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The Value of Having a Chief Value Officer

Posted by thempowergroup on June 24, 2010

Chief Value Officer (CVO) and Supply Chain Management

What if each company had a head of “Value Creation and Management?”  Perhaps it would be a senior level executive with a title something like “Chief Value Officer” (CVO).  What might such an individual be tasked to accomplish, and how would this individual work with a Supply Chain to achieve greater value for an organization?  The concept of a CVO isn’t a new one, and the concept has been discussed and promoted by firms such as Deloitte for certain professional service firms, such as accounting firms.  But what if large manufacturing and other types of firms had someone with such a title?

We’ve written about value in these blog posts before.  Strategic Sourcing certainly needs to become more focused on achieving true value rather than simply price or cost reduction if it is to continue as a viable key business process in the future.  And achieving the most effective business results in all areas is likely to require organizations to take a new look at how they define goals and strategies and processes in the future.  The old rules of continually squeezing more dollars out of processes and relationships with suppliers and customers in order to meet short term business needs just don’t cut it anymore.  Collaborative approaches to generating value for all participants in a supply chain will become the norm rather than the exception in future years.

A Chief Value Officer would be responsible for ensuring that all business processes and organizational entities are focused on a single company-wide goal, the creation and maximization of value.  That includes the Supply Chain as well as the Strategic Sourcing process and organization.  The CVO would, based on inputs from various stakeholders, determine the definition of value in the organization, create single value goals for the company/organization, and work with each organizational group to develop goals and strategies that will lead to effective value enhancement results.  The CVO would be the focal point for value and would have specific value increase targets that are quantifiable, measurable, and easily understood by other stakeholders.

The impact on Strategic Sourcing would be profound.  With so many Sourcing programs and projects becoming little more than cost reduction exercises focused on generating cash for the current year, the creation of a value officer in the company could be the impetus for transformation of Strategic Sourcing from a cost reduction process to a true value adding strategic process.  If the Sourcing head understands that the program must achieve results that are consistent with the company’s value goals, then the Sourcing strategies developed will be more likely to be value based, i.e., more collaborative, more long term, more focused on leading stakeholders to achieve success in their piece of the Supply Chain.

The starting point would be a greater focus on defining who the customers are, internal and external, and then defining what real value means to each category of customer.  Value is what drives Supply Chain requirements, after all.  Value is what also determines a company’s pricing strategy, since the only thing a customer can use to justify a price is how much value has been received.  It’s not about a supplier’s costs or about meeting basic service requirements, or about providing a certain level of quality.  It’s about that intangible sense a customer has that what has been purchased from a supplier, whether a product or service, will make them more successful in their own businesses.

When a company determines that it will be measured on criteria beyond basic service and quality considerations, the strategic possibilities expand enormously.  If the goal is to be viewed as a premier leader in the market in innovation, creativity, knowledge, passion, or any of the other “value” related characteristics that employees in the new value focused organization will need to have, then value based strategies will follow.  Each of these characteristics is a component of certain advanced supplier/customer relationships, such as long term value based relationships where the key suppliers become part of the supply chain of the customer, and they participate in early product development programs as well as in customer research, manufacturing improvements, and supply chain streamlining.

The nature of core employee competencies will change as well.  No longer will performance of Supply Chain employees be measured based on some mechanical output measure.  Instead, less tangible measures such as the above, which measure individual character and approach to work, will increasingly become part of the recruiting process and the performance evaluation process for Supply Chain and Strategic Sourcing personnel.

Having a focal point for value in a company is an idea that needs to be turned into a reality.  A CVO can be the catalyst to achieve the transformation of Strategic Sourcing from its current cost focused mentality to a true value creating process.

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