Daily Archives: December 15, 2015

Societal Damnation 50: Talent Tightness

Your organization is expected to deliver 6 miracles on a daily basis, and at least one before the CFO arrives for work. But, as we all know, miracles, by definition, are almost impossible. That’s why, in order to have any hope of accomplishing the nearly impossible feats put before you on a daily basis (such as sourcing an additional 1,000 kgs of dysprosium by the end of the week, even though a major mine just collapsed, and knock $50 off the price per kg [10%+] while you’re at it even though you’re in the midst of a supply shortage), you need exceptional talent.

But such talent is rare, especially when you need true polymaths who are simultaneously geniuses and jacks of all trades and a master of one (Supply Management). This says that only a small fraction of a percent of the population are even intrinsically qualified for Supply Management, and given that these individuals can, by definition, do anything they want, how many are going to want to do something us unglamorous as Purchasing. (Especially considering that, as far as the average person knows — which should not be a surprise considering most curriculums at the Universities they went to still teach decades old operational management theory as the basics of Supply Management — choosing Supply Management means being stuck in the dungeon in the tower of spend.)
This challenge is only exacerbated by the fact that:

Sales gets commissions on every dollar sold, even if such sales cost the organization money, but Procurement’s bonus for identifying value is at the complete whim of Finance.

Procurement could identify, and lock in, $100 M of expected savings on a Billion of spend, primarily through the Herculean effort of a small core team of 10 analysts, negotiators, and project managers, work with Engineering and Marketing to realize $70M of that, or $7M of savings per Procurement team member, who, because the CFO decided that they should have realized 50M anyway, decides to only credit the team with 20M of savings, or $2M per member, and give them a mere 1% of that as reward, or 20K. Meanwhile, the top 10 Sales people, who delivered an average of 1.5M each above their 1M (non-commission) quota (as they get a 150K salary), get a 10% commission on that 1.5M and effectively double their salary, even though only a fraction of the revenue hits the bottom line. For example, if the COGS is 70% and they get 10% commission, 20% of that, or 300K per sales person, hits the bottom line before taxes. But 100% of the savings per Procurement professional, or 2M in the CFO’s discount approach, hits the bottom line before taxes. But they only get a 1% reward for their bottom line contribution while the sales people effectively get a 50% reward for their bottom line contribution. Is that fair? Not at all. And that’s why you can’t get good talent and why all the high EQ people go to Sales.

Moreover, if the savings don’t materialize, or don’t materialize to the extent expected, through no fault of Procurement (because Engineering or Marketing decided to go off the plan or off the contract), Procurement will still be held responsible and Procurement will be rated poorly and the dream team who worked their collective assess off will get nothing at bonus time but a bad taste in their mouth, and instantly leave for the competitor who pays them the most (while giving your firm a bad rep in the process as they will be very frank about why they left your cheap, ungrateful, backwater organization).

Your competitors are desperate too, and those with deeper pockets will outbid you for top talent.

It’s not all about money, and that goes double for top talent, but that being said, money is a factor, and if your competition is offering 20%, 30%, and even 40% more, that’s a little hard to turn down. Especially if they are also offering flexible hours, training, course reimbursement for any course taken on the employee’s own time where the employee gets a minimum / passing grade, etc. So if your training budget is still 0, your corporate policy still mandates being in the office from 9 to 5 (even though your suppliers are in a time zone 9 hours shifted and this means everyone would be working 11 hours any day a supplier has to be consulted), and there are pay ceilings in effect from 5 years ago, the chances of getting anyone talented to join your Procurement department are slim to none, with an emphasis on none.

Talent wants to be sufficiently challenged and sufficiently enabled.

They know they have a challenge, but they also want to know they have the tools to tackle it. If you expect them to work for you, you better have some decent tools. It’s not the Procurement dark ages where the best tool available is an Excel spreadsheet and e-mail to deliver it. If that’s all you have to offer, don’t be surprised if they run to the hills.

Talent is tight, and everyone is working against you to keep it that way. Finance with unfair compensation policies. Competitors with deeper pockets. And the CIO who thinks the IT budget is better spent on new iPhones for the masses, even though they all got new iPhones last year! But this is just one side of the damnation …