Business POV

As IT pervades the enterprise, here comes the chief procurement officer

Nicole Laskowski, News Editor

Back in 2007, Mike Wilding wanted to gain greater visibility into the paper invoices Rent-A-Center received from its more than 4,000 rent-to-own furniture and electronics stores. As senior vice president of accounting at the Texas-based chain, Wilding's chief interest was in reconciling the books, not procuring services.

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Mike Wilding

"And then we realized, if we have 4,000 locations, why do we have 4,000 carpet cleaners? Why not consolidate that spend and go to a national or regional carpet cleaner, provide them more business and get a better price?" Wilding said. "That's when I was asked to be the chief procurement officer [CPO]."

Chief procurement officers like Wilding are playing a more vital role in sourcing goods and services and that, experts say, is a development that directly impacts CIOs. CPOs not only require sophisticated software to do their jobs, but they also are scrutinizing the procurement of IT products and services throughout the enterprise.

For CIOs, the rise of the CPO underscores the complexity of their relationships, not just with procurement, but with other C-suite members who have a stake in technology purchases. It's another indication that the role of IT must evolve from service provider to IT consultant, and even to partner to the business, said Duncan Jones, sourcing and vendor management analyst at Cambridge, Mass.-based Forrester Research Inc.

There can be a conflict "between the CPO wanting to have the best tools available and looking at Software as a Service [SaaS] solutions from vendors that he trusts, versus the CIO trying to simplify the IT landscape and standardize on the incumbent ERP provider," Jones said. That holds true for just about every business chief whose departments rely on technology.

[CIOs] can no longer be the high priests of the black art of computing.

Duncan Jones,
analyst, Forrester Research Inc.

Procurement, in other words, is not unlike other departments such as marketing and sales that have been known to bypass IT, citing inflexibility. In some cases, the interpretation of IT as a hindrance is correct. "When we ask CIOs about their spending priorities and say, 'Well, what about procurement and supply chain, is that a priority?' They say, 'No, not really,'" Jones said.

In other cases, however, it's a true misunderstanding between the CIO and the business. The key reason for that, according to Lutz Peichert, a sourcing and vendor management analyst also at Forrester, is how IT and procurement respectively view the purchase of new software from unfamiliar vendors: While the CPO focuses on the financial sophistication or front-end functionality of the tool, the CIO understands the impact purchases can have on security, standards, data access rights and architecture. To be successful, Peichert said, both perspectives should be taken into consideration.

Rent-A-Center's Wilding, for example, recently invested in a SaaS-based procurement solution from IBM, and did so with a nod from the CIO, who, along with two additional members from his department, served as members of Wilding's steering committee.

"IBM and Emptoris had to be integrated into our e-procurement system and to our ERP system," he said. "I don't speak that language, so we had to get our IT folks and make sure they were comfortable with these tools speaking to each other and working appropriately."

Wilding's experience is a call for IT to act less like a standalone department and more like consultants or advisors to CPOs, said Jones, who referred to the concept as part of a shift from information technology to business technology.

"[CIOs] can no longer be the high priests of the black art of computing," Jones said. "They've got to be understanding as to what the business priorities are and find ways to understand those business priorities -- not just look inward."

Special relationship between CIO and CPO

Unlike other CIO and business partnerships, though, the relationship with the chief procurement officer is taking on another layer of complexity that extends beyond an advisor of procurement software. As companies increasingly rely on data and analytics just to do business, they are ratcheting up their reliance on IT products and services.

"There really is a dependency from the business on IT supply, which has increased dramatically in the past five years," Peichert said. "And that puts IT office supply … much more on the radar for CPOs."

For the CIO, the challenge will be figuring out if this new attention translates into a friend or foe relationship, and how to adapt, experts like Jones and Peichert said. The partnership could potentially be a good fit because, as Jones pointed out, the CPO is familiar with some of the stickier sides of contracts. In particular, CPOs are adept at generating "competitive friction" to get the best price.

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Wilding, who reports directly to Rent-A-Center's chief financial officer, is an example of that. "At any given time, we have 40 projects that we're sourcing. And at this particular time, probably 40% of those are IT related," he said. Cellphone rates and packages, wiring for store locations and multi-protocol label switching are all ongoing projects at Rent-A-Center. While he knows he can build a team to specialize in IT procurement, Wilding also recognizes the CIO and his department are experts who can provide perspective and insight his team may not have access to otherwise.

Getting to a point where the CIO and CPO can function as a partnership, though, may not be easy, according to Peichert. It requires two important building blocks: common goals and a common language, which many companies are currently lacking.

Forrester finds that IT and procurement people may be using the same word but have a completely different meaning in mind, Peichert said. Vendor management is a common example: The CIO tends to focus on the technology, making sure everything's in working order and the company is getting what it pays for, and the CPO tends to focus on the management of the vendor contract, which may mean financial adjustments along the way to ensure the best deal.

Lack of transparency can lead to misconceptions about who is actually responsible for vendor management. "What [CPOs and CIOs] don't understand is that vendor management has a much broader meaning, and they are responsible for a certain part of vendor management, but not vendor management as a whole," Peichert said.

To begin building a common language, Peichert advised bringing both sides together to define a taxonomy. Laying out the terms can give both parties an opportunity to speak the same language, which can impact how CIOs and CPOs align their goals and begin building that new relationship.

"Organizations can only succeed when both of these organizations work together," he said. "And what we're really talking about is collaboration."