How to succeed as a chief procurement officer in private equity

However, CPOs are operating within an increasingly complex landscape. Supply chain disruptions during the pandemic have been amplified by a surge in demand and ESG issues have come to the fore, and private equity holding periods have been increasing. “Uncertainty and volatility are even higher than when I had my first LBO experience 15 years ago,” says Xavier Cassignol of IDEMIA, who has worked in four different CPO roles under private equity ownership. “It’s not just about savings anymore. ESG and risk are a big focus now.”

The importance of procurement in the context of private equity is growing. The procurement framework has been enhanced and its value has been heightened over the past two years. The correlation between procurement activities and revenues and EBITDA has grown thanks to more strategic risk and supplier management, more advanced network planning, and a concerted focus on ESG to drive carbon reduction and DEI advancement past the company’s ‘four walls’. 

Leadership matters

The traditional image of CPOs as tough negotiators only focused on costs no longer paints the full picture. “They’re more commercial people, business leaders,” says Wouter Hut, CPO of Ahlstrom-Munksjö. “The role is changing everywhere, but it is changing faster in private equity.”

Paul Vega, partner at Cinven, notes that the CPO’s role is to have “a tangible, quantifiable, sustainable bottom-line impact to increase the valuation of your business”. However, the range of leadership capabilities required to achieve this impact is wider than it used to be. 

We have picked out three capabilities that we consider particularly important: stakeholder management, collaboration, and people development.

Stakeholder management

Energy and skill is required to manage a range of stakeholders in today’s more complex private equity environment. CPOs must manage performance expectations of general partners and the management team, while dealing judiciously with other functional and divisional heads, members of the procurement team and suppliers. The pressure is always on. An interviewee recalled that at one portfolio company somebody from the fund was present at all the meetings he had with his team.

Successful CPOs will make their procurement activities visible to the partners and be ready to provide both high-level and detailed reports whenever they are requested. Strong communication skills are essential, along with a high level of transparency, confidence to stand your own ground and a fact-driven approach that takes emotion out of the conversation. “You have to remain honest and direct. You need the backbone to state how the market is and what the implications are, even when what you’re reporting isn’t positive”, says Tansu Kirimli, CPO at Stark.

Collaboration

To manage a wide array of stakeholder relationships, CPOs need to master the art of collaboration. “You can really drive value creation by pulling every internal lever and enhancing the way you collaborate cross-functionally,” says Oscar Rego, CPO at TK Elevator. “It’s about working as an integrated team.”

Collaborating closely with third parties and suppliers is just as important in many cases, says Paul Vega. “You can often only gain a short-term benefit from unilaterally squeezing your suppliers, whereas if you collaborate and work on making those partnerships sustainable, you can then reap multiple long-term benefits aside from near-term savings – including access to market insights, innovation and IP.”

As holding periods lengthen and alpha gets harder to achieve, more and more private equity firms are seeking to pursue synergies across portfolio companies. This is yet another area where the CPO will have to collaborate effectively to achieve procurement value creation for investors.

Building teams, leading and developing people

With a relentless focus on performance, the quality of the procurement team is a high priority; it can be the difference between success or failure. Short investment periods leave little margin for error. A private equity CPO must possess learning agility – the ability to adapt quickly as circumstances change, to test new approaches and learn from the experience.

“There are certain leadership characteristics you need to excel at in private equity,” says Thierry Minel, CPO at GKN Automative. “You’re given a lot of freedom, so you need to be able to take ownership, show that you are responsible and capable, and more importantly, ensure your team is engaged. The key point is to make sure that you have to have a very strong team behind you to deliver on expectations.”

A related skill that is non-negotiable in the private equity environment is analytics; the CPO needs to build a team with analytical skills that can work under pressure and is not frightened by e-procurement or resistant to adopting digital tools.

“You really need to make sure you have not only the right expertise among your people, but also the right mindset, because you don’t always inherit teams with the right soft skills,” says Xavier Cassignol, “In one instance, I had to change as much as 60% of the team, and in all my portfolio experiences, the partners challenged me about whether I was certain I had the right people.”

For Tansu Kirimli, the number one requirement for success within private equity is the ability to develop your team, which starts with assessing direct reports and either replacing them or investing in training, mentoring and coaching. Flexibility and a desire continually to learn and adapt are valuable qualities in a procurement team. This means preserving the best practices you have developed, as well as benefitting from an external perspective, according to Oscar Rego. “The likely result of this attitude will be the introduction of new and different ways of being effective and increasing performance. It’s really about engagement and coaching at this stage,” he says.

Ensuring team motivation and effectiveness must be a priority for any CPO operating in a pressured, complex and evolving private equity environment. The CPO’s job is to translate investor demands into clear directions and workable streams. “You need to plan and prioritise the workload effectively, so that the daily performing team can contribute to success without being overwhelmed or overcrowded”, shared Tansu Kirimli, emphasising the role of social competency and empathy for people’s needs.

Private equity owners are tuned in to the importance of talent for value creation. A large part of a CPO’s success will come down to their ability to select, develop and retain the right people and motivate them to work effectively as a team.