The most successful procurement operations are those that maintain a broader view of the strength of the enterprise. That’s the conclusion reached by the IBM Institute for Business Value in a new study, “The Journey to Value: Transforming Procurement to Drive the Enterprise Agenda,” released Friday (Feb. 27).
In the second of a series of procurement studies, the latest research expands upon what IBM discovered in 2013: procurement operations have a significant impact on a company’s advantage. For this study, more than 1,000 Chief Procurement Officers in 41 nations were surveyed to discover common traits among the most successful procurement operations.
IBM analyzed responses of CPOs operating in companies with the strongest revenue and profit performance compared with peers in their industries and found striking consistencies of these procurement officials, dubbed procurement “role models.”
About 10 percent of respondents qualified for placement within this role model category. Among these CPOs, IBM found that they focus on their business and its revenue as a whole, engage deliberately with stakeholders, and embrace innovation.
In contrast, the research also examined the similarities between CPOs operating in the bottom 12th percentile of performance compared with their peers, finding that these underperformers depend too heavily on traditional operations, prioritize speed, and rarely extend their capabilities beyond the basics.
The findings show that 42 percent of role models agree that revenue growth and increasing their company’s competitive edge is among their Top 3 priorities, compared with just 28 percent of the bottom-tier procurement officials.
Among the commonalities between leading procurement officials is that they embrace and encourage interaction with stakeholders. According to IBM, the vast majority – more than 92 percent – agree that interacting with internal stakeholders, external stakeholders, and the end-consumer (what IBM calls the “ultimate enterprise stakeholder") add value to their procurement operations. Comparatively, less than 74 percent of underperformers agreed with these three features.
Researchers suggest that this trend is closely tied with how frequently procurement officials meet with stakeholders. Unsurprisingly, the data show that role models meet more frequently with stakeholders than underachievers.
Not only do the most successful procurement officials embrace innovation, they prioritize it. The study revealed that 38 percent of role models considered the introduction of innovation from suppliers a top priority, and 33 percent agreed that procurement operations should suggest innovative products and solutions to their companies. These figures compare with just 20 percent of bottom-tier CPOs agreeing with both of these statements.
More than half of procurement officials have succeeded in getting their management to enter new lines of businesses or markets. The same could only be said for about one-third of underperformers. According to the research, this is likely due to CPOs’ tendencies to embrace interaction with suppliers and collaborate on new ideas, more than underperformers.
TECHNOLOGY AND DATA
The third realm in which IBM found significant differences between top- and bottom-tier procurement officers is within the integration of technology in operations. Role model CPOs are more likely than their underperforming counterparts to embrace technological solutions like supplier management tools and data analytics.
These technologies are also more frequently ingrained into leading procurers’ operations. While 41 percent of role models reported having integrated advanced analytic capabilities in their operations, half of all underperformers reported basic, or even no, analytic capabilities.
This contrasts starkly with the finding that every single role model reported having at least some measure of analytic capabilities.
Similarly, less than half of underperformers reported implementing automated procurement procedures, compared with nearly three-quarters of role models.
The findings reflect the deep significance technology and, more specifically, data analysis, has on making procurement operations more efficient and more successful. “Not only are procurement role models more likely to have automated procurement operations that are far reaching in their functional scope,” the research reported, “but they are also likely to be leveraging advanced analytics to understand and perfect ongoing operations.”
BECOMING A ROLE MODEL
IBM’s research from 2013 highlighted how crucial it is for a business to operate successful procurement operations. With this recent study, procurement officials have much to gain regarding how to become one of the elite CPOs working to better their enterprises.
Interacting with shareholders, embracing innovation and recognizing the benefits of strong data analytics and automation processes are certainly keys to success, the study suggests. But overall, a CPO’s mindset on the entire corporation – not just the procurement department – is paramount to propelling a business, instead of slowing it down.