For a Successful Procurement, you need Lagging, Lasting, and Leading Indicators!

A recent post by Garry Mansell on why some businesses fail while the numbers still look fine really makes the case on why you need all three types of indicators to be successful.

According to Garry, it happens more often than people admit. The revenue doesn’t collapse first. The reputation wobbles first. And once reputation wobbles, revenue follows on a delay. You can usually see it early, but it appears as weak signals. A different tone from customers. Partners becoming slower to commit. Hiring taking longer. Senior candidates asking slightly sharper questions. Suppliers quietly tightening terms. Teams becoming cautious about promising anything externally. It’s never announced. It’s felt.

The reason boards get surprised by this is that most board packs are built around lagging indicators. By the time the numbers reflect the problem, the organization has already lost something harder to regain … belief.

Revenue numbers are lagging indicators, but those are key indicators in the board pack. What are needed are lasting — sales cycle time — and leading — sales cycle time trend changes — indicators. If the revenue cycle time is increasing, and has been for the last two or three quarters, that’s a really bad sign, even if revenue is more-or-less staying constant because a flat organization can only support so many sales cycles, and revenue will start falling if they drag out much longer.

The same problems appear in Procurement presentations, which typically have the opposite problem, especially when trying to sell new processes or technologies just implemented. They will quote leading indicators like identified savings, and ignore the lasting, average cost per unit reduction adjusted for inflation, or lagging, actual savings vs. projected savings 12, 24, and even 36 years ago (for three year contracts). After all, as far as the CFO and CEO are (rightly) concerned, it’s not savings if it doesn’t hit the P&L!

So make sure to include all three indicators. In Procurement:

  • leading indicators define what should be possible
  • lasting indicators define what path the organization is on
  • lagging indicators define what the Procurement organization has actually achieved

Just like, in Sales:

  • lagging indicators define what happened in the past
  • lasting indicators define what is happening now
  • leading indicators define what is going to happen … and how good, or bad, it’s likely to be

To remain successful, revenue must, at least remain on track, if not increase in an organization just like Procurement success must also remain on track, if not increase.

Another Reason You Can’t Wait Too Long for the CPO!

In our last post, we reviewed a post by the Great Garry Mansell on the rule of two where he outlined when an organization needs to hire a COO in order to continue to grow. We noted that you can use the same same logic to determine when you should hire the CPO, which should happen earlier than most organizations believe.

In a follow up post on the hidden tax, Garry gave us another great reason to hire a CPO early.

Basically, as organizations grow, they spend money to feel professional. It’s a hidden tax that grows over time that not only (greatly) reduces their EBITDA and profit, but also decreases their resiliency.

As Garry points out, as companies grow, they spend money to feel professional. They add tools because someone recommended them. They add layers because it feels grown-up. They add process because it looks like control. They add roles because it feels safer than making a hard choice about what to stop. And then they end up with three to ten times as many tools as they should (just look at the average number of SaaS tools in an organization), and spend two to three times as much as they should be. And the processes they add are not the right processes because they don’t have the expertise to define best-in-class sales, marketing, procurement, etc. processes because they don’t have a seasoned CRO, CMO, or CPO to define them. They hire people they don’t need to get stuff done that should be automated or simplified by better processes (that could only be defined by the right senior people who should be hired at the right time, and funds saved until they can be).

This is another reason why you need a CPO early. A CPO will vet not only the reason, but the ROI, of every proposed product/platform and prevent unnecessary purchases and, if something is required, find the best product/platform. They will prevent processes that don’t add value. And they can even help determine when hires are really needed or when better platforms and processes can delay the need.

Procurement will focus their spend on the things that improve outcomes. And they will happily cut the things that improve optics because optics don’t carry you through volatility. Cash and speed do. And Procurement will help you conserve cash and act as fast as it is prudent to.

As Garry states A “good company” that has protected margin and kept agility will outlast a “professional company” that has simply become expensive. And a good company is one that puts Procurement front and center. After all, as Coase clarified, Procurement is the reason a company exists!

Don’t Wait too Long for a True #2: The CPO

Garry Mansell recently wrote a great post on the a rule of two that dictates when the founder of a growing start-up needs to hire a COO to help manage the day-to-day to keep the start-up on the growth track. Garry labels the position the second-in-command — a true strong number two! But he should call it number one, because the role of this CEO’s right hand is to create pace without drama … absorb ambiguity and turn it into clarity … make the founder less central … and allow the organization to scale without burnout.

As Garry points out, when it hits the wall where the company struggles to scale, the company is in a state where it looks like the founder being busy, but not effective. It looks like things moving, but not compounding. It looks like decisions being made, but not sticking. It looks like the organization waiting for the founder to be present to progress. As a result founders often try to solve this with many more heads. Another manager. Another lead. Another layer. It can help in the short term … until the founder becomes the bottleneck for alignment across those layers. They don’t admit that the hardest part is not finding talent. It’s letting go of the belief that ‘only I can do it properly’. They don’t realize it becomes the thing that limits growth.

But when the organization has a good COO, she doesn’t just take tasks. She takes load. She takes ownership of outcomes … and they make the founder better by refusing to let everything sit in the founder’s head. And Garry’s right on all accounts.

The same logic more-or-less dictates when the organization needs to hire a CPO. Even if the CPO is the entire team. Once an organization is big enough for the founder to hire a COO, a true #1, one of the hats the COO inherits is the CPO hat — and takes over the Plague of Purchasing. But as the organization continues to grow, more and more divisions/teams need to buy more and more products and services of all shapes and sizes, which requires more and more decisions and analysis, more policy, and more decisions … which get made, not properly codified, forgotten in the heat of the moment, and made again. Just like when the organization reached the point it needed a CEO, we again have the situation where it looks like the COO being busy getting Procurement done, but not effective. It looks like things moving, but not compounding. It looks like decisions being made, but not sticking. It looks like the organization waiting for the COO to be present for Procurement to progress.

Even though the organization might only be spending a few million, and the savings might only be a few hundred K, which would barely cover the cost of a CPO, making it look like it’s too early to hire the CPO, but it’s the right time. Hiring early allows the CPO to define proper processes and procedures, define platform and automation needs, determine the right time to pull the trigger on platforms and applications, identify when category managers / senior buyers are needed and the team needs to expand, and because processes and platforms were built into the organization as it grew, the CPO will be able to delay hires longer than peers because Procurement will be efficient from the get-go.

All Good Plans Have This in Common!

There’s a number of things all good plans have in common, but one often overlooked aspect is one emphasized by Garry Mansell in his scaling plan is real post.

According to Garry, he can always tell within ten (10) minutes whether or not a scaling plan is real. Not because he’s clever, but because real plans have a particular smell to them … they acknowledge constraints. They name trade-offs. They make it obvious what will be sacrificed, and when.

And he’s right — because if a plan is frictionless, it’s not a plan. It’s a fantasy (and likely even worse than your RFP Fantasy). And many of these fantasies, as Garry points out, are immediately identifiable from their assumptions that everything is possible, nothing has a cost, everything is assumed to be easy, integration is assumed to be smooth, customers are expected to behave, and cash is assumed to cooperate. Anyone who’s been though a real startup knows that NONE of this is the case!

A real plan not only acknowledges constraints, but contains sentences about the harsh reality that are uncomfortable, sometimes very uncomfortable, to say out loud — especially for executives who believe that “leadership” is always maintaining positivity and exuberance. But the reality is that there are always risks, and if you’re trying to start something new, or grow considerably, there will be lots of big risks. And if you don’t acknowledge them, do what you can to mitigate them, and be prepared to work through, or at least around them, you won’t succeed.

This should not be a surprise, because, as Paul Martyn will be quick to point out, and I will be quick to echo, if you don’t acknowledge, and capture, your real constraints in your scenario analysis, you will not succeed. And if the most import constraint is left unspoken, other unspoken constraints will be implicitly captured in the constraints and costs that do get modelled, and the outcome will be determined before the first scenario is run. That’s not success, that’s doing everything possible to protect the status quo.

And you won’t scale anything that way!

Success is in the Diary — and the Details … especially in Procurement!

Garry Mansell recently wrote an interesting post on how to understand how a scaling business is really run that had some really good insight on how you build for success versus how you pretend to.

According to Garry — the diary tells you whether the business is scaling, or not. A business that is truly scaling has:

  • a diary that is light — it’s not filled with back-to-back-to-back meetings … it has time for people to work (and think) and allows people to make the day-to-day decisions necessary to function
  • a diary that doesn’t have repeating meetings that just discuss the same thing in an infinity loop that continually eats up revenue
  • a diary that sees the CEO focused external is focused on building and scaling

And for the most part, he’s right. Except, as both an IT and a Procurement professional, I can tell you it’s critical:

  • to have regular stand-up/check-in meetings in Dev, especially if you’re using an Agile framework — but these all-team recurring meetings are scheduled to be as short as necessary, and they don’t waste time on detailed status reports, but where things are, who’s waiting on what, what issues have arisen, and who can deal with them … and as soon as all issues are discussed, you get back to work
  • in Procurement, you need the same series of meetings for every strategic sourcing event, you need regular check in with Risk Management to track ongoing risks, and you need regular team check-ins to ensure all projects are progressing and resources are allocated properly … but in the first case, they are predefined by the process, only include the necessary reps from each stakeholder group, and held when needed — not weekly meetings; in the second, only issues that have arised or change status are discussed; and in the third, when the situation is understood, the meeting is ended, cut short as much as possible

In other words, there are a number of meetings you can’t get rid of, but you can minimize them and adopt practices to minimize their length, schedule them short, and end them when the necessary information has been exchanged and/or decisions reached. So it’s both the diary … and the details!