A year ago or so, my friend Paul Albright wrote an article for Forbes titled “The CEO’s New Secret Weapon: The Chief Revenue Officer. Beyond this key role, it’s time for CEOs to have a new secret weapon: the Chief Spend Officer. It’s the logical next step in the evolution of procurement, and the technology is available to support that role.
In his article, Paul envisions the CRO as a ‘revenue architect’ accountable for driving better integration and alignment between all revenue-related areas. The Chief Spend Officer would do the same thing on the spend side.
These should be the top two people for a CEO who cares about profit. I mean, it’s pretty straightforward. Profit is what we make minus what we spend. But yet, it’s all distributed and everyone’s pointing fingers.
There isn’t one individual whose job it is to optimize spend in a company, department by department, function by function. There are folks setting budgets, but no one is actually ensuring that spend against those budgets is optimized.
For example, you have a VP of marketing. That person’s job is to drive press, awareness and leads. His or her primary concern is that goal. And he is trying to rationalize resources to get there, but he’s not necessarily providing as much rigor to optimizing that spend as could be applied if there was one key individual looking over that for the entire company.
You’ve got procurement folks thinking about indirect spend, direct spend, or both. You have HR thinking about payroll and employees. You’ve got various departments thinking about contractors and other folks that they bring into the organization. And you’ve got travel and expenses that are happening. But there isn’t one individual that is responsible for overall organizational spend.
A lot of CEOs look to the CFO to maintain the spend side of the equation to some degree, but the CFO can’t really do it either. Their top priority is ensuring that the company’s within compliance, so that nobody goes to jail and the books are clean. Managing spend becomes a third-level priority.
So no one’s really having this discussion, or even if they are having that discussion as executives, they’re having a very hard time operationalizing that discussion down. When Bobby wants to buy an extra laptop, it’s cool. Or Sally wants extra chairs, those things get approved on the fly, and maybe they’re loosely tied to some budget or policy that was initially set, or maybe not. There’s minimal focus on optimized spending practices.
There’s no person going through and saying, let me help you with some proven best practices, with an eye toward overall company spend containment. There might be areas where we can centralize some things, or some things we should just not spend on. Or, here are some alternatives other departments are employing.
The Chief Spend Officer would be that person. They could probably sit in the office of the CFO or report directly to the CEO. They would partner with the business by going around and meeting with executives on a regular basis and helping them structure plans and manage to those plans. This is a good way for finance to become more strategic.
The CSO would be someone with fairly broad experience, who’s strategic enough to understand various categories of spend. They could come out of HR, or Procurement, but they’d have to be more of a generalist, not someone who’s just focused on recruiting or compensation, or on the best sources of our metal for our cars that we’re building in the case of someone coming out of procurement.
They could be from finance, but not too much of an accountant, where their main area of focus is, oh, your numbers are off by this many dollars and cents. That’s not the point. They have to be able to carry a stick, but not just come in with the green eyeshade on and sit in the corner and count beans.
It has to be someone with good executive sense, who can empathize with business leaders and the challenges of driving the goals of their function while at the same time being open to doing it in a more cost effective way. And that person has to be able to offer value to them–a way to get more results out of the dollars that they have. They can’t just be coming in saying, no you can’t spend that money because then people just look for loopholes to get around them, or try to avoid them altogether.
The beauty of it is that companies don’t even need extra budget for this role. The CSO’s entire incentive structure could be based on how much reduction they achieve. That person would pay for themselves 10x if they went and did the thing right.
Think about it. That’s why procurement got started to begin with, right? There’s a great post on the Procurement Leaders blog about the Golden Age of Procurement. In some way, it has always existed. But as a strategic function, it was professionalized by the railroads in 1900.
In the 1950s, it was called a purchasing department, and kind of lost its way and became very tactical. In the 1990s it starts to become more integrated, and in enterprises you start to see the Chief Procurement Officer title as it starts to be elevated again as strategic business function.
But we’re still not where we need to be, because the CPO is largely looking at certain categories. We need a Chief Spend Officer to look at all spend across the company and help the CEO drive profitability and thus shareholder value.
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