JUN 21 2024 Resources Webinar

Procurement From the Lens of a CFO: John Murphy

Recorded: June 13th, 2024 at 3 pm Pacific Time

We had the pleasure of sponsoring the Bay Area Leaders in Procurement in partnership with Box this month. 

Our special guest, John Murphy, former Adobe CFO and Active Board Member, gave us insights into the perspectives of executives and board members regarding procurement. We captured the session and John’s key learnings from working with procurement throughout his career.

Watch Time: 33 Minutes

Video Transcript

Participants: Conrad Smith, CEO at Graphite Connect, and John Murphy, former Adobe CFO and Active Board Member of Public, Private, and Non-profit organizations.

Smith: When did you join Adobe? 

Murphy: 2017

Smith: 2017. So John came in after the CFO, that was doing a whole bunch of transitions and everything else with the business. Which as a procurement leader was a little bit of a shock to me, to have a new CFO coming in. Didn’t know what was going to happen. Why don’t you just take a couple of minutes to talk about your pathway to Adobe? Because you came through a bunch of really cool companies and finance roles as well. 

Murphy: Yeah. It was actually funny. We were talking to a few folks earlier.. Adobe is trying to find it’s way into the AI pot of gold like a lot of companies are. But I think they will find their way. One of the things we had at Adobe for a long time was called Sense, is what we called it which was embedded machine products that we’ve had in our products for a long long time. And so AI full AI which is now Firefly was just a natural evolution for that. But my path was, I started in public accounting like a lot of people do. One of my clients early on and then my first stint in Silicon Valley was with the company called JVS Uniphase. It was early, you know in the dot.com boom. It was going to essentially be the intel of networking. And they did really well for a while and then of course the whole network was over built and the .com bubble burst and JVS Uniphase didn’t want their networking products anymore so they tanked and that was really depressing. And so I regrouped and went back to Southern California and I ended up joining DirectTV. I was there for the longest stretch of my career, almost 11 years. And then we were bought. It was a great, really interesting company too. I’d say I went to Adobe after that. It was really fascinating. DirectTV was spun off from Hughs corporation, which was mostly aerospace and defense. And DirectTV was this incubated business unit to try to monetize their technology that they were using in defense. And then they said hey wait, we can send up satellites into space and have a consumer product that we can broadcast better than cable and HD and all the stuff. So super successful for a long time. As so much so that they were spun out. News corp bought them. Then Rupert Murdoch and John Malone from Liberty Media got into a fight, they swapped shares and so all of the sudden we were owned by Liberty Media. And then Liberty Media just wants to make money all of the time and get tax benefits in the restructuring. So they did this whole wacky deal to spin us off. Publicly we were independent for the first time in our entire history. At that point we were probably 25 years old. And so then next thing we know AT&T came knocking. They had bought it, I was the chief accounting officer at the time, so I knew my job was going away. And they were like oh no we will find a job for you but you’ll have to go to Dallas. I’m like, oh no. You know I grew up in New York, moved to California. I am an east and a west coast guy so Dallas was not in the cards. So I ended up getting recruited during the whole process once the deal was in process. I got recruited to Qualcomm in San Diego. Where I met Anaboov and joined Qualcomm actually in crisis mode. Which I didn’t realize was a crisis at the time. But it was insane. Then I got recruited to Adobe and I’m like okay I need to get out of crisis mode and get to a growth company. As much as we did such great work at Qualcomm it was painful because it involved a lot of layoffs and a lot of relocation and you know I’m much more interested like I am sure most people in growth and the excitement of contributing to growth. So when Adobe came by and they just more or less a few years into the transition were really on a really great trajectory and software as a service and subscription. I was like okay this sounds really interesting. This is definitely where the mark is going. Loved the team, loved the culture. It was actually very similar to the DirectTV culture. Which I think Qualcomm had at one time but during crisis mode cultures get impacted/ So no bad words about Qualcomm just a bad time. It was a great company, great people. But it was not a fun company to be in at that time. 

So I go to Adobe and am like “oh my god” this is just like it was when I was at Direct TV. and I love it people have energy they are creative. There is a lot of autonomy within functions, not a lot of micromanaging. And so this was good. They hired good people, good people did good work and we just communicated and stayed on top of things. And soon I became CFO and I had a really just great incredible time of course Covid hit during my tenure as well. So that was a weird thing being CFO remotely like all of us worked jobs remotely for a while. So I went back to my house in southern California thinking it was going to be like everybody for a few months, 6 months whatever. 2 years and then they were like we are going to reopen the office. And we were just building a nice new giant building down in San Jose. I just don’t want to commute back and forth again to southern California. So I was like, I’m going to take a pause here and focus on myself a little bit but also kind of shift gears to do what I wanted to do ultimately. Kind of in the next chapter 2 if you will, was board work. So I’m on the board of 3 public companies and 1 private company and 2 non-profits and it provides me a lot of flexibility in my personal life but it keeps me connected to business and leveraging my experience. And so that is my quick resume. 

Smith: So that’s quite a journey. Going back to the DirectTV and the Qualcomm and the Adobe jobs. As you were, I’m sure interacting and working with procurement and the process. As you came into those teams, what did you think about it? What were you looking at procurement? You know I was. I think one of the really important things for us to understand is that procurement function is what finance or leadership need from us? How do you really look at us? There is a traditional conversation about cost savings. Is that really what you need? Cost savings. What do you expect and how does that look from the office from the CFO and how does that look from all these board positions. 

Murphy: It was really very timely. I had 2 board meetings this week up here and so procurement was involved in all of them by the way. In terms of topics and particularly the conversation around compliance. That chat was very similar today. The two charts were very similar. I don’t know if you were using the same supplier for them but it was very close. The interesting thing is that in my entire career procurement was very much a transactional function And it wasn’t being leveraged strategically. And there were several functions of finance that you know that lumped into that. Like accountancy just traditional accounting, and financial planning just doing financial planning and oftentimes depending on the business. Finance in general is basically you know. Your service just does what we tell you to do etc.. and that shifted overtime where different companies recognized they could actually leverage the skills of the financial people and financial organizations and just general analytical people and organizations to drive value in the companies. So the CFO organization became a little more of a strategic partner to the CEO and also to the CROs in terms of how they go out into business and negotiate terms for big customers and long multi year contracts. And so finance and different functions started to elevate in terms of the value they were contributing. And procurement in particular really started to elevate from transaction, just get this done, get it done completely, and be done with it. And became drive cost savings, who do I have that is most efficient, lets cost effectively leverage our scale. That’s all the favorite thing I’m sure you’ve heard all the time. We are huge, we shouldn’t be paying that we should be paying less. I’m sure you still hear that. But nonetheless. I feel like it has shifted over the years. Now we’re various functions, yours very specifically is a very strategic asset to any organization should be able to not only drive effective cost management. Without losing cost savings because it can really affect cost management. Because it affects everything. And I was really happy to hear that [box] has direct and indirect procurement because of your impact on the margin of the products. And that’s extremely valuable to the CEO. Some companies have not modernized and thought that we should combine this because the skill sets are absolutely the same. And I think the theories are so critically important to be unified. When they are divided and in companies that say “well we don’t want procurement doing this because they are not marketing experts, or they’re not HR experts, the more we think about contract labor where we think about event planning or advertising. If they don’t leverage the skill sets of procurement people then it gets so distributed and you’re really not capturing the impact that you can have and not only the cost of your products in the gross margin space. But the optimal net operating margin of the company in terms of its efficiency and its profitability. And so the elevation of procurement to a strategic partner in space and its evolving and I think [box] sounds like you’re very evolved there which is great. I’d encourage you to continue to lobby for that and CFOs today are always trying to figure out how can they accelerate the performance of my company and its going to be collapsing the top process into a single thought process that can be distributed in terms of execution but you need someone leading that thought process and I think you guys are in the best position to be able to do that. 

Smith: It’s cool how procurement kind of sits in the center of the business that way. Touching all of the different functions. Absolutely, so in the room here there are folks that are supporting procurement in really small organizations, sort of startup mode, to very large organizations. Now that you’re on a board of both kinds of companies. Any advice to the smaller building transforming in terms of how to look and do that vs the other end of the continuum. 

Murphy: So definitely put time on the calendar of the CFO, and the CIAO for sure depending on if you’re tech companies. The board that is a private company has direct and indirect very separate. It worked okay for the size that they were at the time. And now they are actually growing at a really nice pace. And we are trying to think about what is ok. Do we want to go IPO or do we want to go look for a strategic buyer for the company and we want to obviously get the best price for the company for the shareholders and the managing team that really founded and started this company. And we unified and we brought in a person that had both direct and indirect experience. Consolidated that operation and what we found in the process was really not against the head of engineering who had all of the direct procurement. He was legitimately knowledgeable about what he needed from both hardware and software to be able to work on the service that we were providing to our customers. But he was also the head person who was given a lot of latitude in terms of product development and kind of proliferated the product life cycle a little bit and not understanding when we were going to be able to monetize it. So by unifying it the person who took over total procurement was able to say “well what is the plan here? When are we going to monetize it because it helps me understand how hard I should be negotiating early so I can start maybe when someone says. This is not even in development; we aren’t making any money on this. What can we have this service for? How sustainable is the supply chain of those services so that we can make sure that we can deliver if it takes off.” And so in the early stages we are at this shifting point of a certain size. I think you can be part of the equation in terms of what your company looks like 5 years from now. And it’s probably the question you need to ask bothe the CEO, CFO, CIAO what are we gonna look like and then how would my organization fit into helping you get to where you want to go? And that’s one conversation. One of my biggest companies is quite a bit larger and it is separated and I keep  asking them when are you going to unify. When are you going to bring them back together and they are finally moving towards that because they see the value in unifying the process around it. But it is hard because people are territorial and when they’ve had it they don’t want to give it up. So as you said I think the key here is being very open and letting them trust you and recognizing that you’re their partner and then when you deliver for them they keep coming back for more to your point. 

Smith: I’ve always said that the role of procurement is to enable business success. You know in the early days of my career it was all about cost savings and kind of sometimes cost savings is what the business needs to be successful bit often speed agility innovation and a bunch of other things that kind of contribute into savings and value. And really understanding that this is super critical. Why don’t we take some….

Murphy: I was going to say just on the cost savings pace. A little side of the beginnings of procurement. If you find your company is in crisis you are the first person who should be jumping up and down saying I can help jere. You don’t necessarily want the c-suite to be noodling this about and you are like I know where there is savings. And you know you need to get that out up front and that will also demonstrate the value of the function. I think it’s really important. 

Smith: Having that vision even in advance. Questions for john? 

Audience question: two top priorities for CFOs this year? 

Murphy: Gosh, So interestingly we’re in a weird cycle in some companies. But I will go with tech. There is still a shortage of talent and so you think about a lot of the service that some of these companies here are providing. It is being built off of brainpower and so we need to be able to find and source where that talent is going to be. Don’t always want to hire them as employees because of you know cycles and economies so I think talent sourcing is really critical. Power sourcing is very critical right now particularly because of ESG requirements as that is something that we need to think about in terms of alternative sources and locations. And so I think that all contributes to how we are as a company especially if you’re a public company. How are we actually shifting our operations so that we’re not only compliant but that we’re actually attracted to investors that those things are important for. So certain investor funds will not invest in companies that do not have programs to comply with ESG requirements and various locations. You really kind of lose a whole group of funds that particularly in Europe right now are a little more strict than we are. Even though the political environment right now in the United States is kind of diminishing what ESG requirements that we are going to have that’s gonna eb and flow I don’t think that is going to go away. I mean climate change is real and I think that’s probably a better word to use than global warming because that’s “scary” so you know. I think there are going to be important things there for the CFOs across any industry to understand how can I help my company be compliant? But at the same time I don’t want to incur a lot of cost but I want to make it efficient and I want to make sure that we are not burdening the performance of the company. Because obviously these companies are valued on revenue growth and earnings growth primarily but you’re gonna have compliance issues or you’re just going to have lack of desirability to work and to attract people to work for your company if you are not thinking about those kinds of things. 

Audience question: What about cybersecurity? Hearing that is like a top 1 or 2 almost everyone I talk to this year.

Murphy: So that’s a huge one for boards right now. The interesting thing about it from a board member perspective is, we are liable as board members to have oversight over cyber risk within public companies. And the issue there is, as board members we’re advisors, so you know what responsibility do I Have? Well make sure you have a program in place. I don’t think it’s absolutely top priority for the entire c-suite but particularly for board members right now there is a lot of pressure on us to make sure that the companies are not just doing a surface compliance around risk management and around cyber and after last weeks Snowflake incident, that’s kind of interesting and nothing against Snowflake. I mean a lot of companies are getting attacked all the time so there’s just a point of over control too. Where you can’t because it’s not going to be profitable. There are a lot of things you can do to protect yourself and be recognized as the best you possibly could. So having a program for cyber risk in terms of the software your company is using and getting the right ones and vetting those and making sure that those companies are going to be around and that they actually have the infrastructure to support whatever volume you have is really important. And that they actually are informing you of policies and procedures that you should be putting into place. Just like Snowflake did, he said “Hey. We told our customers to put in multifactor authentication. And some people didn’t and that’s kind of stupid of them.” I also think that it was a little unfortunate that Snowflake blamed their customers vs. saying that they were going to take the lead to help you resolve this. There was an opportunity there that would have elevated their reputation at this point. So hopefully they come around. 

Audience question: What are your thoughts on supplier consolidation arguments for and against it. Very interested to see what you say. 

Murphy: Yeah so that obviously was a big issue during Covid. Where certain companies got hurt and there wasn’t even consolidation there was just the supply chain running out the door. There is going to be continued consolidation across a lot of industries I think just from an operational efficiency and also de-risking and dissolve so investors are looking for where there is value. So if companies can come together and consolidate it would actually be more profitable. That is going to drive a lot of that consolidation. But I do think that is a risk for companies that end up in a sole sourcing situation. So it is important to understand the types of terms and conditions and the ongoing reporting compliance especially if you end up in that situation. One of my companies that I am on the board of they’ll say that they’re not solely sourced in a certain area. They are absolutely sole sourced in a certain area. They have this secondary supplier but actually it doesn’t provide the exact same services and components into where the product evolves to. And it goes to this other supplier, that they are saying this other supplier can do, but they don’t even have the raw materials here. They’re getting the product halfway through the manufacturing process and then all of the sudden they’re adding to it. So they can’t even get to that part if the supplier goes down. The other thing is you can have an issue in the consolidation if that supplier for some reason has a massive non-compliance issue and the government shuts them down. That’s going to be a big issue too. So I feel like it’s going to continue to happen. You guys have to strategies about how to minimize that risk and how at the end the sole supplier solution. Is there anybody else I can decouple the process so that I can farm parts of it out. And that’s a way to at least have some control over the sole supplier holding you hostage. 

Audience Question: Balance of trade becoming more of a talking point

Murphy: Balance of trade is always a talking point. It always drove me crazy that I would find myself paying more than they are giving back to me. And I feel like that’s a really great beginning negotiating path with your suppliers. Particularly if you’re adding value, and you need to work with your sales organization here very closely and understand what your opportunities are. Because sometimes the sales org will continue to sale in and they’re motivated to sale your products and your services etc.. and they get this great deal done at the same time when you think about it from a cost perspective what you are paying to the company The other company is saying sitting back this is great we are  getting great deals from these guys and we are milking them at the same time. We are getting great savings on the cost/services we’re buying and we are milking the company on what they are buying from us. I think that it is always up for negotiation. Particularly even if you are in the center of the contract or the middle of the contract period, reopen it. If all the sudden you see yourself really out of whack with a particular supplier. My guess is that they’ll be a little push back but they’ll actually want to come and negotiate and be a good partner on both ends of it. But your sales organization can super super help you there. 

Smith: Are there any lines that you have to be careful not to cross in that stuff? 

Murphy: Yeah you definitely have to be careful in terms of determining the price and negotiating with the sales organization. You don’t want the sales org to go “hey we understand that you’re bidding on the stuff from here. And we will get you that bid on that company but you have to get us this.” You can’t have double dealing happening. That is completely unethical. But it does happen and so within your own companies. Your processes and how you operate as an organization, doing a lot of training with your sales organization and explaining to them why they cannot do that is very very important. It is something that Conrad was super tied into our sales organization, and our CRO at the time and Matt Thompson who was the CRO before that. I mean those guys all gave information to the procurement function. What can we do? What can we say what’s gray if it needs to be in the gray but what is the black and white. And I think we did a good job. 

Smith: Yeah, for sure. 

Audience question: What’s your view of insourcing vs outsourcing. I’d like to know from the company the size of Fox, which is not gigantic yet. And what did you see at adobe? 

Murphy: Well maybe we should talk about Qualcomm, there was a bit of outsourcing going on there. It depends. I feel like companies have philosophies around this and so my feeling is you should in-source your highest intellectual talents. So that you can absolutely have a competitive advantage for your product and services. And you should think about how you can efficiently outsource to an organization or company that can do things at scale and are able to leverage their buying power to be more efficient for you. But you also have to think about where that is. How they will interact with your company in terms of the business hours and things like that. How do you support the business? If you could go the other way and outsource so many, let’s say administrative things. But all of a sudden everything comes to a halt because you can’t get invoices paid. You can’t get legal terms edited quickly enough. You can’t respond to the sales organization quickly enough. It has to be a holistic view, philosophically what does the company need. And some of the stuff. I won’t say anything out of school about Qualcomm because it was pretty powerful at the time. But Qualcomm was very heavily located in San Diego. And employee engineers employee payroll employee accounts payable I remember when I went there and I looked at the payroll department and it was a large company. We had about 25 billion in revenue. But I looked at the payroll department and we were using an outside payroll service like ADP. But the payroll department was massive. I couldn’t think it was like 30+ . It was crazy. It was absolutely crazy. I’ve never seen that big of a payroll organization, I’ve seen an HR department maybe that big but not a payroll department. So that was just crazy and obviously it was an opportunity. I think I’m really understanding and I’ll back up why Qualcomm ended up in that position. So the founder of the company was Irvan Jacobs, he founded the company, he founded a number of companies, he founded that one and it blew up. His whole thing was he chose San Diego because he was a professor at UC San Diego. And he wanted to be part of the community and he wanted to employ people from the community and contribute to the community. So that’s how they ended up with such a concentration of employees 13,000 employees I think in san diego at that time over 40 some odd buildings and the real estate portfolio was incredibly crazy and when we got into trouble and we had the hedge fund get involved the activists what we were able to save by actually optimizing and offshoring and outsourcing certain activities that couple billion dollars that we took out of our operating expenses was not that hard. But it was painful culturally and so I feel like if you’re thinking about this more holistically around where activities should be done in source or outsourced you can avoid a very big culture shock to a company and continue to optimize your efficiency. 

Audience question: So Conrad, you mentioned that you guys worked together at adobe. And we talked about cost management and cost savings. And obviously there’s more value than that. That a sourcing team can bring. But what were some of the other ways that you measured some of those other things that are not as tangible. Cost management’s very tangible. But what are some of the other things that you looked at to measure the success of the procurement team? 

Murphy: Speed. Speed. Yeah responsiveness was really key. I think deploying technology within the organization was really key to helping Conrad and his team be viewed as valued partners because they were getting the support and the quickness of that. I think the other thing that’s really important besides just cost savings is understanding risk. Supply chain risk. Supplier risk, compliance risk. People in engineering don’t want to hear about it everyday. Manufacturing wants to hear about it. They are just trying to produce or trying to get products finished so that they can actually ship it whether it be software or hardware. Or physical products. So the more that you are contributing to their ability to move at speed but actually keeping them compliant along the way which protects the company that’s a strategic value add for me. Especially as a CFO and a board member. 

Smith: I think that procurement leadership has changed from being all about traditional Procurement to being procurement and risk. The title of CPO to me I think needs to go away and it is now procurement and risk the two of them have to come in hand in hand. This is a great question because I think traditionally it is so easy to say cost savings even with our own teams because it is measurable and I never really felt like there was a wonderful way to put it on a graph and chart it this idea of enabling business success. But what I always strived for is when the senior leadership of the company meets with the CFO. Do they complain about purchasing or they say we’re so thankful for purchasing because procurement actually enabled us to meet all these aggressive goals that you put in place for the business. We are so glad that the procurement team is in place. Invest a little bit more in them and there is a big crossover point where you have the trust that you’re talking about Linda. Where it goes from they’re in my way to I couldn’t live without them. And that to me is a big driver because you meet with your leadership team that’s everything right there.

Murphy: And that actually brings up a really good point. Often procurement is reacting to something that’s already happened or not even a crisis but wow this got away from me. Some CFOs are very protective of information and particularly the plan and they don’t want it getting out. I think that’s really a bad way of operating as a financial person. I feel like you aren’t leveraging the capability of a procurement organization if they’re informed what the plan looks like. What they can actually prepare for I was thinking just about when we ended up in various labor shortages and we’re scrambling for where we can get the right contract labor at the right skill level at the right price not overpay for it because we are asking at the last minute. Knowing that hey we expect revenue to grow x. That is going to require x engineers, programers ect. That requires x number of infrastructure capabilities and networking capabilities and all the things that go along to enable those people. If you understand that and you know when that is going to happen the procurement department can be like we’re ready we are ready to go and onboard them. But if you’re sitting there saying ok I just hired 300 people and I cannot get a laptop and that’s a problem that’s a real big problem. And I;m sure that has happened to us before. That to me is a missed opportunity for people in my seat, or my old seat. 

Smith: So I’m going to squeeze in a couple of questions. Advice for procurement leaders from a career perspective. Not everybody believes me, you don’t all want to be a founder. It’s not an easy path. But you kind of grow up through the procurement function. You’re in the enterprise, what do you think about as a procurement leader to add value and learn, whatever that is. What comes to your mind? 

Murphy: And he prepped me with that question and I gave it a lot of thought because I feel like I’ve always been a big believer that smart people can pretty much do anything. But there are the skill sets that procurement people bring to the table in terms of planning analytics negotiation and understanding costing especially without a doubt. So I feel like depending on a company you’re looking at if you want to broaden your skill set even just for a tour of duty if you will. Going into the engineering organization in a costing perspective. With a costing mindset because oftentimes they don’t like to do that part and they want to build and they want to get the budget and just build. I think in financial planning as well. I think that’s a very key component of understanding the downstream impact but a financial planning analyst is just doing the math. And then getting inputs from the business. And the businesses’ sand bag. They also ask for more than they need. And so that puts a lot of pressure on the whole company. For instance when we would be building a plan at adobe or at Qualcomm or wherever. Every business would ask for everything under the sun. And I’m like okay well that is going to increase cost 15-20% and we are only growing at 7 or 8% that’s not going to work the math is bad. we‘ll go bankrupt. Ok what do you absolutely need to achieve what we need on the topline. I feel like you can add a lot of value and process in the financial planning function just because you know the immediate impact of the cost that you’re contributing to or actually helping them save or you’re actually getting more efficient. That’s a career path that would be an interesting one to step into for a while that wouldn’t potentially depend on the company leading to a COO opportunity for somebody. Having the understanding of what it takes to deliver but how do you actually manage it financially is the most effective way. 

Smith: Cool thank you! I didn’t even think about the COO. One more question. Leadership lesson. Like what would you tell your younger self about leadership? To help you through the process

Murphy: I innately believe this as a person coming through public accounting because if anyone understands that world its like you’re hazed in the first 3 years of your entire career and I went to, which great prestigious firm and then you realize you’re working there for the first couple of years and you are like a grunt. Back in my day we were wearing nice suits. I’m in New York City. I’m feeling like I graduated. I made it and I’m like carrying boxes of paper all over manhattan in august in like 89 degree weather and 90% humidity and i’m sweating through my nice suit and I’m like this sucks! That to me was like we are wasting talent. And I kind of brushed the grain of the firm a little bit and kind of pushed back on some things that I felt like. Why do they go to school? In my case I had a lot of student loan debt at that point too. I needed to do something more productive and feel good about myself and so I ended up leaving the firm and I went to one of my clients and I realized that I had a great boss who trusted in my skills to be able to add value to the function I was doing at the time. And that evolved as I became a leader. Hire the best people, let them do their job, stay in communication all the time and do not micromanage them. And to me that is the best lesson possible because what you’ll see is that people are really creative. You end up working . Hiring someone that you’re micromanaging.They have to clear everything through you. And you’re not getting the most value out of them. And you’re not getting the best thinking out of them, And they become paralyzed in terms of creativity. And that is a real shame. The companies that do that end up hampering their own growth and when you see companies that allow people to have a bit of breathing room, responsibility, controlled responsibility. You end up with the better outcome.

Smith: Thank you John. You epitomized that with me I can tell you that it was really great to work with John. Thank you for taking some time with us!

Murphy: Absolutely, happy to be here!