In May 2019, I wrote about the importance and overall success factors involved in digitally transforming procurement. Virtually every procurement organisation has started or is planning to start this journey, given its importance to meeting the function’s ever-growing list of objectives.
Yet too many functions struggle. More than three-quarters (82%) of respondents to a recent Forrester survey on Executing a Successful Procurement Transformation said they had switched their technology or plan to switch during that transformation. That is a costly effort in terms of budget and time. Interestingly, the challenges encountered differ significantly based on the stage of transformation. Therefore, I’d like to take a deeper look into the success factors at each stage in what will be a three-part blog series.
Let’s start at the beginning. As many explorers will tell you, the first step on any great journey is the hardest. Therefore, it is unsurprising that many organisations struggle to get started. Various obstacles block progress. The Forrester study found the top two challenges for beginners were a lack of executive support and insufficient budget – for people and technology. This makes sense as the laws of physics apply to large organisations as well as particles. An object at rest stays at rest. Breaking this inertia, especially for something as significant as digital transformation, is rarely easy.
Executive support is key and directly correlated to obtaining sufficient budget. There is a simple, but not an easy, answer here – leadership. The most successful transformations I have seen are all spearheaded by a dynamic leader. The one tried-and-true approach is for procurement leaders to build and sell the business case. There certainly is sufficient data to support such a case and plenty of examples of the benefits. The return on investment (ROI) is overwhelming. Piramal Glass, for example, saved an average of 19% on indirect costs in each of the first four years of their transformation. An above-average result but it’s not rare – at least not with the right strategy.
Executive support and budget are challenges that leaders must step up to. If your CFO or CEO responds better to analytical business cases, build one. If they respond to examples, find the most relevant ones. If the fear of falling behind competitors pushes them to act, find out what your competitors are doing, or take Forrester’s new self-assessment to gain a third-party assessment of how you stack up against your competitors. Or point out the cost to the organisation of a recent problem that could not be addressed due to a lack of digital maturity.
One or more of these are almost always sufficient to win executive support and associated budget, with the right engagement. Leaders must learn what works. Don’t forget the best, and free, source of support for whatever approach you decide on – technology vendors. They want to sell you their software and have reams of examples, reports and data they are more than happy to share to help you make your case, at no cost. Make them work for that sale.
Many organisations get past these challenges but then struggle to realise the promised value. Besides hurting the business, such a result is a particularly poor way to establish your credibility and build the case for further investment. Some of this comes down to not having organisational support aligned. Engage IT early and ensure you have their support, plus prepare your team. Doing so will maximise the chance of deploying technology successfully.
Properly evaluating technology is also essential. You want technology that can deliver significant value quickly. That means it must deploy in a reasonable time, integrate well, have strong capabilities and be easily adopted – by users and suppliers. Be careful of being unknowingly forced into permanent trade-offs. A common one is deploying quickly versus having flexibility. Insist on both. If you can deploy the software quickly but only with a solution that lacks the flexibility to meet unique or changing requirements – do you think you know exactly what your requirements will be next year? – you are very likely to find yourself at a roadblock. You certainly won’t maximise value.
Prepackaged best practices are great, but not if they are all generic. Many best practices are indeed common and you want those prepackaged as much as possible, but some vary, due to industry or your unique organisation. Hospitals in which surgical products are used before they are ordered have very different workflow requirements from others. Banks that face unique compliance requirements need software that supports those. Beyond industry, a decentralised organisation facing local regulations and teams has different requirements from a centralised one. The list goes on, and don’t underestimate the importance of the small percentage of unique requirements or overestimate the ability of specific technology to meet them. Industry solutions can meet many unique requirements quickly. Software that is configurable lets you meet and prevent you from becoming a slave to your vendor’s roadmap, pleading for critical enhancement requests.
As I mentioned in my earlier post, details matter when it comes to technology. Dig into them. For example, it seems logical to assume enterprise resource planning (ERP) vendor solutions integrate most easily and seamlessly with the core ERP systems. In reality, independent vendors often integrate better, especially when multiple ERP instances exist and certainly when more than one ERP system is involved. Just look at the cautions noted for the ERP providers in the latest Gartner Magic Quadrant for P2P suites.
A large supplier network sounds like a ticket to quick supplier onboarding but, in reality, the vast majority of suppliers always need to be onboarded and the real success factor is ease of onboarding and a lack of fees, limits, conditions.
Last, always keep your end goal in mind. Driving quick wins and proving the case for further investment is key when getting started, but what will maximise value over time is being able to quickly progress in your transformation, to achieve best-in-class procurement, and eventually go beyond to build a true competitive advantage. If companies effectively plan for the challenges at each stage of transformation from the start, they can accelerate their journey.
My next post will look at key factors in rapidly progressing to best-in-class. In the meantime, if you’d like an objective perspective on your procurement maturity and how you can accelerate your journey, take the free Forrester Self-Assessment.
Alex Saric is CMO at Ivalua.
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. This is published as a piece of sponsored content, published in partnership with Ivalua.