The world is changing and so is procurement. The function is under immense pressure to transform and reinvent itself. The role of the CPO and their teams in the future will look very different from how it looks today. My conversation with some procurement leaders suggests that CPOs are at a turning point with four potential paths: up, over, down, or out.
There are a few reasons for these (new) roles and future paths. We are entering a new era of digital transformation. Due to advances in areas like robotic process automation (RPA) and artificial intelligence (AI), transactional and routine activities that used to be procurement’s focus are increasingly being automated or outsourced. Cognitive technologies are already changing how procurement operates today.
Procurement has become a victim of its own success. In many companies, strategic sourcing has run its course—the "low-hanging fruit has been harvested several times over" and savings opportunities are drying out. The old paradigm of cost reduction and cost efficiency is coming to an end. In fact, some of the methodologies and principles of strategic sourcing used today will become obsolete, even counter-productive, in the future, according to consulting firm Vantage Partners.
Here are the four pathways I can see for chief procurement officers in the future:
CPOs are moving up into new roles with responsibility for end-to-end customer experience and other growth-oriented functions.
In 2017, Lenovo's former procurement chief Gerry Smith went from CPO to CEO when he took over the top position at Office Depot. The most famous example is arguably Tim Cook, who got hired by Steve Jobs in 1998 to transform Apple’s procurement and supply-chain operations and went on to become the CEO.
Many of the skills developed by progressive CPOs correspond to what businesses look for in their CEO. I strongly believe that in the future there will be plenty of more (progressive) chief procurement officers taking over the CEO role.
In this path, CPOs typically keep the same title but are given additional responsibilities over other areas such as transformation, supply chain, or enterprise growth initiatives.
These are the progressive CPOs who are driving "value beyond savings." They are business leaders who proactively shape their company's success by strategically acting beyond the function. They have the ability to develop strong relationships internally and externally and have transformed their procurement organizations into a key pillar of enterprise strategy.
At Danone, Katharina Stenholm is leading both the global procurement as well as the company’s sustainability efforts as the CCPO, Chief Cycles & Procurement Officer.
When the CEO and CPO aren’t well aligned, CPOs face less promising paths.
CPOs can find themselves on a downward path for a variety of reasons. Often, they remain trapped by outdated paradigms of cost reduction and cost efficiency and are not able to influence and inspire engagement with the rest of their company. They lack commercial acumen, don't speak the language of the business, and are unable to link procurement strategy and deliverables to the corporate agenda.
I believe that the CPO with a sole focus on cost-savings will struggle to stay relevant and survive in the future.
CPOs move out of organizations for many reasons. Sometimes they don’t fit with the direction the company is going. Sometimes it's because they want to drive growth and innovation but can't get their board to recognize the need. In other cases, they are not given the mandate and resources for leading these initiatives and transformations.
In another future scenario, the CPO and his team are laid to rest because technology has developed so dramatically that most procurement processes are fully automated, making procurement as we know it obsolete.
At DPW, we believe that CPOs and their teams have a unique opportunity to take on an increasingly strategic role within the enterprise and that the current emphasis on cost savings should be expanded with a focus on solving business problems. This requires new metrics and KPIs that go beyond cost and performance.
In order to move up and over, CPOs need to foster new perceptions and expectations across the enterprise. Most CPOs today recognize that procurement is much more than just cost savings, but the rest of the organization doesn’t know this yet, including most CEOs. CPOs need to define a broader vision for procurement as the orchestrator of growth and prove that procurement can be a revenue generator.
This requires a new set of (soft) skills, particularly around leading change and selling new ideas to the business. It requires strong alignment with key stakeholders, a new playbook for success, and an internal re-branding of the function. According to Brad Berke, Vice Chairman Global Supply Chain Officers at Korn Ferry, "only about 10 percent of CPOs today are capable of being true business partners to the CEO and the rest of the executive leadership team." In other words, the skills and competencies of today will not be enough to deliver on tomorrow's strategies.
We believe there is a huge opportunity for the CPO and his/her organization to be more relevant in the future than today. On the flip-side, there is also the risk of being less relevant in the future than today. Technology is killing jobs and reducing headcount, but those jobs are mainly routine, transactional tasks. Ultimately, technology is enabling procurement to develop from a transactional to a strategic function allowing the CPO to focus on more strategic business objectives.
The world is changing and this requires procurement professionals to change too, beyond managing tenders, developing sourcing strategies, negotiating contracts, and governing agreements. We need to develop new skills as a market expert, a relationship manager, and a facilitator for developing business strategies.