Our data and innovation thought leadership partner, Ivalua, offers some practical tips to help leaders achieve their goals
As we entered the new year, no doubt, many of us set personal resolutions (64.6% of adult Americans according to a recent survey). Lose a few pounds. Save a little more each month. We do the same at work, typically in the form of management by objectives (MBOs). For procurement chiefs, that typically translates into saving a few percent here, improving efficiency there, and so on. At a personal and professional level, this is well-meaning and generally useful. But, as we get into February and some of those goals begin to fall away, it’s time to ask if we’re really aiming in the right direction.
The problem, typically, is a lack of ambition; a missed opportunity. And that comes from the incremental nature of objectives. We love incremental objectives. They are measurable, achievable and, most significantly, we know what we have to do to meet them. Good reasons, but they cause us to miss bigger opportunities. For procurement leaders, those missed opportunities can be great.
Businesses face tremendous challenges and uncertainty, from the disruption of entire industries and the potentially catastrophic effects of climate change to the painful toll of forced and child labour. How businesses spend has the potential to transform our world. This is especially true of large enterprises, which can carry such weight that their approach has global ramifications. Indeed, our approach can mitigate, if not solve, many of today’s most pressing problems.
Fortunately, there are companies that are already leveraging their spending to transform the world, or at least planning to do so. Ikea, for example, will share insights into their vision and plans for a sustainable supply chain at the Ivalua NOW conference in Paris this March. But for the most part, procurement objectives remain too incremental rather than transformative.
This is a shame not just for the social benefit. Businesses need not abandon nor compromise shareholder value in most cases. Many changes can reduce costs or risk at the same time as delivering improved CSR. With consumers increasingly looking to brands that align with their own values, thoughtful spend management and supply chain policies can deliver vast brand equity.
So how can procurement executives drive such change? Here a few tips I’ve learned from the most transformative companies.
The digitalisation of procurement and supply chain is an area that’s ripe for incrementalism – let’s onboard a few more suppliers, digitise a couple more processes, bring more spend into a platform, etc. It won’t necessarily change the world, however, just improve efficiency somewhat and bolster the bottom line. It is a critical foundation, though. It frees capacity for being more strategic, improves decision-making and, in some cases, drives meaningful social benefit.
Take the US healthcare industry, for example. Persistent and unsustainable cost increases are threatening public health and consuming budget that could be directed towards infrastructure, education and other worthy goals. The massive inefficiency also reduces the time staff have to treat patients, affecting the quality and availability of care. Innovative hospitals such as Baylor Scott & White Health are leveraging digitalisation as a key strategy to address these challenges, freeing caregivers to focus on patients and reining in unsustainable cost increases. They will discuss their approach at the US version of Ivalua NOW this May along with Cleveland Clinic, another innovator. This benefits the public, the hospital’s finances and its staff.
The key is to be ambitious in digitalisation goals and realise that 100% digitalisation across all spend, all suppliers and the full source-to-pay spectrum is both possible and essential. That is what drives transformative change. Recent studies by Forrester and Ardent Partners have shown that most companies struggle, with digitalisation generally being in the low-to-mid 30%. But leaders have achieved 100% – take CACI or Crédit Agricole for example.
Organisations that deliver truly strategic value consistently share one trait – procurement engagement with the business. It is absolutely critical to understand objectives and learn how spending and suppliers can be leveraged to achieve those goals. Ikea is supporting its global vision for a sustainable supply chain with board level alignment. Companies such as Meritor are driving innovation and improved supply chain alignment by working closely with other departments. The big ideas and the way to execute them rarely come from a silo – all stakeholders need to be involved.
Big ideas require new ways of working, who knows what the next big idea will be? The most innovative companies ensure they are agile enough to adapt over time. That relates to their talent – they seek change agents out. It relates to their processes, which need to evolve with the business. And it relates to their technology. The desire to achieve quick wins is natural and important to any transformation, but it shouldn’t come at the cost of future flexibility. Demand both. To free caregivers to focus on patients, Baylor had to ensure its system didn’t just digitalise office supplies but also the unique workflows involved in operating room supplies. With a rigid, generic system, the most critical processes could have never been digitalised, delivering incremental but not strategic value.
Although Sprint’s idea to maximise revenue on used handsets by running mass-volume forward auctions using their sourcing technology may not transform the world, it has is transforming the business having generated $1bn in annual revenue. This wouldn’t have been possible if the company’s sourcing technology was too rigid to meet Sprint’s scalability and volume requirements.
The president of JLL’s digital business will be delivering a keynote at Ivalua NOW to demonstrate how JLL’s spend and spend management technology is a cornerstone to its strategy and encourage the largely procurement audience to rethink how business gets done.
The leaders changing how business gets done select the team, processes and technology that deliver the agile capabilities required to meet unique or changing requirements when they arise and bring great ideas to life.
Let’s make 2020 the year that Procurement transforms your organisation. It’s not easy, but nothing worthwhile is. The world needs us – let’s not let everyone down.
Procurement Leaders is proud to partner with Ivalua to deliver insights and thought leadership on data and innovation topics to the procurement community.