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!

The Great Thing About Optimization: You Can Cost Constraints and Solve for Them!

The Sourcing Optimization Grand Master Paul Martyn, as part of his ongoing Sourcing Excellence, published two great posts on how The Most Important Constraint Is Often Left Unspoken and The Real Problem Is Usually Context.

In Part 16, Paul notes that:

Sometimes the most important part of the decision never gets discussed directly.
Nobody says: “We don’t trust ourselves to manage the transition.”
Nobody says: “If this fails, I own the fallout.”
Nobody says: “We’d rather pay more than explain a disruption.”

But they poison the model by insisting on:

Extra incumbent weighting.
Requirements that narrow the field.
Timelines that make supplier change almost impossible.
Risk language that quietly points one direction.

Which ensures that the “optimal” solution is one that keeps the incumbent, even though it’s far from the optimal solution.

Then, in Part 17, Paul notes that context is the harder problem. That while the sourcing team can model price, lead times, freight, capacity, payment terms, supplier performance, etc., the data doesn’t capture:

  • a plant manager [who] still remembers a shutdown tied to a supplier change
  • marketing does not want packaging changes during a seasonal launch
  • finance is suddenly focused on working capital
  • operations is protecting uptime
  • an incumbent relationship [that] carries more internal support than anyone says out loud

And this is what leads to the insistence of constraints and inflated switching costs in the model that mathematically ensures the “optimal” solution is the one where nothing changes, even though the CFO can clearly see that costs are 5% above market averages with no real explanation as to why the organization has to pay that much to minimize risk, ensure supply, yada, yada, yada.

But here’s the thing, if the real issues are surfaced BEFORE the event begins (and the model built):

  • Even though the plant manager is scared of a shutdown, the probability can be computed and the cost can be quantified — as the cost per hour/day/week is known
  • The cost of extending the current contract just through the launch can be quantified and the cost of keeping the supplier for the whole contract term vs. just the launch and then switching to a new supplier can be computed
  • Up front vs. over-time costs can be modelled and the cost of solutions that require more investment up-front vs. later can be compared and contrasted
  • The on-time expectancy per supplier and carrier can be modelled and accounted for
  • The true cost of the incumbent preference can be modelled

The great thing about strategic sourcing decision optimization with what-if scenario support is that all costs and constraints, if properly expressed, can be modelled and the true cost of a preferred, vs. market, scenario computed. If the cost difference is inconsequential, then you go with what the people want. If it’s significant, then some real discussions need to happen and some real decisions need to be made.