Building a corporate supply function.
Opportunities for organizations to leverage their supply function to create competitive advantage are well documented in the literature (e.g., Nelson 2004). However, before CEOs can develop and implement strategies aimed at exploiting opportunities in their supply chains, they must first establish appropriate capabilities including functional talent and leadership. Once regarded as a corporate backwater, the supply function in today's organizations are undergoing major changes and revitalization (Johnson and Leenders 2001).
Two key decisions determine the place and role of supply leadership within the organization. The first is, who will be the chief purchasing officer? The second, to whom will the chief purchasing officer report? Both decisions occur simultaneously when, after a period of decentralized supply, the company moves toward centralization.
The person occupying the chief purchasing officer (CPO) position is critical for the leadership and performance of the supply function. However, the first person in the CPO position accepts a set of unique challenges that includes building a corporate supply team, identifying priorities and plans that set the initial course for supply, and integrating supply with other organizational functions and suppliers. Moreover, the creation of the first CPO position requires a simultaneous creation of a reporting line for that individual. The executive in the organization to whom the CPO reports (we refer to this position as the executive report, or "ER"), plays a vital role in breaking down corporate roadblocks, setting priorities and ensuring the proper profile for supply within the organization. Consequently, the CPO-ER team has an important role in ensuring the effective contribution of the supply function to organizational goals and strategies. Moreover, the ER's position and level in the corporate hierarchy sends a clear message regarding the importance of supply.
This research examined 26 first CPO appointments at large North American and European companies. The primary research questions for this paper are:
(1.) What are the drivers, and who are the originators and moderators when hiring the first CPO and what is his or her tenure?
(2.) What are the drivers and who are the originators and moderators when establishing the first CPO's reporting line and what is the tenure of the reporting line?
This paper provides two primary contributions. First,while there is substantial research dealing with CEO leadership and succession, the literature provides limited insights concerning CPO leadership. Our study helps to address this shortcoming by applying contingency theory to first CPO appointments in order to understand the drivers of creating a corporate CPO position. Consequently, this research not only offers a contribution to the supply management literature, but also to the organizational behavior and strategy literatures dealing with functional executive appointments and contingency theory. Second, the case-based methodology used in the research provided an opportunity to examine a wide variety of approaches used by companies when hiring the first CPO and establishing his or her reporting line. Therefore, this paper provides new insights for executives regarding how companies approach hiring the first CPO and establishing the first CPO reporting line.
The following section draws from the literature to define the key variables under investigation, present the research framework and provide linkage to the underlying theory. Next, the research methodology is detailed, including sample selection, data collection and data analysis. In the final section, the findings and results are presented, and the implications for theory and managerial practice are discussed along with implications for future research.
Research has found that when the supply function is properly aligned with corporate strategy it can provide capabilities that result in superior performance in the areas of cost, quality, dependability and performance (Mol 2003). Increased senior management attention aimed at exploiting supply opportunities has been accompanied by significant changes in supply management practices and strategies, including approaches to supplier management (Carr and Smeltzer 1999), adoption of new technologies (Johnson and Klassen 2005) and supply chain collaboration (Mills, Schmitz and Frizelle 2004). Recent research identified five major categories of supply initiatives at large North American firms as reported by the CPO:supply processes (e.g., e-procurement systems), organizational (e.g., structure and responsibilities), supply strategy (e.g., strategic sourcing), measurement (e.g., metrics and scorecards) and supply networks (e.g., supply chain integration) (Johnson, Klassen, Leenders and Awaysheh 2007). Specifically, this research found that 40 percent of the respondents in the study expected to implement a major supply initiative related to changes in its supply organization.
Organizational Issues in Supply
The supply chain literature addresses issues of organizational structure, span of control, functional leadership and executive reporting relationships. Early research by Maister (1977) found that the level of most distribution executives was concentrated at two to three levels below the CEO. Typically these executives reported to a nonfunctional senior executive. Subsequently, research by Bowersox and Daugherty (1987), Bowersox, Daugherty, Droge, Rogers and Wardlow (1989) and Bowersox, Daugherty, Droge, Germain and Rogers (1992) examined a variety of functional organizational issues. Specifically, this research stream suggests that logistics should be recognized as an important function in the organization and the senior logistics officer should report to the CEO or one level below; logistics organizations progress through a sequence of distinct stages where the senior level logistics executive achieves increasing internal status through elevation in the corporate hierarchy; and, organizational characteristics such as reporting relationships and span of control have to be continually adjusted to avoid stagnation, promote innovation, and accommodate the talent of a proven executive.
Similarly, purchasing and supply researchers have argued the need for a high-level functional executive, the CPO, with access to top executives to ensure supply contributes effectively to organizational goals and strategies (Trent 2004). CAPS-sponsored research has provided academics and practicing managers with a comprehensive functional examination of supply organizational roles and responsibilities (Fearon 1988; Fearon and Leenders 1995; Leenders and Johnson 2000, 2002; Johnson and Leenders 2004, 2007). This research has identified a number of important trends over the 20-year period between 1987 and 2007 concerning supply organizational structure, supply chain responsibilities, staffing levels, and CPO reporting line, title and background. In a survey of large North American firms, Johnson and Leenders (2004) identified two emerging trends: fewer CPOs with a purchasing background only and shorter tenure for CPOs.
Previous research has focused exclusively on organizational and functional leadership issues for established supply organizations. However, research has not examined the unique circumstances of establishing a corporate supply organization. The creation of the first executive level supply position, or CPO role, and the reporting line is important for setting the organizational foundation on which the supply function will develop and mature. This research attempts to fill this gap.
For this research, contingency theory provides the primary theoretical lens through which to examine organizational change. Contingency theory researchers (e.g., Lawrence and Lorsch 1967) have argued that organizations must adjust their organizational structure and management processes, including functional reporting relationships, to adapt to changes in the external competitive environment and their strategies in order to maximize performance. Acknowledging that there is no one best way to structure organizations, contingency theorists argue that firms in the same industry, competing for the same customers can utilize different structures and be equally successful (Kraft 1993).
Contingency theory also has applications for CEO and top executive leadership changes. Research suggests that environmental factors can be an important influence on the selection of CEOs and top executives (Hambrick and Finkelstein 1987). Specifically, organizations select CEOs based on their ability to deal effectively with critical contingencies related to the external environment (Thompson 1967). Consequently, organizations look for a fit between the challenges related to its unique organizational context and the expertise of the CEO (Pfeffer and Salancik 1978). Research has also demonstrated a relationship between CEO turnover and organizational change (Weisbach 1995). For example, Fee and Hadlock (2004) and Hayes, Oyer and Schaefer (2005) found that non-CEO executive turnover is significantly higher near the time of a CEO change.
Consequently, we expect that CEO turnover and organizational structure changes toward increased centralization will lead to greater centralization of the supply function and the creation of an executive level CPO position. Additionally, we also expect that new CEOs would be more inclined to look outside the company to fill the new CPO role.
Although most contingency theory research has focused on corporate level change, there has been limited contingency theory research in logistics (e.g., Persson 1982; Pfohl and Zollner 1987; Chow, Heaver and Henriksson 1995) and in supply (e.g., Johnson and Leenders 2001; Rozemeijer, van Weele and Weggerman 2003). Supply chain management research has proposed that functional structures are not immune to changes in the external environment. Specifically, Johnson and Leenders (2001) found that changes in supply organizational structure were a direct result of changes in the overall corporate structure as companies reacted to external environmental factors, such as competitive pressures, global influences and new technology. Johnson and Leenders (2003b) extended this framework to explain changes in supply chain responsibilities and introduced three drivers that resulted in changes to supply chain responsibilities.
The research frameworks from Johnson and Leenders (2001) and Johnson and Leenders (2003a, b) have been adopted for use in this research. The framework that emerges is presented in Figures 1-3.
[FIGURE 1 OMITTED]
The term driver is used to describe the pressures that culminate in the appointment of a new CPO and the establishment of a reporting line for that individual. Drivers exist both outside the firm and within the organization. For the M-1 and M-1P drivers, drivers outside the firm consist of dominant environmental pressures, which in turn force corporate strategic initiatives. For the M-1 driver, corporate strategic initiatives become the driver for major corporate organizational structure change, which is ultimately the driver of a new CPO appointment. Major corporate strategic changes that do not lead to changes in corporate and functional organizational structures are described as the M-1P driver.
Some major changes in supply leadership role and responsibilities can occur as a result of factors independent of changes related to the M-1 or M-1P drivers, such as personal preferences of key executives, retirements and promotions of key executives and introduction of new technology. Labeled the Other driver, it is unlike the M-1 and M-1P drivers.
An originator is the person inside the organization who was the primary decision maker for the change, in this case the person who decided to hire the new CPO and the person to establish the new reporting line. Moderators is a term used to describe individuals or groups who significantly influenced the CPO appointment and reporting line decisions.
CPO Background and Experience. The selection of individuals to fill critical non-CEO executive positions can also be influenced by the challenges facing the organization (Emerson 1962). Furthermore, previous research indicates that individuals can represent a resource for building capabilities that provide competitive advantage (Castanias and Helfat 1991; Finkelstein and Hambrick 1996). Consequently, the origin, experience and background of the CPO can be important factors at the time of hiring, and hiring criteria, based on such factors, may change over time. For purposes of this research, CPO origin refers to whether he or she was hired from inside or outside the firm. For CPOs hired inside the firm, background refers to either inside supply or outside supply, while for CPOs hired outside the company, background refers to individuals hired from a CPO position or from a non-CPO position. Experience represents experience in supply as supply only, no supply experience or a mixture of supply and other functional experience.
Previous research has established that CPOs in large companies have a range of experience and diverse backgrounds. Johnson et al. (1999) found that 20 percent of responding organizations had recruited their CPO from outside the company and 40 percent of the externally hired CPOs had backgrounds only in supply. In contrast, one-third of the CPOs promoted internally had no supply experience at all.
CPO experience has implications for span of control. Johnson et al. (1998) found that CPOs who worked in supply-only for their entire careers have a narrower range of supply chain responsibilities compared with CPOs with either mixed work experience or a nonsupply experience. Recent research found that 36 percent of CPOs in responding firms had most recently worked in a function other than supply before becoming CPO and the average number of years of purchasing experience has declined to 12.7 years in 2003 from 16.3 years in 1995 and 17.1 years in 1987 (Johnson and Leenders 2004). Moreover, 6 percent of respondents in 2003 indicated that the CPO did not have previous purchasing experience before taking the CPO job, compared with only 2 percent in 1995 and 1 percent in 1987.
CPO Tenure. The tenure of an executive in his or her position provides the time horizon to size-up the role and situation and implement initiatives. While the average tenure of CEOs in large publicly traded companies has been shrinking during the past decade, with estimates ranging from 36 to 48 months (McNish 2002; Thompson 2006), CPOs are experiencing a similar fate, with average CPO tenure at 4 years in 2003, down from 5.9 years in 1995 and 6.1 years in 1987 (Johnson and Leenders 2004).
While large-sample surveys are useful in identifying the characteristics of a broad population, case-based research is more appropriate for explaining how and why events occur (Yin 1994). Because little was known about first the CPO appointments and reporting line establishments, our study used qualitative data collection methods. This study was exploratory and the field-based data collection methods provided the depth of understanding of the constructs not otherwise available through other methods. Similarly, because the research is exploratory hypotheses have not been established.
A common technique used when conducting case-based research is theoretical sampling, which involves the selection of cases for theoretical, not statistical, reasons (Glaser and Strauss 1967; Eisenhardt 1989; McCutcheon and Meredith 1993). The random selection of sites in case-based research is neither required nor recommended (Eisenhardt 1989). The main criterion used to select cases as part of the data collection process in this research was based on theoretical relevance.
An advantage of case-based methodology is the ability to identify novel findings from the data (Eisenhardt 1989). This research was part of a larger study covering 30 large North American and European organizations examining major changes in supply organizations. Data analysis uncovered a significant number, 26 in total, first CPO appointments. At each of the 26 sites, the creation of the first CPO position required a simultaneous creation of a reporting line for that individual. We defined a first CPO appointment as one where no previous occupant held the CPO position within the 12 months before the first CPO appointment. Thus, in a large number of organizations the supply function had been decentralized at some point of time, normally with various persons in charge of supply at the subsidiary, division, or business unit level, but no one supply person representing the corporation as a whole.
Data for first CPO appointments in this study were collected from the following organizations (in alphabetical order): AirTouch Cellular, AirTouch-US West Cellular, Cable & Wireless plc, Chesapeake Corporation, Deere & Company, Delphi Corporation, Hoechst-Ticona, ING. group, Major Oil, Manulife Financial, Microsoft, Miele, Nortel Networks, Praxair, Ontario Hydro Power Generation, Ontario Hydro Nuclear, Ontario Hydro Services Company, Perkins Engines Company Limited, Ralcorp, Ralston Foods, Rockwell Automation, Sasib S.p.A., Texas Instruments, Unisys, Wellman Inc. and World Transport.(1)
Site visits typically lasted two days. Interviews were arranged in advance and involved approximately six to eight people at each site. The interviews lasted approximately 90 minutes each, although several were much longer.
The use of an interview protocol is recommended for case-based research (Yin 1994). A protocol containing approximately 73 questions was developed before the first site visit. Adjustments were made to the protocol to improve the clarity of questions and to streamline the interview process after the first site visit. Certain questions were added for each site based on an analysis of the data available before the visit, such as corporate reports. The interviews, however, were semistructured to allow opportunities for the interviewees to volunteer information and for the interviewers to pursue interesting and relevant lines of questioning. Both researchers prepared extensive written notes from each interview. Although most interviews were conducted face-to-face, it was sometimes necessary to conduct some interviews over the telephone.
Data collection did not rely solely on the interview protocol. Multiple sources of evidence were used, including relevant documents and other related information collected. Some information could be collected in advance as part of the process of preparing for the interview. For example, because each organization in the study was a public company, annual reports were available. Additional information, such as press releases and information pertaining to senior executives, could be collected from company Web sites. During site visits, information, such as organization charts, management presentations and consultants' reports, were also collected.
The case-based methodology permitted the researchers to cover an average time span of approximately 10 years at each company, which frequently provided data on multiple CPO and reporting line changes.
Review of case material by informants is recommended as a method of improving validity (Yin 1994). Consequently, the case release procedure was an important aspect of the research process. When contacting a potential research site, the researchers conveyed the objectives of the research project, which included generating a case study that described, using the actual company name, the changes in supply chain responsibilities. Consequently, the researchers provided assurances at the outset that all information would remain confidential until the case was reviewed and approved by appropriate individuals at the company to assure accuracy of its contents and to avoid disclosure of confidential or sensitive information. As part of the case review process, an executive from each company was required to sign a release form authorizing the use of the case in this research project.
To organize the data, the researchers created a case study database and maintained a chain of evidence. The interview protocol was used as a template to create a summary of findings, providing detailed information for each question, which combined the interview notes, documents and observations. This process also represented a method of data reduction and provided an initial level of analysis (Miles and Huberman 1994). Data displays also were used to organize data and to generate meaning. A particularly useful display was a time-ordered matrix that organized the time sequence of CPO and reporting line changes. Cross-site analysis involved an examination of the commonalities and differences among the sites using site-ordered, predictive displays.
This section presents the findings from the research for each of the main variables under investigation: drivers, background, experience, reporting line, tenure, originators and moderators. The tables compiled in this section are a means of data reduction, which represents a method of analysis in case research (Miles and Huberman 1994).
One of the surprising findings of this research was the significant number (26) of first CPO appointments given the size of the participating companies. Some companies in the study had gone for long periods without a corporate supply organization. For example, in 1997 Dave Nelson joined Deere & Company as the first CPO in the 160-year history of the company. It was not until 1999 that Rockwell established its first-ever CPO position. ING group appointed its first CPO in 2000.
TABLE I Drivers for CPO Appointment and Reporting Line Establishment Site Driver Total M1 M-1P Other Total 20 1 5 26
As indicated in Table I, the M-1 driver was responsible for 20 of 26 first CPO appointments and reporting line establishments (77 percent). In only one instance did the first CPO appointment and reporting line establishment result from a strategic corporate change without an accompanying corporate structure change (the M-1P driver). The Other driver accounted for five of the 26 CPO reporting line establishments (19 percent). The Other driver included consulting projects, implementation of new management information systems and recommendations from internal auditors.
First CPO Background
For a first CPO position there were four potential sources of recruitment (see Table II). Internally, in 10 instances (or 38 percent) the CPO came from a supply position inside the company, normally someone who was in charge of supply at the subsidiary, division or business unit level. Noteworthy is that in five instances, or about 19 percent of the time, an internal executive from outside supply was appointed. In these cases the prevailing argument was to find someone who had internal credibility and senior management experience. For example, Don Davis, chairman and CEO of Rockwell Automation, asked Jim Hart to take on the first CPO position in the company's history because of his track record as an effective leader; Jim was aggressive, knew his way around the company and could work effectively with others in the organization, including senior management. Davis believed that Hart could drive the necessary changes at the company to make this initiative successful. In addition, by appointing a highly regarded and respected manager, Don Davis wanted to send a message that the initiative was important.
TABLE II First CPO Appointment Background CPO Background Total Percentage Internal--supply 10 38 Internal--nonsupply 5 19 External--CPO 3 12 External--non-CPO 8 31 Total 26 100 TABLE III First CPO Experience CPO Experience Total Percentage Supply 11 42 Nonsupply 4 15 Mixed 11 42 Total 26 100
In 11 instances (43 percent) the first CPO was recruited from outside the company. In only three of these 11 instances the recruit already held a CPO position at another company and in eight situations the new recruit had a supply background but was not in a CPO position at the time of hiring. Thus, the decision to hire someone from outside the company without CPO experience was based on the conclusion that these recruits were superior to internal supply people of equivalent rank. One executive interviewed stated: "We could not afford to hire someone who already held the right kind of CPO position elsewhere and we felt that hiring a second-in-command would result in a promotion for that individual and greater motivation."
First CPO Experience
CPO experience was measured by three categorical variables: supply, nonsupply and mixed supply/nonsupply. Table III shows that a significant number (11 of 26, or 42 percent) of the first CPO recruits had a mixed supply and nonsupply management experience, while a similar number had experience exclusively in supply management. Interestingly, 15 percent of the first CPOs in the study had no supply experience at all. Experience is connected to background, as shown in Table IV. Seven of the 10 internal supply recruits actually had a combination of supply and other functional experience, whereas of the externally recruited CPOs, only 3 of 11 (27 percent) had mixed experience. Of the 22 CPOs with supply experience, 11 had exclusively supply experience and 11 a mixed supply and other experience.
TABLE IV First CPO Experience - Background Supply Nonsupply Mixed Total Internal supply 3 7 10 Internal 4 1 5 nonsupply External CPO 2 1 3 External 6 2 8 non-CPO Total 11 4 11 26
First CPO Reporting Line
The level in the organization at which the CPO reports has implications for CPO status and influence. CPO reporting line establishment involved a wide range of executive report (ER) positions, the most common representing CEO (23 percent), VP shared services (19 percent) and senior vice-president (SVP)/group vice-president (GVP) (15 percent) (see Table V).
From the previous research it was known that the average tenure of CPOs was approximately 4 years (Johnson and Leenders 2004), not unlike the tenure of CEOs in large organizations. Therefore, changes in CPO occur rather frequently. Similarly, from the group of 16 first CPOs for which we had full tenure data (10 first CPOs were still in their positions at the time of the research), the average tenure was 4.1 years. The CPOs with an internal, nonsupply background had a tenure of 3.5 years, compared with 4.7 years for CPOs with an internal, supply background (see Table VI).
Interestingly, CPOs with a mixed supply and nonsupply experience had a much longer tenure than CPOs with either a supply or nonsupply background (see Table VII).
Unlike CPO tenure, little is understood from previous research about the average tenure of CPO reporting lines. However, the case study methodology employed with this research provided an opportunity to investigate duration of the reporting lines for the first CPO appointments. Full tenure data were available for 20 reporting lines (six of the first reporting lines were "in progress" at the time of the research) and the average tenure for this group was 2.9 years (see Table VIII).
As indicated in Table VIII, the longest average reporting tenure was for the one observation for VP operations/ manufacturing position (8.5 years) while the shortest average tenure was for the one "other" reporting line position (1 year). Worthy of note was that 10 of the first reporting lines (50 percent) lasted 2 years or less, while four (20 percent) lasted 5 years or more.
TABLE V First CPO Reporting Line First CPO Reporting Line Total % CEO/president 6 23 VP shared services 5 19 SVP/GVP 4 15 COO 2 8 CFO 2 8 VP administration 2 8 Other 2 8 EVP 1 4 VP operations/manufacturing 1 4 VP logistics 1 4 Total 26 100 TABLE VI First CPO Background and Average Tenure Internal Internal External External Total Supply Nonsupply CPO Non-CPO Average tenure 4.7 3.5 4.0 4.0 4.1
Originators for First CPO Reporting Line
The term "originator" was used to describe the primary decision maker for a change. For first CPO positions the CEO was the originator in 13 of the 26 instances, of which five involved situations where the new CPO would report to the CEO (CEO-ER) (see Table IX). The significant role of the CEO in first CPO selection was particularly a noteworthy finding.
In 10 other instances (or 38 percent) the person to whom the first CPO would report (non-CEO-ER) was the major decision maker as to CPO selection. Overall, the ER was the originator for almost 60 percent of first CPO appointments.
Examining the originators for the new CPO reporting line, a slightly different picture emerges. The CEO was the originator in two-third of the CPO reporting line establishments (see Table X). In the majority of situations (46 percent) the CEO was not the ER, but determined the CPO reporting relationship. In 27 percent of the situations it was the non-CEO-ER that acted as the originator of the reporting line.
The term "ERE" refers to executive report equivalent--an executive who is not the CPO's ER. The term "Other" refers to other groups or individuals, such as the Management Board at ING group. As indicated in Tables VII and VIII, EREs and Others did not play major roles in the appointment of new CPOs or establishment of the reporting line.
"Moderators" is a term used in this research to describe individuals or groups who significantly influence the CPO appointment and reporting line decision. In some situations, multiple moderators were involved.
TABLE VII First CPO Experience and Average Tenure Supply Nonsupply Mixed Total Average tenure 3.5 3.3 5.5 4.1 TABLE VIII Average Tenure of First CPO Reporting Line Reporting Line Average Number Establishment Tenure Observations VP operations/manufacturing 8.5 1 SVP/GVP 3.6 3 CEO 3.4 5 VP administration 3.0 1 COO 2.3 2 VP shared services 2.1 5 CFO 2.0 1 EVP 1.5 1 Other 1.0 1 Total of average 2.9 20
For first CPO appointments, seven of the 26 instances had no moderator and in seven cases consultants were moderators (see Table XI). The influence of consultants (not head hunters) was probably relevant given the magnitude of the corporate strategic and structure changes occurring simultaneously. Four instances were identified with the person to whom the first CPO would be reporting, a rather low number, but probably explainable given the high state of flux in the company as a whole at the time of CPO appointment. The Other category, accounting for eight instances, included a variety of moderators including human resources executives.
For the CPO reporting line establishments, 11 of the 26 observations did not involve a moderator (see Table XII). In situations where moderators were involved, consultants accounted for 47 percent of the observations (seven out of 15).
Two important simultaneous events occurred with the reporting line establishments. At six sites (23 percent) there was a simultaneous change in the person holding the CEO position. At five sites (19 percent) there was a simultaneous change with the person holding the ER position.
First CPO appointment and reporting line establishment decisions are important for setting the organizational foundation on which the supply function will develop and mature. The first CPO faces the daunting task of getting a corporate supply presence off the ground. He or she is required to develop a corporate supply strategy, build a supply team, identify a set of supply responsibilities and a plan for growth and results. Obtaining approval, cooperation and financial, human, MIS/IT and space resources to accomplish ambitious expectations regarding savings and other supply contributions represents a monumental challenge. Finding the right person to head such a supply initiative is not an easy task.
TABLE IX First CPO Appointment Originator Originator Total Percentage CEO 8 31 CEO-ER 5 19 ER (non-CEO-ER) 10 38 ERE 1 4 Other 2 8 Total 26 100 TABLE X First CPO Reporting Line Establishment Originators Originator Total % CEO 12 46 CEO-ER 5 19 ER (non-CEO-ER) 7 27 Other 2 8 Total 26 100 TABLE XI First CPO Appointment Moderators Moderator Total Percentage No moderator 7 27 CEO-ER 1 4 ER (non-CEO-ER) 4 15 Consultant 7 27 Other 7 27 Total 26 100 TABLE XII First CPO Reporting Line Establishment Moderators Moderator Total % No Morderator 11 42 Consultant and NER 6 23 NER (non-CEO ER) 4 15 CEO 2 8 Consultant 1 4 CEO and NER 1 4 Other 1 4 Total 26 100
A contribution of this research is the application of contingency theory to supply leadership changes. Specifically, drivers of first CPO appointments are significantly influenced by the external competitive environment and changes in corporate strategy. The majority of first CPO appointments and reporting line establishments (77 percent) were driven by corporate strategic initiatives (the M-1 driver) and the case study evidence suggests the CEO played a significant role in the reporting line establishment decision. For approximately 50 percent of first CPO appointments and 65 percent of reporting line establishment decisions the CEO was the originator; and in approximately 23 percent of the sites the CPO reported to the CEO, compared with 14 percent in a recent CAPS Research study (Johnson and Leenders 2004). This finding would suggest an initial perceived need for CEO care and attention of supply during the early stages of the formation of the function in order to get it established and contributing effectively to the goals and strategies of the organization. Reporting to the CEO becomes less common in subsequent CPO and reporting changes, presumably after the supply function is established in the organization.
The presence of a new CEO and ER intensifies the pressures for getting up to speed quickly and demonstrating results. In some situations, such as the one at World Transport, the CEO arrived with an agenda and expectations for the role of the new supply function. In addition, with the average tenure of a CEO standing at approximately 3 years today (McNish 2002; Thompson 2006), it is about the same as the average tenure for the first reporting line, making it likely that a new CEO will be involved in decisions involving subsequent reporting line changes.
Figure 4 traces the origin, background and experience of the first CPOs in the research. In 58 percent of the observations the first CPO in the came from inside the company. In such situations the first CPO was twice as likely to come from inside the existing decentralized supply organization. Interestingly, when the first CPO was selected from outside supply, the likelihood that he or she would have no previous supply experience versus mixed supply/nonsupply was approximately 3:1. Overall, the ratio of internal candidates with supply only experience versus mixed or nonsupply experience was approximately 1:4.
Unlike the internal candidates, all of the externally recruited first CPOs had supply experience. At these sites, the objective was to hire someone with proven supply experience to guide the establishment of the new corporate supply group as such. For example, senior management at Deere recognized that to accomplish its supply management strategies the company needed to hire external executive level talent. However, externally recruited CPOs were from a non-CPO position in three out of four instances, which suggests that a significant number of firms are prepared to bet on a candidate without CPO experience who is looking for an opportunity to move up.
Ten different first ER positions were documented from the 26 observations indicating the variety of approaches used by the organizations in the study. It is also worthwhile to highlight the relatively large percentage of CPO reporting line establishments to the VP shared services (19 percent). If combined with the VP of administration, which we consider a comparable position, this number increases to 27 percent of the observations, nearly double the frequency from a recent CAPS Research study (Johnson and Leenders 2004). It may be possible that shared services and administration are convenient parking spots for supply as decisions are made concerning supply's future role. In support of this theory, combining the one VP administration and five VP shared services reporting lines provides an average tenure of 2.3 years, compared with overall average of 2.9 years. Thus, CPO reporting lines to the VP of administration or shared services are moved sooner to other executives, perhaps after supply roles and responsibilities are established and integration with other functions is more clearly defined.
While the CEO played an active role in the reporting line establishment process, almost 80 percent of first reporting lines were to someone other than the CEO. At some sites, such as Unisys, the ER had major supply-related initiatives underway and it was deemed important for the CPO reporting line to be aligned accordingly. In other organizations, such as Rockwell, the new ER had a vested interest in ensuring the success of key supply initiatives. Other ERs, for example at Manulife, had championed the supply cause and wanted to be actively engaged in the implementation of the new function. Although some have argued that the CPO should report only to the CEO, this may not be realistic or even desirable given the time constraints on a CEO of a very large company. This research has documented how decisions related to reporting line establishment are handled and uncovered a variety of first reporting lines. Clearly, the question of where supply could best serve the needs of the organization was seriously considered. All reporting lines established in the organization were at a high level.
Additionally, previous research (Johnson and Leenders, 2003a, b) has identified the existence of six CPO-ER teams, which were particularly effective in changing supply's role and contribution within their companies. All were involved in a major corporate turnaround. In none of these teams was the CEO the CPO's ER. Thus, while CEO support for strategic supply initiatives is clearly beneficial, a CPO reporting line to the CEO does not appear to be an essential precondition to supply success.
The first CPO faces immediate pressure to create a plan, identify opportunities for improvement and cost savings and establish organizational credibility. The role of the ER during this phase is critical. He or she can play a vital role in setting priorities and providing focus, acquiring the necessary organizational resources and breaking down barriers and organizational roadblocks. Consequently, a strong CPO-ER team is important in ensuring the effective contribution of the supply function to organizational goals and strategies.
The average tenure of the first CPO reporting line was approximately 3 years. Some of the organizations in the study, such as Ralcorp, found that the first reporting line continued to address the organizational needs and it consequently remained in place for 8 years. On the other hand, at Cable & Wireless in the United Kingdom the CPO's first reporting line lasted only 8 months as a major corporate strategic change resulted in his reporting line move from a SVP to a new CEO global operations. And at Unisys, the CPO's first reporting line lasted about 1 1/2 years, changing from the executive VP to the VP of manufacturing who had lobbied for this change.
Consultants acted as moderators in nearly one-third of the reporting line establishments and in approximately one-half of the sites where a moderator was present. These situations, however, were unique with respect to the context and involvement of the consultants. In organizations such as Rockwell and Ontario Hydro, consultants were used for major projects designed to create and build an effective supply organization. Most of the consulting projects focused on identifying opportunities for cost savings and addressing broad organizational design issues.
The first CPO-ER team has an important role in building the organizational capabilities of the supply function and plotting its future course in the organization. Using case-based methodology, this research in large North American and European organizations examined 26 first CPO appointments and reporting line establishments.
Data collection and analysis covered drivers, CPO background and experience, key decision makers and tenure of the first CPO and reporting line. It was found that internally recruited CPOs may not have any supply experience. However, externally recruited CPOs always had supply experience but were not necessarily in a CPO position before their first appointment. The research also found that the establishment of the CPO reporting line involved a variety of different positions, with the CEO and VP shared services being the most popular.
A major contribution of this research is the development of a research framework and an improved understanding of the drivers of first CPO appointments. Changes in corporate strategy (M-1 driver) accounted for nearly 80 percent of the reporting line establishments and the CEO had a major say in the majority of both the first CPO appointments and reporting line establishments studied. The CEO was found to play a significant role in the CPO reporting line establishment as a decision maker and also appointing himself or herself as the person to whom the first CPO would report. The majority of reporting line establishments was to senior executives other than the CEO, however. Despite academic and practitioner pronouncements that the ideal reporting line for the CPO is to the CEO, we are not convinced this is practical or desirable in very large companies and effective supply contribution is possible without a CEO reporting line.
The average tenure for the first CPO was longer than his or her reporting line at 4.1 and 2.9 years, respectively, making it likely that a first CPO would see at least one reporting line change during his or her tenure.
Limitations and Opportunities for Future Research
There are several opportunities for future research. In our research we were able to identify 26 instances of a simultaneous CPO and reporting line establishment. The ability to identify such a large number of reporting line establishments in itself was an important finding of this research. Consequently, one area of investigation would be to compare first CPO appointments and reporting line establishments with other functional areas. Is supply unique compared with other functions such as marketing, finance and accounting, operations, MIS and human resources? Do these functions exhibit similar diversity of corporate reporting lines and levels? Is their reporting line tenure similar? Are the originators and moderators the same? One objective could be to determine the relative stability of supply with other functions.
This research documented a number of simultaneous events with the appointment of a first with CEO changes, ER changes and corporate structure changes. Consequently, a second area of inquiry would be to expand the scope of the simultaneous events with the CPO reporting line establishment, such as the establishment of other functions, mergers/acquisitions/divestitures and changes to senior management.
Another line of inquiry could cover the unique aspects of a certain type of reporting line, for example, VP shared services. What are the advantages and disadvantages from a supply perspective of such a reporting line?
While the research found that the majority of first CPO appointments were driven by changes in the corporate organizational structure as a result of new strategies intended to improve performance (the M-1 driver), this research did not examine how the changes influenced firm or functional performance. Future research, perhaps through a large sample survey, could examine the impact of new CPO appointments on the performance of the firm and the supply function.
A different research question could focus on ER changes. In this research just completed, the focus was on the position of the executive to whom the first CPO reported. As long as this position did not change, the departure of the person holding the ER position was not deemed to be a reporting line change. It would be of interest to find out whether the reasons for changing the person in the ER position and the background and experience of the person holding the ER position affect supply performance.
Lastly, because the research was exploratory, using case methodology, there are a number of limitations. The most obvious is that the findings cannot be generalized to the overall population of large firms appointing their first CPO. Consequently, the research is better suited for theory building. A large sample survey could be used to control specific constructs, such as geography, industry sector or size of company, related to first CPO appointment and reporting line establishment.
In addition, as previously stated the research did not explore the relationship between first CPO appointment and firm performance. The research framework suggests alignment between firm strategy and structure. Future research could extend the research to investigate the influence of the first CPO on firm performance. Specifically, are firms able to achieve the expected benefits from the appointment of the first CPO?
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P. Fraser Johnson (Ph.D., The University of Western Ontario) is associate professor of operations management at the Richard Ivey School of Business, The University of Western Ontario. Prior to accepting a faculty position, he worked in the automotive parts industry where he held a number of senior management positions in finance and operations. He is the author of several articles that have been published in a wide variety of magazines and journals. His textbook, Purchasing and Supply Management (with Michiel Leenders, Anna Flynn, and Harold Fearon), published by McGraw-Hill Irwin, is now in the 13th edition. Dr. Johnson's research interests include organizational issues in supply, reverse logistics, and e-business technologies in supply chains.
Michiel R. Leenders (D.B.A., Harvard Business School) holds the Leenders Purchasing Management Association of Canada Chair and is professor emeritus and director of the Ivey Purchasing Manager's Index at the Richard Ivey School of Business. His supply management texts have been translated into 10 different languages and he is also considered a world expert on the case method. He has taught executive programs and case method workshops throughout the world. His various awards include the Financial Post Leaders in Management Education Award in 1997 and the Hans Ovelgonne Purchasing Research award in 2001. Dr. Leenders has founded six small companies and has been a director of the ING Bank of Canada since its inception. He holds a mining engineering degree from the University of Alberta and he earned an MBA from the University of Western Ontario.
(1) Major Oil and World Transport are disguised names.
P. FRASER JOHNSON AND MICHIEL R. LEENDERS
The University of Western Ontario
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|Author:||Johnson, P. Fraser; Leenders, Michiel R.|
|Publication:||Journal of Supply Chain Management|
|Date:||Jun 22, 2008|
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