Here’s a widely accepted and documented fact: there’s a link between procurement performance and enterprise success.
It’s true. Companies with high-performing procurement departments have higher profit margins than those with underperforming departments. High-performing procurement organizations, relative to their peers, are in the top 20% in revenue growth and in the top 15% in profit improvement. Clearly, those Chief Procurement Officers are doing something different—and it’s working.
So, what’s their secret?
A 2014 study conducted by the IBM Institute for Business sought to find out. They surveyed more than 1,000 procurement executives from over 40 countries to identify effective procurement operations, understand their uniquely valuable strategies, and examine what other factors lead a CPO to become a “procurement role model.”
IBM found some key characteristics that set these role models apart from the rest of the pack.
First, strong relationships are absolutely essential. Role models engage in close connections with stakeholders, adopting key perspectives from collaborative discussions. Procurement operations thrive when they are well-connected to the rest of the company. They work together with suppliers for new ideas, technologies, and innovations that are more strategic to the enterprise. 92% of role models believe interactions with external stakeholders are of considerable value, compared to the 31% of underperformers who do not rate these relationships as highly important.
Then, there’s innovation. IBM found that role models embrace progressive practices, rather than the traditional tools that are still the default for underperforming organizations. They’re committed to procurement automation and technologies with strategic solutions such as supplier management. In fact, 82% of role models see supplier management technologies as critical. Procurement role models are continuously suggesting new leading-edge products that could better both procurement and the company as a whole.
“Technology is a reality of modern procurement, but this truth is even clearer among firms with over US $1billion in revenue.” (IBM, 2014)
And there is the secret. Embracing progressive technological innovation, along with establishing and maintaining strong relationships with stakeholders such as suppliers and other company departments is the key to procurement excellence and enterprise success.