The Quest for Procurement's Place at the Executive Table
Is there a seat for procurement management at the executive table?
For years, procurement management has been tirelessly trying to claim its seat at the executive table. Some of our colleagues managed to get there, while others were still waiting at the reception.
6 Typical Reasons Procurement isn't there.
- Organizational culture and perception: An organization's culture may need to recognize procurement as a strategic function. Procurement may support this view by being solely transactional or operational and not showing its full potential. A lack of awareness or understanding of procurement's strategic value can hinder its involvement in higher-level decision-making. Without executive sponsorship and support, procurement may lack the authority, resources, and influence to drive strategic initiatives, make strategic decisions, and sit at the leadership table.
- Reporting lines, organizational structure, or a siloed approach: In some organizations, procurement may not report directly to the executive leadership team or be positioned lower in the corporate hierarchy. This can result in limited visibility and influence for procurement at the executive level, which may restrain its ability to contribute strategically due to latency and relative insignificance of its efforts. Notably, it's not only the organization to blame. Procurement may refrain from engaging in cross-functional activities thinking of protecting its fragile remits.
- Limited budget or resources: Procurement may face budget constraints or limitations regarding staffing, technology, or other resources, which can impact its ability to perform strategic activities or initiatives. For example, without appropriate technological capabilities, procurement may struggle to optimize processes, capture insights, and drive strategic decision-making. This problem is typical for cost centers, and so procurement must transform into the profit center (as explained in this post.)
- Lack of procurement expertise or skills: In some organizations, there may be a lack of skilled procurement professionals or expertise, which can limit procurement's ability to effectively engage in strategic decision-making. This may result in procurement being excluded from the executive table due to perceived competency gaps.
- Resistance to change: Organizations that have long-established practices or traditional decision-making structures may be resistant to change and may not readily embrace the idea of including procurement in strategic decision-making. This resistance can be a barrier to procurement's involvement in executive-level discussions or decisions. We discussed the core reasons for such resistance in our post here.
- Industry-specific factors: Some industries may have unique dynamics, regulations, or practices that can impact procurement's role in strategic decision-making. For example, procurement decisions in the banking sector are heavily influenced by compliance requirements. Public procurement, as such, is heavily constrained by laws and regulations, and so this function may be perceived as the governance mechanism other than the value creator.
The vital role of procurement stakeholders
Stakeholders are personalities or entities that can affect the achievement of an organization's objectives or those affected by its accomplishment.
Obviously, they're not only customers but suppliers, social groups, the government, and many more.
The crucial role of stakeholders can be explained simply. Companies succeed in the market if they create value not only for their customers but broadly for all stakeholders.
We explained that through the Stakeholder Work System theory in the following post.
Procurement in the business aims to become a source of value. Hence, we must remember all recipients of that value, i.e., stakeholders.
The Stakeholder Salience Model
Dr. Ronald Mitchell suggested in 1997 that stakeholder salience is:
- the stakeholders' power to influence the firm,
- the legitimacy of the stakeholders' relationships with the firm,
- and the urgency of the stakeholder's claim on the firm.
Perhaps, we may need some more definitions here, i.e.,
- Power is the extent to which a party has or can gain access to coercive (physical means), utilitarian (material means), or normative (prestige, esteem, and social) means to impose their will.
- Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions.
- The urgency is the degree to which stakeholder claims call for immediate attention.
- Salience is the degree to which managers prioritize competing stakeholder claims.
Therefore, the procurement claim for a seat at the executive table will be prioritized and attended to based on the mix of three critical attributes identified above.
The stakeholder typology
There are 7 possible combinations of such vital stakeholders' attributes. Thereby, the authors of the Salience Theory identified 7 categories of stakeholders, as follows.
Procurement role as a stakeholder
Our legitimacy is undisputed. It's supported by corporate governance and generic business values of transparency, integrity, and fairness.
Our urgency develops as the business demands quick and efficient procurement actions.
We lack one critical attribute - Power.
This leaves us with two stakeholder categories to match - discretionary and dependent.
Discretionary stakeholders belong to the Latent group along with dormant and demanding ones, which is suggested to observe only. Charitable organizations fall under this category, as well.
Being a dependent stakeholder isn't much better. These are the likes of the local resident community in construction projects - not more than potential trouble-makers.
The need for normative powers
Power becomes inevitable if procurement is to climb toward the top of the food chain.
Procurement will likely never gain coercive or utilitarian powers, which are well protected by top management and adjacent services, e.g., corporate security, internal audit, or treasury.
Therefore, we're to look for normative means to impose our will - prestige, esteem, and social ones.
Three principles of normative power
Normative power must be legitimate, persuasive, and socializing.
As we mentioned already, there's no doubt about procurement legitimacy.
Most importantly, the concept of normative power invites more holistic, outside-the-box thinking because traditional means of brutal force or material wealth aren't available.
Procurement management recipe for normative power
The Stakeholder Salience Model gradually led us to the educated acknowledgment of the importance of the following procurement processes:
- constructive partnership,
- institutionalized relationships,
- open dialogue,
- social interaction,
- persuasion,
- holistic thinking.
Basically, this list is nothing new. It's meant to remind us that the procurement seat at the management table is achievable by becoming a capable relationship broker and resourceful politician.
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More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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