Avoiding the Three Deadly Sins: to contribute greater value, CPOs need to develop and promote a more sophisticated approach to negotiation
by Tom Kinnaird and Hal Movius To contribute greater value, CPOs need to develop and promote a more sophisticated approach to negotiation that considers all parties’ interests
The procurement profession has changed dramatically in the past 20 years, but many of the issues and challenges facing CPOs have remained stubbornly and frustratingly consistent. They include: Why doesn’t procurement have a seat on the board? Why does it have a reputation for only caring about price? Why is it often excluded from strategic business debates and decisions? And why does it find it so hard to make strategic supplier management work properly?
These are complex questions with no simple answer. However, we believe that there is a common theme to each – “value”. Specifically, the ability of CPOs (and the procurement profession at all levels) to recognise, create and release value for their organisations, and to be recognised by their peers and the wider business for their ability and skill in doing so.
A recent major survey of business and procurement leaders by the International Procurement Leadership Forum1 concluded that significant value could be released from strategic supplier management (an incremental 23 per cent, close to €500 million for each respondent), but not through traditional means. Instead, this required a training investment in “softer” skills such as strategic negotiation and relationship development.
And there’s the rub. A generation of procurement practitioners and leaders has grown up with, and been consistently taught, the notion that world-class procurement is built on the foundation of a rigorous strategic sourcing process, which focuses primarily on the creation of leverage and the exercise of power.
But what if the strategic sourcing process is fundamentally flawed in encouraging too much of a focus on price? What if, in the pursuit of apples-for-apples supplier comparisons and the “perfect” sourcing decision, procurement is actually restricting its ability to identify, create and release value from the supply base? What if existing negotiation training methodologies and toolkits are simply not up to the job? And what if, through its own actions and words, procurement simply reinforces the functional stereotypes that are at the root of the challenges and issues facing all CPOs today, preventing them from moving away from the role of master price tactician to that of trusted commercial partner?
Download Avoiding the Three Deadly Sins (pdf)