Category Archives: Talent

Procurement’s Expanding Role and the Executive of the Future

Today I’d like to welcome Jon Hansen of Procurement Insights.

In 2006 CPO Agenda’s London-based editor chaired a panel discussion asking the question “are there any limits to procurement’s role?”

The panel which included senior procurement personnel from organizations such as Nestle, Danone, British Airways and Merrill Lynch provided some interesting insights into the prevailing (and emerging) attitudes towards procurement from an executive suite perspective.

While the panel’s discussion was generally interesting, there were a number of noteworthy revelations (especially in the context of my recent posting on the pending talent crunch). An example that immediately comes to mind was the assertion by one executive that truly talented individuals “should move out of purchasing after five or six years and do another job, whether it’s finance, human resources, manufacturing or marketing.” Taking into account the fact that some of the panel members by their own admission are either “new” to procurement or do not consider themselves to be “a purchasing professional” makes me wonder if this represents an expansion or an assimilation of the purchasing department’s role within an organization?

There is a significant difference between expansion and assimilation in that expansion acknowledges that purchasing can have a broader role in the organization’s overall success while still recognizing and working within its unique operating framework. Assimilation on the other hand tends to view procurement as an adjunct of a core practice (i.e. finance) where there is a greater tendency to overlook important attributes that are indigenous to the practice. One panel member’s opinion that “procurement is becoming more a profession for generalists, rather than specialists,” represents the assimilation view to which I am referring.

Another comment that caught my attention was the position taken by one panel member that out of his organization’s 20,000 suppliers only a few (i.e. 100) will merit engagement from a strategic perspective. As a result, there is going to be a continuing need for what was referred to as “low-level” buyers. However, the same individual concluded that “one strategic business thinker with the right skills and capabilities is worth 10 or 12 of your normal, run-of-the-mill purchasing people.” This “class distinction” as I will call it is certainly not new to the industry. It is however a potentially detrimental viewpoint in that it can increase the risk of a serious disconnect with and between key stakeholders. Particularly if you are of the opinion that there will be a continuing need for traditional purchasing personnel.

Procurement through the looking glass?

Recognizing that there are “hard-nosed purchasers” as well as “creative and innovative guys” (the reference to guys only is duly noted) one panelist highlighted the benefits of the increasing number of CPO’s that are “coming from outside the procurement world.” Referring to these individuals as “people who come from business . . . and therefore understand the business language,” the executive indicated that the new CPO’s “tend to be wonderfully connected in their organizations” bringing an element of creditability that will “help to bring procurement into the mainstream.”

While collaboration is essential to the ultimate success of any initiative hence the benefit of being “wonderfully connected,” is this necessarily the most important qualification for a CPO? Or is it the hallmark of a project champion or a key stakeholder contributor? This is another important distinction given that the panelist later made the statement that “I come from business and when I leave procurement I’ll go back to business.”

I have a first hand understanding of the corporate mindset in terms of increasing one’s value through a diversity of experiences (one day I will have to tell you the story of a top sales manager’s decision to accept the head position in his organization’s service department solely to increase his odds of being promoted up the corporate ladder). However the risk of being perceived as an outsider or an interloper under these circumstances is very real, especially if you already have your foot pointed to the exit door.

Unfortunately departmental resistance has been one of the most common challenges associated with a failed procurement initiative. This poses the question, are the only individuals who possess the capability to run the procurement department of the future, the ones who do not think of themselves as being procurement professionals?”

If the answer is yes, what does this say about corporate commitment in terms of personnel development within their purchasing ranks?

A question of corporate culture

How an organization views the role of its procurement department differs from one company to the next. One panelist made the following observation when asked if the shortage of talented people was the greatest constraint a CPO faces: “the context, history and the culture of the company is important. Take a specific category as an example. I moved to Nestle from a company where procurement was heavily involved in any new capital expenditure project right from the start. Now I find myself in a situation where we have very limited involvement to actually influence the buying decision.”

This indicates that some companies confine their purchasing departments to a narrowly defined functional role versus being a strategic contributor. While I do not have specific data regarding the percentage of organizations that operate under this misconception, the consequences of doing so can be catastrophic.

One example is the computer manufacturer who built the Hot Wheels and Barbie PC’s for Mattel in the late 1990’s. Operating on razor thin margins the pressure to use low-cost components from off-shore OEM’s was great. Unfortunately, the power supply that was ultimately selected failed in 60% of the machines (adding insult to injury was the fact that the failures occurred on Christmas morning when excited children attempted to turn on their new PC’s).

The company, whose sales grew from $27 million per year to $118 million in just 18 months collapsed under the wave of return costs which eroded the aforementioned paper-thin margins. The manufacturer went into bankruptcy in early 2000, while Mattel was left to deal with a public relations nightmare.

What role did the PC manufacturer’s purchasing department have in the power supply selection? Did upper management’s pressure to meet an unrealistic selling price unduly influence their decision? Finally could the purchasing department’s management have done anything to avert the disastrous outcome? Not wanting to pick on Mattel, the same questions could be asked regarding Thursday’s recall of 967,000 plastic preschool Fisher Price toys that were manufactured by a China-based supplier. The recall was due to “excessive amounts of lead” used in the products’ paint.

The above examples certainly demonstrate the breadth and width of the potential impact that is associated with the purchasing process. What needs to be seriously considered is whether the purported benefits of handing the reigns to a CPO who does not have a purchasing background versus developing a leader from the existing talent pool within the department itself make sense in this period of dynamic change?

It is really a question of creditability. In which individual would the CEO and board have the greatest level of confidence?

Referencing Jim Collins’ book Good to Great*, if an organization fails to invest in developing its leaders from within then it is likely that they will look to someone outside of the corporation. In the majority of such cases (note that I did not say in every case), the odds of sustainable success will be limited.

*Note: The book Good to Great referenced the practice of looking outside of an organization for leadership. While there are certainly instances where an individual outside of a company was brought in to run a particular procurement department, I believe that the term outsider can also be extended to include individuals from other unrelated areas of the same business.

Musings on Talent Management

Today I’d like to welcome Dick Locke from Global Supply Training.

Thank you to the doctor for the opportunity to contribute. Here are my thoughts from the perspective of someone involved in the training aspects of globalizing supply management.

I’m optimistic overall. The caliber of people attending my seminars has improved, and the caliber of commentary on supply management issues has gone up. In my field, the nadir was reached in approximately the year 2000 when ISM removed all international content from their C.P.M. exam. The reason? Very few of the companies that participated in ISM surveys sourced internationally. (That included their retail participants, believe it or not.) Since then, ISM essentially reinvented itself and scrapped not only their own Board of Directors but also the whole C.P.M. program. Their new certification is intended to have strong international content.

The reasons that we are seeing better talent, in my view, is that there is

  1. a significantly better recognition of the strategic nature of sourcing and supply chain management and
  2. a better division of those strategic functions from the tactical aspects of procurement.

Sourcing and supply chain management are complex and challenging. Sourcing in a global environment requires skills in analysis, human relationships, laws, regulations, economics and a great deal of flexibility. Complexity and multi-faceted challenges attract talented people as long as the tasks they tackle are achievable.

In the computer industry, we realized sourcing remains a core competency even when manufacturing isn’t. All the computer companies use the same small group of component suppliers and subcontract manufacturers. To differentiate the cost or flexibility of manufacturing products, the computer companies have to be able to negotiate better deals than either their competitors or the subcontract assemblers can.

Now, a couple of caveats.

One is that talent is one thing, knowledge is another. In the United States, Japan, and a few other countries, imports and exports are a low percent (around 18-20%) of the country’s GDP. People can come away from training programs or even university degrees with very little global knowledge. I have a 10-question quiz on international skills on my website. About 4 people per day take the test. Up to a few years ago, people typically got one or two questions right. Now they are typically getting four or five right. While both talent and knowledge are increasing, don’t assume even the most talented professional will know about foreign exchange risk management, for example.

The second is that it’s easy to drive talent away. Talented people don’t tolerate bureaucracy and routine very well. I can think of three types of bureaucracy that need to be contained.

One is just plain rules and regulations. I know of one ex-client with a good reputation whose people couldn’t carry on a substantive conversation on procurement issues for more than a few minutes without reference to their book of rules. Back when I worked at HP, I inherited a department who believed they had to ask companies such as Texas Instruments once per year if they were a small business or not. When suppliers see that kind of silliness, it diminishes the buying company. When talented people see that kind of demand on them, they vote with their feet and walk away.

Another is giving too much power to departments such as legal and finance. As a consultant, I’ve received 30 page contract proposals with a quarter page of statement of work in them. It takes a mighty big potential level of business for me to spend any time on those proposals. If you have a standard purchase contract, it’s reasonable for a legal department to control maybe five or ten percent of it. The rest is pure business issues that your professionals should be able to (and expected to) control. Lawyers are wonderful people but there’s an old saying that “when your only tool is a hammer, every problem looks like a nail”.

I’ve also seen finance departments unilaterally decide to pay suppliers late. Successful heads of procurement must be able to claim and maintain their department’s role as the manager of the relationships.

Finally, I’m a bit concerned about “technological bureaucracy”. Hard-to-operate software can become all-consuming or can result in the technical wizards being given all the recognition. And the idea that all interfaces (such as e-RFX) can be automated can eliminate the human aspect of procurement. That aspect of procurement is vital for business relationships in most of the world. The challenges of doing this will also attract talented people.

So, for obtaining and maintaining talent effectively, here are a few guidelines.

  • Create jobs that talented people will want.
    Don’t try to put talented people into bureaucratic situations.
  • Separate the tactical and strategic functions.
    Tactical problems will too often take priority over stragegic issues. Not only will your strategies not advance, your most talented people will leave.
  • Train your people.
    Talent and knowledge are two separate issues.
  • Fight fiercely against practices that can drive talented people out.

Retaining Talent in a Fast Growing Market

A couple of months ago, Knowledge @ Wharton China ran an article on “how to retain talent in a fast-growing market like China” that the doctor couldn’t resist skimming. It notes that protecting your workforce from competitors eager to recruit experienced staff is a challenge in fast-growing markets as well as stable markets (which makes sense, since a developing market is even more likely to need talent). It backed this up with a scary statistic – the financial services industry had employee turnover of 25% in Asia in 2005, and indications are that the turnover rate has been steadily growing since. It was even worse in sales and manufacturing where turnover rates of 40% are common!

According to the article, it takes more than a competitive salary to retain staff. This is obvious – anyone who wants talent is going to at least pay a competitive salary, and if they’re desperate enough, they’re going to be offering pay that is at least at the high end of market average. The article noted that pay does play a role, with predicted salary increases of 7.9% for administrative workers and 8.9% for senior management in China in 2007, as compared to a real average increase in the US of 1.4%, but insists that more pay isn’t enough on its own to retain talent.

One of the suggestions it makes, which was employed by Spansion China who’s turnover rate is half of what it is for the electronics industry as a whole, is to not only identify your employees as your core assets, but to take actions that demonstrate you mean it. Spansion accomplishes this by holding regular meetings, discussions, and gatherings where employees are encouraged to give their feedback, positive or negative.

Another suggestion is that you should, to borrow a western phrase, empower your people – and mean it. When Vanke groups hires someone for a job, the new hire is given what he or she needs to do the job and is free to make his or her own decision on what’s best for the company – and then act on that decision. Plus, it gives its employees a clear career path and free training programs. Those employees who work hard have lots of opportunity for advancement within the company.

The article also noted that, in the best companies, employees tend to have a clear understanding of organizational goals, that in the best companies, there are aggressive goals at all levels of the organization and that the best companies reward employees appropriately.

In other words, there was nothing fundamentally new in the article, but they were all points that deserve repeating.

Supply Management in the Decade Ahead XI: Attracting & Retaining Supply Management Talent

This post continues our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” (a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research), and our review of the seven critical supply strategies for succeeding in a dynamic world in particular, with the sixth critical supply strategy identified by the report – the attraction and retention of supply management talent.

As far as the doctor is concerned, this is the most important strategy of them all. Without talent, there’ll be no one to implement your category management strategies, no one to develop your suppliers, no one to optimize your supply networks, no one to help you benefit from technology enablers, no one to collaborate with your partners, and no one to enable the supply management organization. (That’s why the doctor has an ongoing series on this blog about talent. You won’t succeed without it.)

The authors outlined three main areas that they believe companies need to focus on in the decade ahead:

  • identifying needed skills and capabilities
  • attracting, developing, and retaining talent
  • managing a diverse, dispersed workforce

This is a great start, but I’d also add, at the very least:

  • succession planning

As the study notes, a great deal will be expected of tomorrow’s supply management professionals, and this will be considerably more than what is expected of them today, even though some organizations already expect a lot. Tomorrow’s supply management professionals will have to find and leverage sources of innovation, contribute to revenue as well as savings, expand efforts to manage supply, address risk, and ensure business continuity and sustainability in a broad sense (and possibly before they even get their morning coffee).

As the report notes, to meet all of these requirements, supply management professionals will need the skills and capabilities to understand and interpret supply market dynamics, analyze complex supply options and risks, and develop value acquisition strategies that integrate with – while supporting – business and functional strategies. They’ll also need the skills required to properly implement the six other strategies being covered in detail in this series – category strategy development, supply base development, technology leverage, supply network optimization, collaboration, and supply management organization enablement.

The foundational skills will continue to center upon a combination of supply market knowledge and supply process expertise. Professionals will also be required to possess broad business knowledge and multi-disciplinary experience – the cross-functional skills, as well as international experience and foreign language skills – the cross-cultural skills. Finally, they’ll also need a collaborative style, innovative spirit, and leadership ability – the “soft-side” skills.

The top three talent management strategies identified by the respondents were:

  • Establish a knowledge and skill competency model for supply management
  • Recruit and/or develop talent with broad general management expertise for supply management roles
  • Recruit and/or develop talent with specific technical or foundational domain expertise for supply management roles

However, there will be no one-size-fits-all strategy. As the authors note, companies will need a thoughtful, multi-pronged strategy to acquire, develop, and retain individuals with the skills and competencies that they require. Companies will also need to cast a wider net and be far more aggressive and creative in identifying and attracting supply management talent.

Talent succession planning will also be important, as supply organizations face the loss of knowledge not just to retirement and recruitment efforts by other companies, but recruitment efforts from other organizations within the company who will increasingly realize that the most qualified people in the company are those in the supply management organization, where complexity is a way of life.

In addition, the ways in which companies adapt their training programs over the next decade will also be important to success. Training curricula will also need to be expanded and constantly refreshed to support the broader skill sets and deeper expertise required of individuals in the processes and supporting technologies required to deliver value from supply markets. In addition, training programs will need to support cross-functional teams and not just the individual. These training programs will also have to integrate tightly with knowledge management to capture what the organization collectively knows and make that information available to new staff anywhere in the company, regardless of where they are physically located in the world, to more quickly overcome the learning curve that will continue to creep up steeply over the decade ahead.

Also, companies will have to compensate their top supply management talent accordingly – and move beyond the so-called “one-percent” dilemma (where top performers receive 4% raises while poor performers receive 3%) because if you won’t compensate your top performers, you can be damn sure your competition will. To keep your top talent, superior individual performance will need to be reflect in both base pay and incentives. Remember, it takes somewhere between five and twenty dollars of sales to have the same impact to the bottom line as every dollar of savings achieved by a supply management professional. Given this fact, who should be compensated more in your organization? The sales person that reached his million dollar quota, the marketing executive that made it easy for him to do so, or your category manager who trimmed a million dollars off of the top? If you answered the sales person or the marketing executive, then I wish you good luck when you find yourself in the unemployment line in three years because because you didn’t have the supply talent to foresee and mitigate that major supply chain disruption that put your company into bankruptcy. (On average, a company has a major supply disruption every twelve months these days … and that number is shrinking fast among those without the talent to develop and implement the appropriate visibility and mitigation strategies.)

Talent management will be the deciding factor between success and failure in tomorrow’s supply management organization, so the doctor sincerely hopes that, for your sake, you get it right. (And just remember, if you need help, the doctor is an experienced academic and professional lecturer and trainer, has a lot of strength in knowledge management, and is also quite good at process development – which is key in succession planning. the doctor is also quite good at working with third parties and can help you in your selection, and management, of partners should you decide to outsource some or all of your recruitment efforts. For more information on what the doctor does, see What Does the doctor Do? For Executives.)

the doctor Wants To Know Why You Don’t Have A Talent Strategy

As I pointed out this weekend, the global war for talent is about to intensify – and if you don’t act now, you might not have time to. The US alone is facing a workforce shortage of 10 million by 2010, your high-tech workforce would rather stay in India, and Europe has finally recognized that if they don’t make immigration for skilled workers easier, they might not have any left, and have created a new type of renewable permit to allow people to relocate and live there quickly and easily.

So why don’t you have a talent strategy? Especially since taking a first shot is not that hard. As long as you realize that all most people today want is greater flexibility, personal growth, career paths, opportunity, open communication, and competitive pay, and as long as you make it your mission to treat people with the fairness and respect they deserve, it’s pretty straight-forward to come up with a multi-pronged strategy that is bound to be effective, especially when most of your peers are still in the dark ages and believe that the labour is nothing more than “human resources” who can be hired and fired like most farmers buy and sell cattle.

For instance, even if you just instituted the following principles, you’d be on your way to a good talent management (and acquisition) strategy (since good people attract good people).

  • Everyone has multiple career paths open to them.
    For example, every developer, if that is their ultimate career goal, has a chance of working their way up to at least CTO. However, if all they want to do is code, they have a path for working their way up the seniority ladder where they can eventually have their choice of new development project and role on the development team (as well as a huge salary – since your best programmer can be more than twenty times as effective as your average programmer). And every buyer has a career path right to the top spots – CPO, and maybe even CEO.
  • People can work where they want to, and within reason, when they want to.
    If they’re not a morning person, or regularly have to hold calls with suppliers half way around the world then, except for some common meeting hours each week, they should be able to choose when they work. Similarly, if your best developer is a night owl and does his best coding between 8 pm and 2 am, let him work a night shift. Your goal is not where or when your staff works, but the results they get. As long as they’re putting in the effort and making a commitment, whether or not they work when you work doesn’t matter.
  • With the exception of the C-suite, every job function is open to full-time, part-time, seasonal, and consultant labor.
    Let’s face it, if all the boomers retire when they turn 65, you’re average large organization is going to be hit with a double whammy it might not be able to recover from. First, it might not be able to replace even half of those workers due to the extreme talent crunch. Secondly, most of it’s knowledge – the intangible that might be accounting for 10, 20, 30, or even 50% of a company’s value – will walk out the door with the retirees. To continue succeeding, it needs to ensure that knowledge is transferred and that key relationships don’t dissipate with their departure. This means it needs to allow these individuals in particular to work part-time on their schedule to make sure the knowledge gets transferred and the relationships stay in tact after the new hire is made.
  • Furthermore, no one will be penalized for not working a traditional full-time job.
    If you have a pension plan, a recent retiree will not be penalized for contracting with you on occasion to help transfer knowledge or lead key initiatives that really require the experience of a grey-beard. Part-time employees will also have access to benefits like health-care and daycare support. (The company sponsorship of these benefits can be less for part-time employees, as these benefits are costly, but these employees should not be denied access to their fair share of any company benefit.)
  • Everyone gets regular access to subsidized training.
    With your average technical undergraduate degree partially outdated by the time it is granted, regular training is a must. A full time employee will get an allowance of at least four weeks a year to spend in classes, at conferences, or on their own reviewing e-learning courses and materials. Furthermore, they will also have a budget to spend on non-company training related to their job requirements.
  • An emphasis is made on local leadership at the national level and international leadership in the C-suite.
    Let’s face it, your employees in India don’t want to be led by a Texas Cowboy with no knowledge of their language or culture and no interest in getting to know the local ways. If you want to attract and retain top talent in a developing economy where new jobs are being created every day and where wages are rising at four or five times the annual rate in the US, you need local leaders. Furthermore, if you really want to understand how to compete in a global economy, you better have a senior leadership team in your virtual head office that is familiar with that economy. The US is less than 5% of the world’s population, and that number is shrinking. To go global, you have to be global.
  • Everyone’s compensation is reviewed annually with the intent of insuring that every one who makes an honest effort and functions at the market level is indeed earning at least market-average pay.
    Although it may be true that it’s not always about pay these days, it’s also true that it’s still the most significant factor when it comes to talent retention and acquisition. After all, all other things being roughly equal, wouldn’t you take the job with higher pay?

Now, there is a lot more you could do, and a lot more you should do, but you have to start somewhere. And I think this is a good starting point.