With changing business dynamics and increasing layers of complexity, expectations of the CPO role have increased. Insights from Deloitte’s 2021 Global CPO Survey suggest that building capabilities focussed on agility is CPOs’ best bet to meet and exceed them.
This year, we’re celebrating the 10-year anniversary of the Deloitte Chief Procurement Officer Survey, marking a decade of benchmarking the procurement industry.
What 2020 did to businesses worldwide is no secret. COVID-19 affected almost every function in one way or another and Procurement has been no exception. Leaders had to change strategies in an instant to adapt to the “next normal.” But the change chief procurement officers (CPOs) have had to endure and the associated layers of complexity were building up even before the pandemic struck.
It isn’t just about cost savings and operational efficiency anymore. There’s so much more to Procurement today—innovation, digital transformation, introducing new products and services, not to mention other factors such as climate change, geopolitical stability, increasing societal expectations and world health that are increasingly becoming a strategic priority for organisations. Clearly, there’s plenty on CPOs’ plates, with no relief in sight.
At first glance, one would feel CPOs have more to bite off than they can chew. But if insights derived from our 2021 Global CPO Survey are anything to go by, high-performing CPOs are successfully navigating these complexities while delivering across a greater breadth of KPIs. Although there are still heavily focused on costs, they have expanded their value propositions to influence demand, drive innovation and work closely with strategic suppliers and partners to foster commercial compliance, increase speed to market, accelerate M&A integration/divestiture programmes and drive continuous improvement.
To get there, they’ve had to overhaul legacy processes, policies, metrics, tools and (perhaps most challenging of all) mindsets, while still delivering measurable value improvements that clearly show up on financial statements. The secret to their success? Agility.
In this year’s survey, we tried to gauge agility through specific capabilities and through a composite “agility index.” Our findings reveal that agility does, in fact, strongly correlate with higher overall performance and other procurement capabilities. The top quartile agile Procurement organisations in our study (who we refer to in the report as “agility masters”) outperform their peers on all major performance metrics.
Since 2011, the Deloitte Global Chief Procurement Officer (CPO) Survey has been providing exclusive insights into the key challenges and opportunities shaping the course of procurement. This year is the 10th-anniversary edition of the CPO Survey, serving as a global benchmark of sentiment about the function. The insights have, over the years, helped members of the C-suite, procurement leaders, business partners, suppliers and supporting technology providers in furthering their ambition, strategies and performance.
The 2021 survey was conducted in association with Odgers Berndtson and with input from procurement technology firm Spend Matters. We have to date received over 400 responses to this year’s survey, representing 40 countries!
CPOs and their teams can take a page from this book and set themselves up for success going forward. Here’s what they can consider:
Focus on relationships and influence across functions and supply markets: Our research found that high performers and agility masters perform better on a higher “quality of [stakeholder] influence” rather than just the “quantity of sourcing-centric [spend] influence.” Procurement organisations need to think of managed service providers and ecosystem partners as their extended enterprise and put stakeholder/customer management at the centre of their strategy. They can build collaborative muscle by flipping their linear sourcing-centric approach to third-party/partner management and developing a holistic supplier management approach.
Define a truly balanced scorecard: CPOs have generally done well in terms of achieving their savings targets. But when it comes to areas beyond cost avoidance, there’s plenty to be done. Take risk management, for instance. The ability to detect, measure and manage risk remains a challenge—one that the pandemic has only intensified. Our research found that very few CPOs (18%) were formally tracking the risks that existed in their direct (tier 1) supplier base and only 15% had visibility beyond that.
Procurement leaders need to understand and build risk, resilience and agility metrics across their organisations. They can consider moving beyond one-off pilots and using scalable platform capabilities. Making direct investments in and prioritising the fixing of data and making their processes predictive and autonomous can help create measurable impact.
Leverage flexible workforce and resource deployment models: Survey findings indicate that high performers invest in agility by developing talent and accessing capabilities, knowledge and experience leveraging on-demand, hybrid service delivery models (e.g., teams augmented with external support services). Although full-time hires remain the main source of talent acquisition, high performers also highly favour internal agile workforce deployment (i.e., using staff from within business unit procurement, corporate procurement, other functions, shared services, etc.). They also avoid wholesale outsourcing of their functions to large BPO providers and tend to use hybrid operating models for select activities—e.g., tail spend management, market intelligence, category management execution support and other specialised centres of excellence that are extensions of their existing teams.
Spend more time on strategy and transformation: In addition to donning the roles of operators (e.g., doing deals, saving money, managing contracts) and stewards (e.g., assuring supply and compliance), high-performing CPOs are investing time as transformational catalysts and intelligent strategists. Additionally, while most CPOs spend 74% of their time on transactional and operational activities, we found high performers spent approximately 63% (~15% less) of their time on these types of activities. Interestingly, we also found that agility masters don’t spend as much of their time doing strategic work as the high performers, but they’re spending more time in transformational activities to build capabilities on the fly that helps them deliver higher performance down the road.
Invest in next-gen technologies: Investments in advanced digital solutions are a key enabler for success. But which technologies are high performers investing in? High performers are 4-5 times more likely to have fully deployed advanced analytics/visualisation, 10x more likely to have fully deployed RPA solutions, have fully deployed predictive analytics capabilities (12% vs. 0% for others) and are 18x more likely to have fully deployed AI/cognitive capabilities. The digital capabilities delivering the most value include diagnostic analytics & visualisation, predictive, RPA and artificial intelligence (AI). Analytics, while becoming more advanced, is still an area of focus for most CPOs.
Strong digital capabilities can help Procurement organisations improve data visibility and the ability to collaborate/synchronise with suppliers, enabling greater agility both within these organisations and across the extended supply networks. CPOs can work towards building use cases for the Internet of Things, 5G, blockchain, control towers and collaborative workflows enabled by AI/machine learning to up their digital game in these areas.
Get the digital house in order: The top three barriers to effective application of technology in procurement based on the survey results are poor quality of data, poor integration across applications and lack of funding. Lower-agility organisations, in particular, struggle with integration and funding. On the flip side, the top two enablers of successful digital procurement transformation are a clear enterprise digital strategy (with executive sponsorship) and maintaining a holistic view of digital transformation (i.e., not just automating P2P). Agility masters, in particular, focus on driving outcomes and near-term impact e.g., process efficiencies and quick savings, which then act as investments for more strategic and digitally intensive improvement areas.
No matter how many analytical capabilities an organisation adds to its armoury, bad data often translates into bad analytics. CPOs recognise that poor data quality is an issue. Some of the ways they can consider addressing it are standardisation (to enable better configurability), reducing complete reliance on IT partners, controlling their own data destiny and making improvements iteratively along their data transformation journey.
Adopt an agile mindset: CPOs can use design thinking to move quickly and iteratively with their stakeholders and build capabilities that deliver focussed outcomes. They can look at increasing sourcing cycle frequency and readjusting priorities to match stakeholders’ expectations while focussing on a longer-term strategy to deliver value to the business.
Being agile in procurement requires failing fast on a smaller scale to get to a great solution more quickly. CPOs with the most impressive combination of performance attainment and ambition are the ones thinking in exactly this manner.
Deloitte Consulting LLP’s Supply Management and Digital Procurement practice marries cutting-edge digital tools with market-leading consulting services to drive insight around spend management and deliver increased cost savings at a faster pace. Aim for the best return on investment on your third-party procurement spending through Deloitte’s cloud-based solutions and services, driving category management, supplier management, and sourcing of indirect and direct materials.