of the most challenging roles to take on as a CPO.
The aim of this article is to support these CPOs in taking the right path here.
Situating your procurement function: A decision model
Also read: Is the Kraljic Model of Procurement Broken?
What are the options from a central delivery perspective?
The first thing to mention is that you need to start small and build more permissions. This is a long game compared to the CPO taking on the challenges from other dimensions in the above 4-box model.
On what a 'decentralized CPO' should take on, here is a potential menu of services, mapped against maturity and investment requirements.
Service offerings decision model and the journey of a CPO in a permissive procurement environment
By quadrant, let us look at three potential services:
1. Start here:
Where few permissions exist and there is limited alignment from the business
- Cross-pollinator of best practices. The central function with limited investment can become the sharer of knowledge, the knowledge manager and the spotter of good practices.
- Custodian of policies and systems. Focus policies on the what and not the how. Then, a central team can provide the principles that all business units should follow -- from a code of conduct (for buyers and suppliers) to the correct approach to negotiation (post-tender negotiation ethics for example). It will set the tone of your organization to the external world.
- Commercial center of excellence. Perhaps it’s a suite of training or an offer of help on some tricky contract or negotiations. But establishing a reputation as commercially competent is a key foundation for future departmental success.
2. Prove the case:
These services require headcount and/or systems investment of considerable size. But if the argument is won, it can form the critical mass of a core team.
- Central initiatives. A growing number of cross-business unit requirements are emerging from stakeholder groups – reducing scope 3 emissions and critical infrastructure resilience being just two. These are ideal opportunities to strengthen your coordination role and create an infrastructure that promotes consistency and collaboration between business units.
- Aggregator of common goods and services. This would appear to be a no-brainer, but amazingly, many goods that could be bought commonly and at a better scale continue to be maintained and acquired locally. If resistance is met to 'obvious' commonality (e.g., an enterprise agreement for stationery, or Microsoft licenses), then there are cultural inhibitors that may need addressed at a more senior level first.
- Spend control towers. Being able to understand the holistic spend profile with a particular supplier across business units allows for an elevation of the relationship with the supplier above what is achieved locally. One business unit dominates with buying power, but the halo effect can benefit everyone. These insights are only possible with good data and standard reporting across the portfolio.
3. Test the water:
These services are potentially of significant value but can lead to friction where the business unit feels they are giving a 'veto' to the central team.
- Dispute resolver. When a voice one step removed from a crisis is needed to bring calm judgement on a situation, then a central function can be a soothing balm in a dispute situation and offer clear, more impartial perspective.
- Large spend governor. A central point of challenge or approval over large or long-term purchase decisions is not untypical given delegated authority frameworks. However, procurement is not always an approver. Getting a 'seat at this table' increases the authority of the team and promotes good procurement matters before a significant investment is made.
- Make vs. buy provocateur. Decisions on what to outsource or bring back in house are taken on an ad-hoc basis at a functional level. A more systematic review process on an annual or bi-annual basis is emerging as a norm, and the central function is ideally placed to take on this service for business units and the corporate center.
4. Grow to here:
Mature permission-based procurement teams have evolved to provide services of quality in these areas, but they are in the minority:
- Engine room for sourcing ops: Having a shared service center for running RFPs, auctions or other competitive events can liberate the independent procurement teams of capacity whilst ensuring they still feel in control of outcomes.
- Advisory services: Having the consulting skills to support opportunity identification, operating model reviews, digital road-mapping or capability growth enables the center to dive in as a key support advisor to the retained business unit procurement team, providing high impact in a short time frame without "taking over".
- Special project SWAT team. For large and complex buys a skilled team of commercial specialists may be temporarily needed and the central unit can support them on an in-then-out basis, like the advisory services above but this time focused on project delivery.
Also read: Deciding When To Build or When To Buy a Procurement Function (Or Parts)
For readers with a private equity background, there are some parallels -- some of these services are provided in different flavors by the holding company (or their team of internal/external consultants) to their portfolio. This menu and framework of service offerings should help frame the unique needs of the permission-based Procurement corporate culture.
Author: Graham Copeland