A recent IBM study indicates that purchasing is attempting to become more strategic. It’s a very intriguing study. It shows that purchasing is not only trying to extend its influence but also recognizes some of its shortcomings – notably that it historically has been a tactical vehicle that deals with the simple execution of attempts at driving price down and is less adept at supporting transformational agendas that require fitting into a strategic plan.
As procurement garnered more and more influence across the services space, they often failed to understand the quality and strategic implications of the behavior that they drove. Their influence in driving down cost assumes that all solutions are equal and buyers can discriminate against them only based on cost. This results in sometimes optimizing for lower unit cost but higher total cost and at other times developing solutions that don’t meet business requirements as well as they could.
For example, they give less weight to a provider’s ability to drive transformation and more weight to the pricing. This sets up a situation where often the opposite happens. The buyer selects a lower-priced vendor that is less capable of driving transformation, which results in higher total cost and a less-effective implementation. Look at any ERP implementation if you want to see an example of this.
In attempting to step up to a more moderate strategy and even shaping and designing strategy in some instances, as the study points out, chief purchasing officers attempt to deal with one of their most vocal criticisms – that all they focus on is price and they often don’t align well with business needs.
When the context of driving down the cost of a supply chain is important to strategy, it’s natural that CPOs become more influential. But in the area of services, where services are an important ingredient to a change strategy and require deep understanding of the business and how to shape or manipulate the components to create a differentiated position as an advantage, CPOs are likely to struggle as the champions of change.
In the work we’re doing at Everest Group, we’re seeing business executives outside of purchasing starting to push back on purchasing to get them to stay in their swim lanes. They have become a very powerful entity in many organizations, but they’ve started to dictate in areas that are necessarily the provenance of those who drive strategy.
This new study indicates that CPOs are starting to recognize that as their influence has grown, their activities cast a much longer shadow and are more critical to the organization. By necessity, they must better align themselves with corporate strategy. The better aligned with the strategy they are, the more impactful they can be. This naturally guides them to want to be an active participant at the table where the business develops the strategy so that they can better align with it.
There is question about whether or not they will be allowed full access to those discussions or whether, like their companion the CIO, their influence will be turned back to be more and more tactical.