This year, for the first time, I was invited to present (twice!) at the annual ISM conference in Las Vegas. My presentations are part of the “Emerging Practitioner” track designed to help younger procurement professionals navigate the market and develop a career path. It’s a great and worthwhile pursuit for Chief Procurement Officers to invest in their people, so, in that vein, over the next few weeks we will be analyzing the key skills and capabilities (or higher-level competencies) that a procurement professional (and department) should have in place in order to execute successfully. We will be using Ardent Partners’ Procurement Staff Competency Matrix that we developed with our CPO audience. This competency matrix established industry-wide capability measures for the average procurement organization.
We hope this series will help professionals and their managers to better understand and communicate what the required capabilities are for specific job roles within the procurement department and thereby help identify, develop, and deploy the people with the right skills into the most suitable positions. Professionals can also use this series to better identify where current gaps exist in their organization or within their own skill sets so that they can take action to improve or move into roles with greater responsibility (and pay).
Today’s Competency: Financial Analysis
What is Financial Analysis?
According to Investopedia, Financial Analysis is “The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company’s past performance into an estimate of the company’s future performance”
Beyond an ability to analyze company financials, the more simple definition of financial analysis is an ability to understand and work with numbers. Financial analysis is a ‘hard skill set’ and I’m often surprised by the number of executives who simply lack it.
Importance to the Procurement Department
It would be rash, at best, and disastrous, at worst, to make business decisions without first doing your homework and understanding your options. What is the total cost of ownership of a supplier bid? Do you build or buy? Upgrade or replace? Act now or wait? All of these questions can be answered with a fairly straight-forward financial analysis of your options. Procurement pros can’t afford to make decisions based on their guts, the back of tea leaves, or the local soothsayer. Doing the math, knowing your numbers, and making your decisions based on hard financial data will prevent you from making rash business decisions and help you make smart decisions for you and your company.
Importance to Career Advancement
Know your numbers!
I have an MBA in Finance and my early post-MBA career was heavy finance, spent in investment banking and working on capital market transactions. I use the financial skills I developed in school and my career on a daily basis in my role as an industry analyst. They are broadly applicable and transferable to many business areas.
I will say it again. I am sometimes amazed at the number of very smart people I meet who simply fold when trying to open and use a spreadsheet. Strong financial skills can be a great career differentiator. Companies are always looking for smart people to crunch numbers and then tell the decision makers what it all means. As a young pro, these skills can gain you access to executives, particularly those who lack them. As with the rise of “Big Data” in procurement departments, financial data’s true value is only realized when smart people connect the dots and tell the story behind it. But people with great financial acumen are often hard to come by, especially in procurement. This skill gap is one that can be addressed and one that should be addressed- it is an immediate opportunity for those who possess it already.
Because procurement as a profession has only recently caught on among younger generations, procurement departments have had to look for qualified talent in other, more traditional market segments, like business, finance, and even the social sciences. This gives plenty of smart and skilled workers the leverage to gain entry into procurement. For example, Political Science majors may not see procurement as part of their five year plan. But statistical research, data analysis, and communication skills resident within poli-sci majors will give them plenty of options inside and outside of the procurement space.
The CPO’s Grade
Financial analysis competency received an average score, a C, from CPOs rating their staffs, which as we will see is relatively good compared to other areas. In aggregate, the scores shown in the Competency Matrix are neither exceptional nor unsatisfactory and present a picture of a very middle-of-the-road set of skills residing within the typical procurement department. For the average department, opportunities for improvement abound.
How to Advance Your Skills
The sky is literally the limit when it comes to how advanced you can become in this area. With an extraordinary amount of high-quality materials and teaching available, you are your only constraint.
For the financially shy, start today – open up Excel and try to use it every day. Take the embedded tutorials. Search, find, and watch YouTube videos and challenge yourself to understand the numbers. For their part, analysts of all stripes should seek out professional development opportunities wherever they can. While many analysts bring financial data modelling and analysis skills to the procurement table – after all, that’s what makes them so attractive – not everyone’s an Excel master or SPSS guru. Luckily for them, there are numerous training opportunities available – both internal and external – and remember, employers will usually cover the cost (or reimburse you) to get trained up on a program or skillset. Consider this a vital (but also transferable skill) for your professional toolbox.
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