Mike Hales and Jeff Postma, partners at A.T. Kearney, discussed the powerful benefits of the CFO and CPO working as a team to drive profit and minimize risk.
At the 2016 Chief Financial Officer Leadership Forum held on March 31 in Chicago, Postma opened the discussion by speaking about how the role of the Chief Financial Officer has changed over the years to address new challenges and risks. Twenty years ago, the CFO was sort of a "controller plus"—closing the books, managing compliance and risk. Ten years ago, CFOs started thinking about leading through example to make their finance operations more efficient and effective. More recently, they began generating insights on how to become business partners with the organization by providing decision support and strategy. Today, the CFO’s role is that of a true business performer who drives continuous improvement and leverages assets and operational performance.
Another role that’s changed is that of the Chief Procurement Officer. “Twenty years ago, the CPO was primarily involved in negotiations—how to get purchase orders created and so on,” said Postma. Next it focused on strategic sourcing—how to leverage the external spending to drive year-over-year cost efficiencies, directly and then indirectly. Procurement now serves the business and works hand in hand with it to drive strategic value by generating collaborative models with suppliers to drive innovation and manage risks.
Hales joined the conversation to point out that the CFO and CPO share a common characteristic—enterprise-wide transparency and influence. “CFOs have the best enterprise transparency of anyone in the organization,” he said. The CPO leads a center-oriented capability and also has good transparency over what’s typically half of the value chain for the company because he or she works directly with suppliers, which drive cost.
“Maybe it’s time for you, the CFO, to make some more friends,” suggested Hales, “in particular with the CPO. Working together, you can drive a competitive advantage for your company.” In this model, the CFO doesn’t just track results but drives them, he emphasized. Often, the CPO focuses on price (through strategic sourcing to achieve price reductions) and the CFO focuses on quantity (through budgeting capability). "The best leaders take this to another level and use zero-based budgeting that looks at performance drivers to understand what the costs of the organization should be. This teamwork can be brought to such a level that the CPO can sit in for the CFO in business planning exercises," said Hales.
“Maybe it’s time for you, the CFO, to make some more friends, in particular with the CPO. Working together, you can drive a competitive advantage for your company.”
Hales pointed out that leaders in the industry get a 10-fold return on their supply management capability. “For every dollar spent on internal capability (people and systems), they get 10 dollars in return through cost reduction,” he said. “However, half of businesses don’t even cover their costs.”
Leaders in the industry get a 10-fold return on their supply management capability. “For every dollar spent on internal capability (people and systems), they get 10 dollars in return through cost reduction”
There’s a simple, three-part formula for achieving this high return:
• Team excellence, which serves as a catalyst
• Category excellence, which drives cost reduction and strategic insights about what’s happening in the supply base, as a source of innovation
• Supplier excellence—working with a select group of suppliers to drive the innovation and a different level of risk management
“We encourage you to embrace your role,” concluded Hales. “Make friends with the Chief Procurement Officer. Understand that this area is probably one of the leading, under-leveraged engines for profit innovation and risk management that you have. Your CPO can drive results in over half your value chain. The CPO is your one-stop shop.”
ABOUT MIKE HALES:
Mike Hales is senior partner based in Chicago with over 35 years of industry and consulting experience working extensively in North America, South America, Europe, and Asia Pacific–living for three years in London and four years in Sydney–where he co-led the start-up of the firm’s Australian offices. His global, cross-industry experience covers all aspects of operations (innovation, supply management, manufacturing, logistics), support services, sales channel, customer experience, and merger integration. He has led over 35 large-scale operations improvement programs and has contributed to over 25 articles on procurement, innovation, customer experience, and channel strategy. He recently co-authored a book, Supplier Relationship Management: How to manage supplier value and opportunity.
Hales is co-author of the Global City Index, which periodically ranks over 80 cities (since 2008). This Index is complemented by the recent Emerging City Outlook (since 2012). Together, they are recognized as a leading perspective on the role of cities. He is on the Board of Trustees for the Institute of Supply Management’s Center for Strategic Supply Leadership (since 2004). He has been actively involved with The Chicago Council on Global Affairs since 2004 and was named to the Board in 2013.
Mike holds a B.S. degree with honors in business from the University of North Carolina at Chapel Hill and a Masters in Management degree with honors from the Kellogg Graduate School of Management at Northwestern University. He has passed the exams for the Illinois Public Accountancy and American Production and Inventory Control Society.
ABOUT JEFF POSTMA:
Mr. Postma advises and supports clients in the assessment, design, and implementation of large-scale business transformations, restructurings, and merger integrations. As a key lever to many of these business events, he specializes in captive and outsourced Shared Service strategies to drive balanced and sustainable benefits along the dimensions of cost, capabilities, and agility. Over his 14+ years in management consulting, he has worked with companies of all sizes and across most industries in the functional areas of Finance, IT, HR, Marketing, Real Estate, Legal, and Procurement. Jeff has written several whitepapers and executive briefings, including most recently, “Next Generation Shared Services: Three rules to deliver game-changing performance from your shared service organization.” Prior to joining A.T. Kearney in 2003, Jeff held Strategy and Finance positions with Goodyear, Deloitte & Touche, and Borden Inc.