Today’s high growth corporations are embedding agility to become the exception to the rule. So what does the agile CPO need to be thinking about?
We’d probably all agree that a new business norm is volatility. For many organizations, forces like technology disruption, significant M&A, global markets, and fast-changing customer preferences have created a new type of corporate instability. A number of successful, long-standing business models have become ineffective almost overnight, or at the very least have come under challenge.
For others though, volatility has created opportunity. A new type of more agile corporation has risen to the challenge, built products / services designed around the customer, tapped in to complex supplier networks and been more adaptable to opportunity and change. As an (often manual process driven) enabling function this creates a challenge for Procurement. So how can the CPO excel in these dynamic and turbulent times?
Taking an example…
It seems strange to use a global giant as an example of dynamic change, but think about Amazon for a second; they’ve grown since founding in 1994 as an online bookseller in to a multi-national technology company focusing on e-commerce, cloud computing, entertainment, and most recently bricks and mortar retailing. They have achieved this by implementing customer-centric business solutions, which compete with traditional retailers (such as Wal-Mart Stores) but offer a different proposition designed around their customers and enabled by tweaking the traditional. This has been powered in large part by technology and their network of suppliers, which has enabled them to be more flexible and adaptable to their customers’ needs and move faster than their competitors.
Agility doesn’t need to mean small…
Analysis of the market capitalization of the top 10 companies between the year 2000 and 2018 shows that just two organizations’ have retained their place. This trend is forecast to continue, and at the current churn rate about half of the existing listed corporations could be replaced in 10 years (1). The table below brings to life the scale of change in corporate America.
|Top 10 in 2018||Market CAP ($B)||New Entrant||Top 10 in 2000||Market CAP ($B)|
|Johnson & Johnson||$395||Merck||$216|
|JP Morgan Chase||$389||X||Intel||$202|
It’s too easy to take this purely at face value. On closer inspection, there are different characteristics that underpin the change
- Technology – a number of the new entrants are more technology focused than their predecessors, or they adopted tech earlier and in a more agile way, giving them a march on their rivals.
- Globalization – while globalization was clearly present in 2000, more recent shifts in global purchasing power have also led to changes including the rise of Chinese giants such as Tencent and Alibaba appearing on the list.
- Specialization – in a quest for sustainable, profitable, growth business, a number of the giants of the 2000s have slimmed down operations and turned to a more specialized approach (think of the omni-manufacturers like GE or Philips)
- Networked – the role in which suppliers play. From data to distribution, many of these organizations use suppliers (or supplier/consumers) to power their business models in a more dynamic, innovative, and cost effective way.
Ultimately, they have displayed the characteristic of ‘agility’, and its catching on.
In a recent McKinsey Quarterly survey report of 2,500 business leaders, three-quarters of respondents say organizational agility is a top or top-three priority, and nearly 40 percent are currently conducting an organizational agility transformation (2).
So why is the CPO so important?
The average large company spends more than 2/3 of its revenues with its suppliers. Changing direction means not only announcing a strategy and changing what internal resources do, but also changing what suppliers do. CPO’s are well placed to start a new dialogue with their CFOs about the importance of generating more innovation from their supply base and ultimately being more agile in engaging, sourcing, managing, and collaborating with suppliers. If your organization is completing an organizational agility transformation and not thinking deeply about suppliers being a key driver, then you’re ignoring 2/3 of your business; the most likely source of cost, growth, innovation, and risk.
Some of the more mature Procurement functions today operate with a top down hierarchy focused on category management, leveraging spend and cost reduction, striving for long term plans, and seeking process compliance. Many also seek better connections with stakeholders and a change in Procurement’s value proposition.
In the new age of agility, is this still right?
I believe that Procurement’s agility journey actually begins with doing the procurement basics well. If you haven’t mastered category management or built strong relationships across your business then it sounds like there’s more work to do. You need to climb up the maturity model and earn a seat at the next table.
When you sit down (metaphorically) it’s a great time to think about what Procurement is there to do in the organization and what impact you want to have. Personally, I think that we need to shift our thinking forwards:
- People = talent
Agile organizations need a network of empowered teams and differing skill sets. By understanding what your organization really does, you can re-profile the talent you need. Think data skills, business partnering, project management.
- Process = speed
It’s fair to say that Procurement doesn’t have a reputation for running quick processes. If a process is essentially a workflow, how can you become more nimble, less labor intensive and more customer friendly for the different types of interactions that you have? Businesses are moving in a direction that necessitates a nimbler approach and Procurement needs to support that. Remain relevant.
- Innovation = insight
Organizations need the ability to respond to market changes faster and bring new products to market quicker than their competitors to be successful. Accessing the best ideas from suppliers, who may also be new entrants, first is a significant mindset shift for the profession. How are you going to encourage this, it will require a better understanding of your business and supply markets, peers, adjacent businesses etc.
- Technology = all of the above
Businesses should consider technology as an enabler to all of the above; make decisions faster, leverage data to make smarter decisions, and use it to improve customer experience.