The CPO's Agenda for 2012 and Beyond October 2012 Christopher J. Dwyer
Page 2 Executive Summary With many organizations facing uncertain economic conditions and critical business challenges, the contemporary Chief Procurement Officer (CPO) has an opportunity to become a true corporate "hero" by aligning procurement initiatives and strategies with the overall goals and objectives of the greater organization. The CPO's Agenda for 2012 and Beyond highlights the strategic rise of the CPO and how this role is well-positioned to be an executive force for years to come. Best-in-Class Performance A series of key performance metrics were used to determine the Best-in- Class Maturity Framework: rate of spend under management, rate of procurement contract compliance and the percentage of identified and negotiated savings that are actually realized and implemented. Best-in-Class companies have: Realized and implemented 82% more of their identified / negotiated cost savings than all other organizations Achieved a 54% higher rate of procurement contract compliance Driven a 42% higher rate of spend under management than all others Research Benchmark Aberdeen s Research Benchmarks provide an in-depth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics, including: 71% higher likelihood than all others to actively monitor supplier risk issues as a means of preparing for supply chain disruptions 47% higher likelihood of training procurement staff members on the strategic importance of complex spend categories 30% higher likelihood of tracking, monitoring, and measuring spend under management Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must: Leverage both "classic" / traditional and next-generation procurement technologies to support and enhance key strategies Maintain a critical focus on managing strategic spend categories Establish cross-functional coordination and collaboration among key stakeholders Ensure that the CPO has a hand in strategic operational planning This document 2012 Aberdeen is the result Group. of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for Telephone: objective fact-based 617 854 research 5200 and represent www.aberdeen.com the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted Fax: 617 by Aberdeen 723 7897 Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.
Page 3 Table of Contents Executive Summary... 2 Best-in-Class Performance... 2 Competitive Maturity Assessment... 2 Required Actions... 2 Chapter One: Benchmarking the Best-in-Class... 4 Business Context: A Story of Cost and Data... 4 The Top Priority on the CPO's Agenda? People.... 6 The Maturity Class Framework... 7 The Best-in-Class CPO, Part I: Program Attributes... 7 Chapter Two: Benchmarking Requirements for Success... 11 Driving Spend Optimization Through a Frugal Culture... 11 Competitive Assessment... 11 Capabilities and Enablers... 13 The Best-in-Class CPO, Part II: The Technology Factor... 14 Chapter Three: Required Actions... 17 Laggard Steps to Success... 17 Industry Average Steps to Success... 17 Best-in-Class Steps to Success... 18 Appendix A: Research Methodology... 19 Appendix B: Related Aberdeen Research... 21 Figures Figure 1: Top Challenges for Modern Procurement Executives... 4 Figure 2: Action-Oriented Strategies to Improve Spend Management... 5 Figure 3: People Management Challenges... 6 Figure 4: Training Attributes for the CPO's Team... 8 Figure 5: Procurement's Collaboration with Other Divisions... 9 Figure 6: Top Approaches to Promote a "Frugal" Culture... 11 Figure 7: Classic / Traditional Procurement Technology Utilization... 14 Figure 8: The Future of Procurement Technology... 15 Tables Table 1: Top Performers Earn Best-in-Class Status... 7 Table 2: The Competitive Framework... 12 Table 3: The PACE Framework Key... 20 Table 4: The Competitive Framework Key... 20 Table 5: The Relationship Between PACE and the Competitive Framework... 20
Page 4 Chapter One: Benchmarking the Best-in-Class For the past five years, the global market has experienced a vast array of economic challenges ranging from downturn to recovery. During this period of uncertainty, specific roles within the average organization have risen from traditional spectrums to drive true operational and corporate value. The role of the Chief Procurement Officer (CPO) is now one of heroic propensity, as the modern procurement executive can be considered a protagonist in the story of economic uncertainty and the typical organization's approach to driving business efficiencies. Business Context: A Story of Cost and Data Every story has a familiar theme, and the fable of "CPO as corporate hero" is no different. The procurement group was designed with one goal in mind all those years and decades (and centuries?) ago: drive down operational costs and improve savings through better relationships with core suppliers. As shown in Figure 1, the top challenge for the modern procurement executive is one they've faced all their years in this role. Fast Facts The average organization only realizes and implements 25% of negotiated and identified cost savings 32% of all CPOs report directly to the CFO Indirect spending remains the top area in which to reduce costs (70% of procurement executives state that this is their top priority for cost reductions) Figure 1: Top Challenges for Modern Procurement Executives The vast majority (75%) of procurement professionals and CPOs are actively facing a top-down directive to both cut costs and identify savings, a conversant priority that often forms the foundation for procurement and sourcing strategies and approaches towards greater spend management. However, analyzing the challenges in Figure 1 beyond the obvious proves that the CPO role is currently facing a fresh crop of pressures that are driving their overall procurement strategy. A lack of proper data to drive
Page 5 category strategies (44%) and a lack of category expertise (38%) translates into an organizational need to support a dual approach to this function: improve complex spend management, which includes indirect spend categories such as printed materials / services, temporary labor, facilities, business travel, and meetings / events. The (Re)Evolutionary Approach While the procurement group has never been perceived as a "back-office" function, executives within this unit may as well have been locked away in the corners of the average organization with nothing but a simple task at hand: drive cost savings. However, as found in the CPO's Agenda 2012 dataset, the majority of procurement professionals are adopting a revolutionary approach to their operational strategies by better-aligning procurement approaches with that of organizational goals and objectives (53%, Figure 2, below). Figure 2: Action-Oriented Strategies to Improve Spend Management Our goal is to be a global procurement team, effectively leveraging people, processes, and partnerships. We want to deliver goods and services at the best value to meet business requirements, always considering safety and sustainability. ~ Manager, Large Chemical Company The top strategy taken by CPOs and procurement executives directly reflects the notion of "CPO as hero" in current economic times; aligning procurement strategies and approaches (such as supplier management, indirect and direct materials management, initiatives to improve contract compliance, etc.) with organizational goals (cut costs, drive savings, improve spend visibility, increase revenue, etc.) is a revolutionary approach that catapults the CPO into a valiant role, one that is a true champion in the face of business adversity. As detailed in the previous section, modern procurement professionals are also focused on the strategic complex spend categories (45%) as a robust
Page 6 strategy for improving corporate spend management. Categories like business travel and corporate meetings can encompass upwards of 20% of the organization's total budget; the CPO now views these types of categories in a strategic manner and believes that there are vast savings opportunities within this component of spending. The Top Priority on the CPO's Agenda? People. With all of the talk and discussion focused squarely on the cost reductions / cost savings initiatives of the procurement function, one may believe that spend management maintains the top spot in the modern CPO's agenda for 2012 and beyond. However, the CPO's Agenda research study finds that people management trumps spend management on the priority scale (see sidebar to the right). With this notion in mind, Figure 3 details the people and staff management challenges that CPOs and procurement professionals currently face within their functions. Priorities on the CPO's Agenda People / staff management (41%) Spend management (37%) Technology (12%) Suppliers (10%) Figure 3: People Management Challenges The top people management challenge faced by CPOs is a lack of staff with appropriate skills or knowledge (49%), a factor which contributes to a lack of strategic focus and inability to capitalize on tactical opportunities (such as identifying savings opportunities within existing supplier relationships). While the CPO or VP of procurement / purchasing holds the main responsibility for controlling spending, this role is often tasked with managing a variety of both seasoned and fresh buyers across a series of spend categories. A lack of expertise during the buying cycle can result in less-than-favorable contracts and poor visibility into the relationships with key and core suppliers.
Page 7 The Maturity Class Framework Aberdeen used three key performance criteria to distinguish the Best-in- Class from Industry Average and Laggard organizations: rate of spend under management, rate of procurement contract compliance and the percentage of identified and negotiated savings that are actually realized and implemented (Table 1). Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 20% of aggregate performance scorers Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers Mean Class Performance 83% of spend under management 82% rate of procurement contract compliance 70% of identified / negotiated savings are realized and implemented 68% of spend under management 63% rate of procurement contract compliance 22% of identified / negotiated savings are realized and implemented 28% of spend under management 13% rate of procurement contract compliance 3% of identified / negotiated savings are realized and implemented Spend Under Management, Defined Spend under management, a classic measure of procurement's impact on the greater organization, is the percentage of non-payroll spend that is actively managed by the procurement group. For every dollar of spend under management, Aberdeen has historically quantified 5% to 20% cost savings. Topperforming enterprises place nearly 42% more spend under management than all other organizations. Best-in-Class organizations in the CPO's Agenda survey pool are known for their top-tier level of performance across a series of key performance metrics under the greater procurement umbrella: Best-in-Class organizations have realized and implemented 82% more of their identified / negotiated cost savings Top-performing companies have achieved a 54% higher rate of procurement contract compliance Best-in-Class enterprises have driven a 42% higher rate of spend under management The Best-in-Class CPO, Part I: Program Attributes The Best-in-Class CPO (and his / her team) has embraced a series of specific program attributes (and capabilities, which will be detailed in Chapter Two as part of The Competitive Framework) and strategies to help drive more spend under management, improve procurement contract compliance, and avoid savings leakage. With people as the main priority on the CPO's strategic agenda, it is worth noting that Best-in-Class organizations have taken pains to ensure that their
Page 8 staff has undergone the necessary training to contribute value to the greater function (Figure 4). Figure 4: Training Attributes for the CPO's Team The training attributes detailed in Figure 4 reflect the Best-in-Class approach to ensuring that both procurement executives and staffers have the essential knowledge to drive efficiencies in tactical processes and have the proper understanding of all facets of contemporary spend management: Training in financial analysis (in place in 53% more Best-in-Class organizations than All Others) assists in aligning procurement strategies with that of the overall organization. By having procurement staff members (and key buyers) understand financial metrics and their ramifications on the overall fiscal picture, it can boost the attention paid to premeditated processes that may seem "simple" in nature, such as vendor negotiations, watchful eyes for delivery against key contract milestones, etc. Supply risk management training (enacted by 61% more Best-in- Class companies than All Others) can be an overlooked aspect of the modern procurement program. Devastating acts of nature or economic crises can cause severe supply chain disruptions. A procurement staff well-versed in supply risk management can ensure that effective precautions are put in place in the event of supply chain disruptions and keep product cycles on-target. By training procurement staffers in the strategic importance of spend categories (in place in 47% more Best-in-Class organizations than all others), CPOs (and CPO equivalents) are providing buyers and other staff members with the knowledge of potential savings opportunities within complex / indirect spend areas. These Our top priority is development of tools, templates and implementation of governance to ensure procurement activity is managed appropriately. This aligns with company goals as we are looking to improve our delivery and reduce cost. ~ Manager, International Airport
Page 9 categories, from business travel to printed materials, are often overlooked; by applying the same procurement principles as with direct materials sourcing, procurement teams can drive extreme value. Collaboration: The Art of Cross-Functional Coordination A significant component of aligning procurement strategies with overall organizational goals is cross-functional coordination. In order to transpose tactical and strategic procurement / sourcing approaches with other divisions across the enterprise, it is imperative that organizations regularly institute collaboration between procurement and key corporate stakeholders. As detailed in Figure 5 (below), Best-in-Class companies are relying upon collaboration with internal functions. Figure 5: Procurement's Collaboration with Other Divisions Best-in-Class organizations regularly enact collaboration with key stakeholders across the organization, including finance (4.31 score on the ranking scale, with 1 being no / infrequent collaboration and 5 being consistent / frequent collaboration) and supply chain (4.17 as compared to 3.69 for all other organizations). Supply chain is often considered a "sister" function to procurement, thus coordination between these two units (i.e. sharing of data and intelligence related to supply risk) is considered "typical." The true value of collaboration in Best-in-Class organization lies within procurement's relationship with the Chief Financial Officer (CFO) and the finance team. It is often stated that these two groups "speak the same language" (read: dollars), however, they are not often on the same page in regards to organizational strategies. Top-performing organizations understand that in order for procurement to truly be more strategic and contribute to the achievement of organizational goals / objectives, they must
Page 10 ensure a healthy union with finance to fully-maximize implemented cost savings into future budgets and corporate forecasting. Aberdeen Insights Strategy: The Drive for Visibility Visibility is a crucial component to any procurement or purchasing function. The Chief Procurement Officer relies on data to make intelligent sourcing decisions and ensure that procurement's link to the executive boardroom is strengthened with real-time information regarding suppliers, spending and supply risks. The CPO's Agenda research study finds that Best-in-Class organizations are actively leveraging a series of strategies and capabilities to drive visibility into multiples facets of modern procurement: Best-in-Class companies are nearly 60% more likely than all others to have the ability to classify and cleanse spend data Top-performing organizations are 52% more likely to have executive and decision-maker access to enterprise-wide spend across all complex categories (including key commodities and services) Best-in-Class enterprises are 34% more likely than all other organizations to have the ability to collect data and information from multiple internal systems and sources (such as ERP, HR, A/P, general ledger, category-specific systems, etc.)
Page 11 Chapter Two: Benchmarking Requirements for Success The previous chapter heralded the strategic rise of the CPO and the procurement organization and pointed to this role as a potential "hero" in times of economic uncertainty. While aspects such as well-trained staffs and internal collaboration reign supreme within Best-in-Class organizations, the contemporary CPO must also look beyond in-house efficiencies to truly drive value to the greater organization. Driving Spend Optimization Through a Frugal Culture As discussed in the previous chapter, the reduction of costs (and, similarly, the improvement of cost savings) is top-of-mind for the contemporary CPO. In order to create a "frugal" culture, that is, an environment in which optimized spending is a common goal between stakeholders, organizations must look to one key, classic, age-old mantra: communication. Fast Facts Nearly 75% of organizations perceive the procurement function as "strategic" to "extremely strategic" Best-in-Class organizations are 71% more likely than all others to actively monitor supplier risk issues as a means of preparing for supply chain disruptions Figure 6: Top Approaches to Promote a "Frugal" Culture "(Our goal is to) further reduce the total external costs with our suppliers and avoid potential market cost increases, which contributes to the overall profitability of the company thus resulting in higher shareholder value. ~ Director, Transportation / Logistics Firm By frequently communicating the effectiveness of cost savings and reductions across key divisions, CPOs can cultivate an organizational system of values that beholds spend management as a catalyst for corporate growth and development. This notion navigates over traditional beliefs regarding savings and encourages a focus on increasing profit (not just reducing costs) and thrusting procurement into a strategic light. Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute daily procurement operations); (2)
Page 12 organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing spend data and exposing it to key stakeholders); (4) technology (the selection of the appropriate tools and the effective deployment of those tools); and (5) performance management (the ability of the organization to measure its spend management results to improve its business). These characteristics (identified in Table 2) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics. Table 2: The Competitive Framework Process Organization Knowledge Technology Performance Best-in-Class Average Laggards Standardized and formal strategic sourcing program 72% 44% 35% Collaboration between procurement and key stakeholders 72% 56% 36% Active monitoring of supplier performance 69% 49% 34% Active monitoring of supply risk issues and disruptions 68% 25% 12% Procurement / sourcing technology in place: 80% spend analysis 68% contract management 68% supplier networks / portals 65% e- procurement 52% categoryspecific solutions 77% spend analysis 48% contract management 37% supplier networks / portals 62% travel and expense management 34% categoryspecific solutions 41% spend analysis 39% contract management 26% supplier networks / portals 41% travel and expense management 29% categoryspecific solutions Procurement performance measurement capabilities: 83% ability to track spend under management 63% ability to assess the impact of procurement on the bottom-line 70% ability to track spend under management 54% ability to assess the impact of procurement on the bottom-line 35% ability to track spend under management 27% ability to assess the impact of procurement on the bottom-line
Page 13 Capabilities and Enablers The Best-in-Class procurement executive relies upon a series of capabilities and competencies (detailed in the Competitive Framework) to streamline processes, gain visibility into corporate spending and strengthen the link between procurement's efforts and the achievement of corporate goals and objectives. Process: Standardized Sourcing as a Cornerstone Even the most effective procurement programs struggle with the art of strategic sourcing, often times faltering due to a lack of standardized and formal processes for understanding spending and negotiating with key suppliers. Best-in-Class organizations are 43% more likely than all others to leverage a formal and standardized strategic sourcing program as the cornerstone to their procurement units, a factor which places emphases on cost savings and ensuring that spend is actively funneled through this division. Organization: Collaboration and Coordination Chapter One detailed the means in which Best-in-Class organizations actively collaborate with key internal stakeholders, including supply chain, finance, and marketing. Top-performing organizations are 32% more likely than All Others to institute collaboration between these divisions as a way of sharing information / intelligence regarding corporate spending. Knowledge Management: Visibility into Supplier Risk and Supplier Performance The bane of procurement inefficiency is the consistent failure to monitor the performance of suppliers. Best-in-Class organizations are 35% more likely than all other companies to actively monitor supplier performance; this intelligence can be leveraged in future negotiations and allow key buyers to gauge the effectiveness of specific suppliers when contracts and agreements are drawing to a close. Supplier risk, as detailed in the previous chapter, is a cause for much concern within the procurement circle, as supply chain disruptions can adversely affect product development. Best-in-Class organizations are 71% more likely than all others to actively monitor supplier risk issues as a means of preparing for disruptions and having the ability to react in such a way to keep product cycles on-track. Performance Management: Spend Under Management and Procurement's Total Impact Best-in-Class organizations are 30% more likely to track and monitor spend under management, a metric that indicates procurement's control over nonpayroll and non-tax-related corporate spending. This core performance metric is often considered the most accurate component of how effective
Page 14 the CPO and his / her team is in managing the organization's spending on both direct and indirect materials. Similarly, by assessing procurement's total impact on the organizational bottom-line (tracked / monitored by nearly 30% more Best-in-Class companies than all others), top-performing organizations are able to quantify how supplier negotiations, sourcing processes and spend control initiatives affect corporate-wide cost-saving and cost reduction efforts. The Best-in-Class CPO, Part II: The Technology Factor The contemporary Chief Procurement Officer must balance a wide array of processes and capabilities to effectively improve spend management and ensure that his / her team is actively contributing to the achievement of corporate goals and objectives. The Best-in-Class CPO and procurement group actively leverages myriad technologies and solutions to link key processes, drive ultimate spend visibility and provide a foundation for future procurement strategies. Figure 7 (below) details "classic" and traditional offerings that are currently leveraged by Best-in-Class organizations. Figure 7: Classic / Traditional Procurement Technology Utilization Spend management tools have greatly enhanced our capabilities to collaborate across various business units and multi-plant locations. ~ Director, Large Aircraft Manufacturer Contract management systems (in place in 24% more Best-in-Class organizations) offer automated contract templates and repositories of past agreements, while e-procurement technology (in place in 11% more Best-in- Class companies than All Others), a classic offering, provides an automated purchasing foundation for buyers within the procurement team.
Page 15 Spend analysis has risen as perhaps the top option in the CPO's veritable toolbox over the past half-decade. This technology, used by 18% more Bestin-Class organizations than all others, helps procurement executives dig into the goldmine that is spend and financial data (utilizing information extracted from procurement systems, ERP, A/P, general ledger, etc.) to uncover key spending patterns / trends. Spend analytics also arms strategic sourcing teams with the necessary intelligence for improving supplier negotiations. While classic and traditional offerings are typically considered required tools for the modern CPO, there are a wide range of platforms that are traversing this role into the future of spend management (Figure 8). Figure 8: The Future of Procurement Technology Best-in-Class organizations are actively looking beyond traditional solutions to enhance procurement processes and drive more dollars to the bottomline. With procurement (and the role of the CPO) becoming more strategic in nature (nearly 75% of all organizations perceive the procurement function as "strategic" to "extremely strategic"), it is imperative that CPOs look beyond process automation and adopt solutions that can augment the "big picture" for spend management: Supplier networks and portals (utilized by 51% more Best-in-Class companies than all others) represent a shift in the business mindset. Supplier networks are not just mere links between buyers and sellers; solutions enable true commerce between procurement professionals and their suppliers and allow CPOs to better manage the entire spectrum of purchasing. Category-specific solutions, such as Managed Service Providers (MSPs) and Vendor Management System (VMS) technology for
Page 16 contingent workforce management and software for managing the next wave of corporate meetings and events, assist the CPO in throwing a strategic arm around complex spending. With the indirect arena representing the largest opportunity for cost savings (as found by over 63% of procurement executives), it is critical for CPOs to turn to category-specific solutions as a way to enhance processes beyond managing these complex areas via traditional procurement offerings. Supply chain financing solutions (utilized by 56% more Best-in-Class companies) support the notion of the financial ecosystem as a viable and strategic business lifecycle, and allows procurement to play a vital role in supporting the management of organizational cash flow. Aberdeen Insights Technology: The Advantages of Key Solutions A major theme in Chapter Two is the Best-in-Class CPO's reliance on traditional and next-generation technology solutions in the pursuit of procurement excellence. Aberdeen research has found that users of these crucial solutions have achieved a plethora of performance advantages: Users of supplier networks have achieved a 32% higher rate of negotiated / identified savings being realized and implemented than companies not currently leveraging supplier networks Companies currently utilizing spend analysis technology have experienced a 42% higher rate of spend under management than those organizations without this solutions in place Organizations with automated contract lifecycle management solutions in place have driven a nearly 30% higher rate of procurement contract compliance than companies not currently leveraging this technology offering
Page 17 Chapter Three: Required Actions The contemporary Chief Procurement Officer is now tasked with supporting overall organizational goals through efficiencies within the procurement function. The following recommendations will help those procurement professionals on the lower levels of the Maturity Class Framework reach a Best-in-Class level of success: Laggard Steps to Success Establish cross-functional coordination and collaboration among key stakeholders. Best-in-Class organizations are 50% more likely than Laggards to institute a collaborative environment, which begets free-sharing of relevant information between procurement, supply chain, finance, treasury, and other key units within the greater organization. Collaboration often speeds up product cycle times and helps financial executives enact better planning, forecasting, and budgeting. Build a "bigger" name for the procurement function. A central theme of this report is the CPO and procurement as unheralded corporate "heroes" in the face of economic adversity. The CPO does not receive this opportunity if Laggard organizations do not communicate the strategic importance of the procurement function to other internal units, particularly the executive boardroom. Fast Facts Best-in-Class organizations are 50% more likely than Laggards to institute a collaborative environment Best-in-Class organizations are 46% more likely than the Industry Average class to leverage supplier networks and portals Industry Average Steps to Success Enhance existing tools and solutions with category-specific offerings. Best-in-Class organizations are nearly 35% more likely than Industry Average organizations to leverage category-specific solutions (such as MSPs, VMS, events management, travel and expense management, etc.) to manage strategic categories. Indirect and complex spending remains the largest opportunity for cost savings, and the Industry Average class can greatly benefit by supporting their existing strategies with category-specific technology. Look to supplier networks as a bridge to the "future" of spend management. The notion of spend optimization is a lofty one, and most organizations will struggle with driving efficiencies within traditional processes. Supplier networks can assist in achieving the goal of optimizing spending and taking spend management beyond simple cost savings / cost reductions by transforming classic business into true value-add commerce between procurement and its supplier base. Best-in-Class organizations are 46% more likely than the Industry Average class to leverage supplier networks and portals.
Page 18 Best-in-Class Steps to Success Ensure that "technology" is a top priority for the future. Although Best-in-Class organizations are building a core of efficiencies through automation and reliance on key solutions, the top-tier CPO must not forget the strategic value of technology in long-term planning for the procurement function. As he or she looks to 2013 and beyond, solutions such as supplier networks, corporate social responsibility, spend analytics, e-procurement, and contract management should be just as high on the agenda as people or spend management. Aberdeen Insights Summary The current economic landscape has presented the modern Chief Procurement Officer with an opportunity to drive spend optimization and support greater corporate goals, specifically the achievement of cost savings and cost reductions. With an uncertain economic market and lofty business challenges looming around every corner, the CPO is wellpositioned to boost its value by enhancing supplier management, instituting collaboration with key internal units, driving visibility into the full spectrum of corporate spending, and linking procurement strategies with that of the CFO or CEO. This form of "hero" is one that will forever alter the perception of the procurement function. However, beyond the role of champion, where can the CPO go? The " Beyond" in the title of this report refers to the future of the CPO, and there's one place for this role: next to the CFO, sitting across from the CEO, just a few seats down from the COO. The CPO will be in the executive boardroom, assisting with corporate forecasting (not just spend management forecasting) and being a true driver of the overall organizational strategic agenda. By proving its worth now during these uncertain business times, the CPO can be a critical component in building the next great corporate plan.
Page 19 Appendix A: Research Methodology Between August and September 2012, Aberdeen collected information from 129 procurement executives about their procurement organizations and the role procurement plays in the overall corporate game-plan. Responding enterprises included the following: Job title: The research sample included respondents with the following job titles: CEO / President (4%); EVP / SVP / VP (30%); Director (28%); Manager (24%); Consultant (10%); and other (5%). Department / function: The research sample included respondents from the following departments or functions: procurement / purchasing (68%); logistics / supply chain (10%); corporate management (7%); operations (4%); and other (11%). Industry: The research sample included respondents from a multitude of various industries: industrial product manufacturing (11%); IT consulting (10%); financial services (8%); chemicals (7%); and others (64%). Geography: The majority of respondents (54%) were from North America. Remaining respondents were from Europe (24%), Asia / Pacific (15%), Middle East / Africa (6%), and South / Central America (2%). Company size: Fifty-nine percent (59%) of respondents were from large enterprises (annual revenues above US $1 billion); 24% were from midsize enterprises (annual revenues between $100 million and $1 billion); and 17% of respondents were from small businesses (annual revenues of $100 million or less). Headcount: Thirty-two percent (32%) of respondents were from large enterprises (headcount greater than 10,000 employees); 43% were from midsize enterprises (headcount between 1,000 and 10,000 employees); and 26% of respondents were from small businesses (headcount between 1 and 999 employees). Study Focus Responding procurement executives completed an online survey that included questions designed to determine the following: The Chief Procurement Officer's role within the organization. Understanding the drive behind spend optimization The internal factors influencing the procurement organization's key strategies and capabilities. How the procurement organization measures its performance across a variety of metrics. The study aimed to identify emerging best practices for procurement executives and to provide a framework by which readers could assess their own procurement programs.
Page 20 Table 3: The PACE Framework Key Overview Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures external forces that impact an organization s market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product / service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products / services, ecosystem partners, financing) Enablers the key functionality of technology solutions required to support the organization s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management) Table 4: The Competitive Framework Key Overview The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance: Best-in-Class (20%) Practices that are the best currently being employed and are significantly superior to the Industry Average, and result in the top industry performance. Industry Average (50%) Practices that represent the average or norm, and result in average industry performance. Laggards (30%) Practices that are significantly behind the average of the industry, and result in below average performance. In the following categories: Process What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization How is your company currently organized to manage and optimize this particular process? Knowledge What visibility do you have into key data and intelligence required to manage this process? Technology What level of automation have you used to support this process? How is this automation integrated and aligned? Performance What do you measure? How frequently? What s your actual performance? Table 5: The Relationship Between PACE and the Competitive Framework PACE and the Competitive Framework How They Interact Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions.
Page 21 Appendix B: Related Aberdeen Research Related Aberdeen research that forms a companion or reference to this report includes: Beyond Payables: The Evolution of the Modern Financial Ecosystem; September 2012 T&E Expense Management: A Solution Selection Guide; September 2012 Strategic Meetings Management: A Handbook of Emerging Strategies for the Next Generation of Meetings and Events Management; July 2012 Creating a Culture of Spend Optimization; June 2012 Advanced Sourcing: Maximizing Savings Identification; June 2012 Contingent Workforce Management: The Next-Generation Guidebook to Managing the Modern Contingent Workforce Umbrella; May 2012 Supplier Networks v.2.0 - A Look At Commerce In the Cloud; April 2012 T&E Expense Management: The Best-in-Class Pillars of Next-Generation Expense Management; March 2012 Procurement Contract Lifecycle: Assessing the Value of Contract Automation; January 2012 Dynamic Procurement: The CPO as Collaborator, Innovator and Strategist; August 2011 Information on these and any other Aberdeen publications can be found at www.aberdeen.com. Author: Christopher J. Dwyer, Research Director, Global Supply Management and Financial Management (chris.dwyer@aberdeen.com) For more than two decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen s research provides insight and analysis to the Harte-Hanks community of local, regional, national and international marketing executives. Combined, we help our customers leverage the power of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. (2012a)