In this smoking hot economy, workers are moving to greener pastures extremely quickly. And procurement leaders are no exception.
It’s been a great time for procurement professionals to climb the corporate ladder into CPO-level roles. But the uncomfortably fast pace of this upward mobility means that a portion of CPO positions are being filled with individuals who are perhaps a little less awesome than a board of directors would like.
This is apparent when one evaluates the procurement priorities of the newly-minted procurement leaders. Too often, executives-on-the-rise enter their new leadership positions with procurement priorities already in mind a couple of weeks before they take the helm. While one may admire the fires in their bellies, there’s a rule that they violate by predetermining their procurement priorities.
That rule is: Procurement priorities should mirror organizational priorities.
And, sometimes, it is impossible to get a true feel for organizational priorities in the recruiting process alone. One has to be on the job. In strategic planning meetings involving the organization’s highest-level decision-makers. At the hip of the CEO.
And while one may believe that any good procurement work is generally good for business, the truth is that good priorities in one context may conflict with other priorities in a different context.
Let’s take a look at some different types of organizations and what their typical organizational priorities are…
For-Profit, Privately-Held Companies. In for-profit, privately-held companies, the priority is usually profit. Maximize profit and you are serving the company. Even if the owners of the company have the long-term goal of having the company be acquired, acquisition offers are often calculated as a multiple of profit. However, be aware that there are exceptions. Sometimes, a company is not acquired for the profit that it can add to the new owner’s portfolio, but for the capabilities it can add to the new owner’s portfolio. Whether it’s a industry-best technology or intellectual property or some other acquisition bait, be aware that maximizing profit is not always the owners’ priority. Sometimes, the only way to know that is by working with the owners over a period of time. They are unlikely to trust interview candidates with the secret that they are looking to sell the company.
Publicly-Held Companies. The organizational priority for publicly-held companies is usually maximizing stock price. Owners’ and Investors’ net worth is either increased or decreased by the direction that stock price is going. Because executive compensation in these types of companies is partially comprised of stock and stock options, how much the CEO, CFO and other executives earn is dependent on stock price. Therefore, employees must work towards the goal of increasing the stock price. Stock price can be based on profitability. But, in some circumstances, it can be based on other things that can wildly range from website visitors to number of app downloads to registered users to whatever. So, it is important for the new procurement leader to understand the organization’s view of what drives stock price. Only then, can the leader set appropriate procurement priorities that support stock price maximization.
Not-For-Profit Organizations. In “non-profits,” priorities are much different than in other types of organizations. Doing the best job possible at fulfilling the mission is the measure of success. I mentioned conflicting priorities earlier. Non-profit procurement represents the most extreme opportunities for conflicting priorities. Imagine a non-profit dedicated to serving veterans. One of the core components of this organization’s mission would be to purchase goods and services from veteran-owned businesses to the greatest practical degree. So, if you’ve been used to working in an organization where cost savings was the modus operandi of procurement, you may have a hard time digesting a decree to spend 20% more than market price simply to use a veteran-owned business. But doing so is part of the mission. The only argument that you may have may be that the money saved could be used to more robustly fulfill other parts of the mission, such as feeding homeless veterans. But, then, you may hear an argument that so many veterans wouldn’t be homeless if there were more organizations that mandated that a certain percentage of spend be directed to veteran-owned businesses. I know that’s a lot of detail for an example. But I think it truly illustrates the complexity of organizational priorities and how aligning procurement priorities isn’t as easy as it may sound.
When you have a firm grasp of organizational priorities and then set procurement priorities accordingly, the next step is to ensure that you carefully select metrics that guide procurement behavior properly. I hope to elaborate more on that aspect of procurement priorities in a future post.