Managing Performance, Reporting to the CFO

Add comment June 12th, 2007 David Bush - Iasta

Reviewing another recent Aberdeen report Managing Performance, Reporting to the CFO shows some interesting challenges that face the CPO office, as it reports performance to the top of the company. The entire report is worth reading and understanding the summary distills to:

The most effective CPOs manage their performance like any other executive. They have standard metrics that help them gauge the health of their operations and benchmarks for relative comparisons. However, CPOs are challenged to demonstrate their impact in commonly understood and accepted enterprise financial terms. The convergence of procurement with finance is helpful, but CPOs need to take advantage of the CFO relationship to drive this bottom-line financial value. As part of our CPO’s Strategic Agenda research series, we have explored this opportunity in detail with over 500 procurement executives from around the globe.

Key Business Value Findings

While there are many KPIs and benchmarks available, there is one that matters most: cost savings

• Tangible cost savings is by far the most important procurement metric (75% response), but it has meaning on multiple levels, the most strategic being the most difficult to measure.
• A reasonably distant second metric is operational costs for the procurement function (56% response). Procurement ROI (i.e., cost savings divided by operating costs) is a frequently used measure for the relationship between operational costs and cost savings.
• Gathering, analyzing and sharing spend data is critical for performance management and correlating it to enterprise financial metrics, not to mention increasing spend under management and gaining the trust of key stakeholders.

A very interesting statement embedded in the study was buried on page 14, “While the mix of desired skills for procurement professionals continues to shift heavily in favor of strategic functions like analysis, sourcing and supplier development, 41% of CPOs don’t plan for overall headcount growth in the next 12 to 24 months. Yet, at the same time they do plan to expand their influence into many other spend categories and enterprise functions. The only way to accomplish this is through effective technology deployment.”

This is a very diverse report that offers extremely interesting information for companies to map out a path to becoming Best In Class. I have not discussed much of what is covered but was encouraged that the theme of technology and eSourcing was consistently mentioned as a best practice and critical for sourcing success and performance.

Entry Filed under: Analysts/Research, General, Supply Management Best Practices, Technology