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How Changes in Corporate Culture Have Impacted the Purchasing Profession

April 3, 2016
Nothing good ever results when companies start treating their strategic employees as commodities.

In 1976—just out of college—I hired onto a company that had been around for almost 140 years, hoping that I had found an employer to spend an entire career at. That’s the way people thought back then. The indicators were positive. The company’s CEO was married to the granddaughter of the founder. The vibes of the company were also good. I—and everyone one of my peers who hired on then—felt like we were joining an “extended family” where everyone hope for your success and ready to help, if needed, to ensure it. That culture was great.

At that time most successful corporations were focused on supporting a balanced strategy of the “big three” stakeholders. These were the Customer, the Employee and the Stockholder. The general idea was that taking care of the first two would ensure the third also got taken care of. Each was considered an equal leg on the company’s “stool of success.”

Progression “up the ladder” at my company—and most others—during that era was slow. It took me 10 years to get my first technical supervision position and another five to be given responsibility for managing professional employees. The length of time taken to promote people into management was used to ensure that employees had adapted to and fit within the culture of the company.

Forty years later in corporate America the “big three” is just a memory. Over that timespan I’ve seen companies pretty much across-the-board transition to putting Stockholders first, Customers second and leaving Employees pretty much an afterthought. How can I say this? All you have to do is look at all of the firms relocating to lower wage countries.

And it’s not just production employees who get impacted. For instance, many large corporations have outsourced their computer systems function lock-stock-and-barrel to other lower wage countries, extorting the people whose jobs were being eliminated to bring their replacements “up to speed” through carefully crafted severance packages. More recently, the same trend appears to be happening with design engineering as many large corporations are opening foreign engineering centers and reducing the percentage of their U.S.-based product engineers.

Bottom line: Many corporations today treat employees as a completely interchangeable resource. In other words, they treat their employees as a commodity.

Purchasing personnel haven’t been immune to attempts to replace them with lower cost processes and strategies. Remember the online auction craze. To believe the marketing shtick of the e-auction companies, fewer purchasing people would be needed and those remaining would never again have to perform field work either prospecting for suppliers or verifying their capability. Instead, your fee to them would cover all of that “grunt work.” I’ll be writing a future column on my experiences with online marketplaces, both in the actual exercise and then in the subsequent cleaning up of the resulting messes. In the meantime I’ll leave you with this thought—there is no real substitute for good old-fashioned spade work and/or heavy lifting in working with suppliers.

Corporate human resources, of course, wasn’t going to be left out of the corporate drive to commoditize employees. Not only did they start outsourcing employee support services to outside people who had real difficulty understanding the issues of company employees, they also started promoting structural and process changes within companies that they felt would make the company more competitive. I’ll detail here one that I had to live through.

I was managing a factory materials group when I got a call one day from my general manager. He told me that corporate HR had approached him with a program that was going to significantly shorten the manager development process. This short-circuiting was going to occur through the hiring of MBA graduates out of top-notch business schools who would be immediately placed in managerial positions.

I had a pretty good relationship with my boss so I said something like, “Oh, you mean they’ll hire MBAs and place them right out of school into positions that guys like me had to work for 15 years or so to earn.” After a somewhat extended silence, he replied, “You’ve got it.” He went on to say that I was being given one of these MBA grads as a “test case” for our factory since my staff had a recently vacated managerial position.

I approached my HR manager for more details on the program and was told that these MBAs would be given annual performance metrics, and, that those that “hit their performance numbers” would be retained while the others would be “let go.” I asked who would be setting these performance numbers and was told that “of course, I’d have input” but that for the most part they’d be set by corporate HR to ensure that they were fairly applied across the corporation. Hmm. It didn’t take a genius to see that this program had the potential to become a real “goat rodeo.”

My very first IndustryWeek column in April 2014 was on performance metrics and how they often do not give a good indication of the value a manager contributes to his company, so I was worried about what my new manager’s performance metrics would involve. And I had good cause to be worried. Almost exclusively—you guessed it—his performance was to be based on piece-price reduction. I looked over the guy’s resume and saw that although he had worked for a couple of years in industry before returning to university for his MBA, he had never worked in purchasing nor had he ever managed professional employees. Then and there I decided I had to figure out a way to avoid giving him employee supervisory responsibility.

Luckily, he had an industrial engineering background, which gave me some leeway regarding his assignment. I “reorganized” my staff such that the vacant position no longer had direct reports and would be given responsibility for project management responsibility for a significant supplier development engagement. I also took on personal responsibility for mentoring him both on the improvement process that would need to be applied and how to best interact with suppliers.

The bottom line is that this “fast track” program died after a year or two. There was no surprise there. I considered myself fortunate to work in a company that would recognize a mistake. It turns out my “hot shot” MBA did better than most and was actually retained by the company after his assignment with me ended. But believe me when I say he represented quite a drag on my time during the duration of his assignment. During his “exit interview” from my department he thanked me for placing him in a position he was capable of handling and where could also have an impact. He also acknowledged me having “taken him under my wing.” He went on to say that most of his peers in the program had been put in positions they weren’t ready for and left to “sink or swim.” Most sank. But during that sinking process they created problems that took significant time and effort to right.

I think that company culture is very important and that in looking for an employer a person should research this issue deeply. I also think that it is just as important for companies to establish healthy cultures for how they work with suppliers. I retired from this company shortly after this episode and so don’t have a first-hand view on how things turned out, culture-wise. Shortly after I left, however, I saw where the CEO was quoted in the Wall Street Journal as saying one of the issues he was having to deal with was “too much of a family feeling” between employees. In talking to some of my former colleagues about this comment I can assure you that many of them were “gut punched” by this comment.

So what led to the change in culture in corporate America? My opinion is that it came from putting the carrot of large short-term appreciation-based stock options into executive compensation. This introduced a new motivation which—in my opinion—looks a lot like greed, i.e., “if it looks like a duck, waddles like a duck and quacks like a duck, it probably is a duck.” For instance, the same CEO who made the comment cited above—after several straight years of record corporate profits—significantly cut the retiree health insurance program affecting among others, yours truly. I’ve had some health issues and as a result of this change my out-of-pocket cost went from about $100 a month to $100 a week. That same year the CEO was awarded a $53 million bonus. I probably don’t need to mention that part of his record bonus was due to the additional income delivered from pulling the health insurance rug out from under some of his former employees. Not a move you’d expect from a “father figure” but I guess that’s what he meant when he made that public statement about the company having too much of a family feeling. I’ve heard that the culture of the company was severely damaged by this move. Unless they are saints people have a tendency for greed. When we decide to institutionalize greed into our corporate culture it is only natural for many to become quite adept at playing that game.

We were talking about culture in supply management, weren’t we? What do you think happens to a supply management culture when important strategic suppliers have their current business subjected to online auctions? Believe me when I tell you they don’t like it. And like with company culture, once you damage it, it’s difficult to re-establish.

In a previous column I made the point that when OEMs start treating their strategic suppliers as commodities they usually start a downward process that leads to their products either becoming or being seen as a commodity. I wonder if the same can be said about companies that treat their strategic employees as commodities. I think it’s a good parallel.

My next article will detail my opinion of supplier quality audits.

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