CPO Rising 2017: Tools of The Trade – Ardent Partners conducts an annual procurement-themed market research study each year and this is it. By taking the survey, you have an opportunity to help advance the collective knowledge of the entire procurement profession AND get a copy of the full report when it publishes in March. If you have a few minutes today, please consider participating in the industry’s most-influential and widely-distributed study.
CPO Scorecard™: Our Performance Measurement Recommendation
Businesses measure their revenues and profits for a reason – because they matter. These numbers matter to employees, they matter to owners and shareholders, and they matter to customers and suppliers. The bottom-line numbers that get reported are a final “score” for a “game” that was played last quarter or last year. And, businesses, by and large, are playing that game to win. If they were not, they would not keep score. For Chief Procurement Officers and their departments, procurement results matter and they increasingly matter to the larger enterprise. Scoring procurement performance can be as complex and nuanced as the value that the function can deliver and linking that performance to overall business objectives and results can be even more difficult. Nonetheless, CPOs must keep score of their team’s performance. And they should use the opportunity to develop a set of metrics that can help procurement prioritize and focus its resources, track and improve its performance, and help communicate the value that it delivers in support of enterprise objectives and what it plans to achieve in the future.
“Selecting the right metrics and gaining credibility for them is much more important than the numbers themselves.” – Chief Procurement Officer, Financial Services Industry
Procurement should work to develop and implement a CPO Scorecard™ to measure procurement’s performance. Procurement leaders must begin to consider, discuss, and develop a more sophisticated and comprehensive way to evaluate and present procurement’s performance to the larger enterprise. If procurement’s transformation is to continue, a more balanced approach to measuring its performance is needed. Specifically, Ardent Partners believes that CPO should work to develop a CPO Scorecard™ that incorporates the following:
- Hard financial metrics, including savings and cash flow impact
- Stakeholder metrics, including internal customer feedback and supplier performance and risk
- Process and technology metrics, including procurement efficiency and activity metrics
- People and knowledge metrics, including staff competencies, training, and retention
The scorecard metrics should be linked directly to a procurement department strategy document (or plan) which, in turn, should link to the primary goals and objectives of the enterprise. The actual metrics and their associated weights may be unique to each group and based upon specific strategy, industry, supply, and enterprise specific considerations. The CPO Scorecard™ should be used to evaluate the performance of the CPO, the procurement department as a whole, and individuals on the procurement staff. For many, changing the way that the procurement department’s performance is measured will change the way in which the department is managed. But all who adopt a Scorecard will now have a formalized mechanism to validate their strategic plan and evaluate their success in executing it, as well as a clear way to communicate procurement’s strategic value and vision to the larger organization.
“Some metrics were easy to score while some were not. But we used the scorecard to communicate our goals to the company and to develop a culture of accountability within the team.” – Chief Procurement Officer, Manufacturing Industry
As a profession, procurement is on a winning streak, but its continued momentum is not a foregone conclusion. CPOs and other procurement executives must continue to promote progressive strategies across their organizations, seek innovative ideas from multiple sources, and model Best-in-Class programs. As procurement extends the value that it delivers into new areas, measuring and communicating that value will become even more challenging. By tracking the right metrics in a customized CPO Scorecard™, the CPO has the opportunity to proactively define and formalize how the procurement department should be measured and then use the new framework to determine how it should be managed. The stakes are high, but this game can be won.