Daily Archives: May 31, 2007

People Matter Most (and high-performing CPOs know it)

Given my temperament to tout the talent gap that is now increasing daily, I was happy to see the recent article from the European Leaders Network that stated People Do Matter Most, Really. The article, which referenced a recently completed research study, revealed, again to my content, that the best performing CPOs are concentrating their efforts on their people, capabilities, mindsets, and aspirations.

The study from McKinsey & Company and the Supply Management Institute found that high performing firms had high performing purchasing departments and that what matters is the people in the purchasing department, how talented they are, how motivated they are, and how they interact with the wider organization. They found that purchasing departments that excel in these aspects of their activities achieve savings two and a half times higher than those that don’t. Furthermore, their positive influence branches out beyond the historical territory of PSM to include areas such as revenue, innovation opportunity generation, and the leadership of commercial change in the company. In more detail, high performing firms demonstrated annual purchasing savings of 3.5%, a 1.4% annual reduction in COGS, and an average EBITDA of 17.7%. Compare this to low performing firms that only achieved a savings of 0.6%, a 0.5% increase in COGS, an an average EBITDA margin of only 12.7%.

Most of the difference between high performers and low performers was encapsulated by three soft elements:

  • Talent and Capabilities of the PSM professionals
  • Mindsets and Aspirations of the PSM department
  • The degree to which the PSM function was aligned with, and able to contribute to, overall purchasing strategy

Furthermore, high performers were five times more likely to employ purchasing managers with analytical expertise and general management backgrounds and six times more likely to hire managers who have experience in another functional area.

Thus, the best way to achieve results is to hire talented and capable individuals with drive and aspiration who have broad experience from a functional and managerial perspective, align them to the overall business strategy, empower them and let them do their job.