In the survey for our upcoming research report, we pose the question:
Savings impact on procurement bonuses: To what extent do savings results drive your bonus structure?
- Less than 25%
- 25-50%
- 50-75%
- More than 75%
[Sidebar: Let me make an overt plug/request for you to take the survey by clicking here]
I am very interested in the answer to this question because while I have asked this question many times in direct conversations, this is the first time that I have posed it to the larger market. Aren’t you curious how your answer compares to the broader industry?
Consider that the average CPO spends a good deal of personal and department time and energy trying to improve the working relationship that the procurement department has with finance. Sometimes these efforts yield positive results and true partnerships are established. More often than not, however, the CPO’s efforts do not bear significant fruit. But, no matter the end result, the effort is always worthwhile because of the reporting relationship that may exist between procurement and finance and/or because of the power, control, and influence that the CFO wields within the enterprise.
CPOs who believe that they do have a successful partnership with their CFO often define that success and their alignment with the CFO almost solely in the context of having an agreement on the definition of performance metrics, specifically savings. While this is an important attribute, having alignment on measurements is not the same thing as having alignment on values. Certainly, many CPO-CFO relationships are much more robust than a simple agreement around the definition of procurement savings. But savings, for most CFOs, remains the primary and in many cases, sole measure of procurement’s performance. Savings, assuredly, is an important component of procurement performance, but a focus on it to the disregard of other key metrics does procurement and the CPO a huge disservice and devalues their contribution. More importantly, it can serve to limit procurement’s actual contribution to the business. In any capacity, a diminished procurement function should be a black mark on any CFO’s report card.
What can we do about this issue? All ideas are welcomed – we’ll also share a few of our own next week.
