Procurement teams face two very different and challenging objectives: the need to improve efficiency and do more with less; and mastering new digital technologies.
These challenge demand different resources, different ways of thinking and different leadership approaches, which can leave procurement teams in an almost untenable bind. Essentially, functions need to contribute more without the necessary capabilities to assimilate new technologies that could help solve those issues.
This was why, in 2017, the Beyond Group focused the fifth of its Think Tank Series on growing digital and agility capabilities to drive efficiency in procurement. Along with a dozen member organisations, we looked at:
We spent our first session probing the issue of agility and the elements procurement teams need to master. The conversations suggested it is not just about flexibility but, rather, a never-ending cycle of thinking-planning-action – all in a devolved approval matrix. To find out more, read my blog Agility – Making flexibility look like the plan.
We were able to identify the four pillars of procurement agility: anticipation; analytics; responsiveness; and collaboration.
Nowhere did the notion of digitalisation emerge as a leading activity for procurement chiefs to pursue in order to develop an agile function. Rather, the group recognised that while digitalisation underlies many of the elements that procurement needs to master, in and of itself, digitalisation is only a tool that enables agility. When viewed in this context, the rush to become digital is less of a frenetic all-out race to do something digital and more a selection from a menu of enabling technologies that will help most teams achieve their business goals.
To tackle the digital topic, given the lack of overall maturity and a dearth of best practice examples, we sought the latest thinking from a broad spectrum of experts and companies operating in this space.
We worked closely with advistory firm EY to get a handle on the impact of digitalisation on procurement. EY presented its model, which links the concept that new technologies are the foundation of operational and tactical activities with a recognition that these technologies exist in a world driven from the top and aligned with functional and organisational strategies.
While procurement is tasked with dealing with a broad range of new technologies, however, it must also continue to focus on its traditional mandates.
Bertrand Maltaverne, JAGGAER’s ‘procurement digitalist’, challenged the group with a perfect storm analogy. As procurement evolves towards digital mastery, it must still manage complex supply chains, reduce risk, become more efficient, expand its influence and become a trusted business adviser. The enormity of these tasks has created a prioritisation conundrum for procurement teams.
The depressing upshot of this problem is that procurement teams have not taken a leadership position with respect to digital technologies, opting instead to be a receiver of mandates that result from broader digital technology implementation efforts. The data shows most functions are either unprepared or have taken a ‘wait and see’ approach to digital technologies.
Organisations that have started to use these technologies were found to have adopted them in a haphazard or uncoordinated way. The sheer number of available technologies that must be evaluated for their utility and then implemented seems to have prevented the function from plotting an effective roadmap. Not knowing where to go means functions are unable to move forward.
The issue, of course, is twofold. First, there must exist specific knowledge within procurement about the technologies that are available. Secondly, the leadership team must be aware of those technologies and how they fit together in the strategic landscape. Then, and only then, can a framework be developed to prioritise how and when to implement any chosen solution.
Today, most procurement organisations are not rising to the challenge in either of these areas.
While many of these technologies are becoming standard, the fact remains many teams are either addressing these technologies in a piecemeal fashion or are not at all. Often, the digital solutions that promise the quickest way of making transactional processes more efficient are no longer within procurement’s brief.
These activities have been subsumed into other, often larger, business service functions. While we have long been advocates of moving transactional activities to other functions, the continued erosion of procurement’s remit – combined with automation technology – could easily foretell the doom of the function as we know it.
The logical conclusion is that procurement steadily evolves towards a two-tier function – one where an enhanced set of operative activities is managed through digital technologies and another is much more strategic, focusing on issues such as supply continuity, risk management, collaborative value creation and sourcing innovation.
Several recent reports, including Michael Henke’s work with the Fraunhofer Institute, Procurement 4.0: The digitalisation of procurement, notes this trend.
The issue for the functions that embrace the digital revolution plan is how they can develop an effective roadmap that ultimately puts and keeps them in the driver’s seat.
Much of the discussion, both inside the Think Tank sessions as well as wider conversations, centred around this topic. From this, a model was developed to show how organisations move from the lowest level of automation to a fully digitalised environment.
The model seeks to describe the journey procurement organisations are taking by acquiring new technologies and skills. One path leads towards excellence in operational activities and the other fulfils the need for greater insights to make more strategic decisions.
Our membership vigorously challenged us to collectively build a real-world model of how organisations must construct a digital path forward. A particularly useful insight was that no organisation can progress separately upwards through either of the technological towers onward to a digital nirvana.
The real-world path is one that is not sequential. Organisations need to cross from one tower to the other as knowledge is gained in one arena, operational efficiency, that supports the objectives of the other tower – the application of better insights.
The implication of this is that while procurement teams should be stepping away from operational tasks, they cannot separate themselves from the decision-making process through which technologies will be acquired. The technologies that will drive operations in the future will be the foundation of new insights. Procurement teams must be in a position to decide which of these technologies get purchased.
The foundation for creating a digital pathway should always start with a fundamental ‘why’.
It is important to identify the strategic digital imperative that must be addressed, such as increased customer satisfaction, better innovation, improved quality and higher margins. Only then can an organisation begin to decide which technologies to adopt.
TOWER ONE: OPERATIONAL EFFICIENCY
TOWER TWO: DATA INSIGHTS
Automation tends to begin at the individual or functional level – stages one and two of the operations tower. This allows teams to gather and analyse data while freeing up resources to use data for descriptive and diagnostics insights – stages one and two of the insights tower.
From better data, smart flows and RPA can be developed, releasing more resources, which can increase the amount and quality of data to enable predictive insights – stage three of the insights tower. In turn, this allows further progress to reach the top of the two towers. This develops into a continuous improvement loop between cognitive/AI technologies, which enables progressively more complex prescriptive insights.
At this point we consider a function to be digitally enabled.
The group’s discussions also centred on the skills required to drive digital forward. Few procurement functions have a digital strategy or roadmap in place, partly due to the broad range of technologies now available.
Even fewer functions have the right talent and leadership in place to run a digital transformation. It is imperative procurement chiefs builds their own digital roadmaps to address specific technologies in a sequential format, one aligned with the company’s overarching digital strategy.
It is essential to understand, recruit and develop specific digital skills at all levels and recognise these skills are usually most lacking within the senior leadership team.
A recent publication by the Hackett Group, The digitally savvy CFO, outlines the issue clearly. The same thing stands for procurement.
We fully concur that there are four key attributes required from procurement professionals to adequately embrace and drive the digital transformation:
In looking at the level of digital progress within procurement, a picture emerged that is consistent with other studies.
Digital procurement 2017: Just hype or the new standard?, published by JAGGAER, found approximately half of those surveyed already have the basics covered. They use e-sourcing, e-procurement and supplier relationship management solutions. The study also found their next priority for investment is how to get better insights from their digitalised core processes.
These organisations are on the path highlighted in the digital roadmap model:
Digitalising processes is a massive opportunity – real challenge is to integrate technology and
insights in a way that is both progressive and supports business needs.
Too many organisations view the automation of processes as an endpoint in itself without reaping the strategic benefits from the insights gained. Sadly, the outputs of automated processes do not automatically link to the strategic processes that depend on them.
An inability to ’connect the dots’ has huge consequences for procurement. Functions either spend a lot of time manually collecting data or simply do not use it because it involves too much effort. This affects effectiveness.
Such issues are especially critical in category management, where decisions are complex and relyi on multiple dynamic factors and inputs. Having complete, up-to-date, real-time information is required to become truly agile. It is the Holy Grail that organisations should target with their digital roadmap more than the simple automation of processes.
The digital enablement field is wide open, with no right answer on the way to proceed. However, there are things procurement chiefs can do to plot a way forward. CPOs must first define a roadmap for change and align it with enterprise-level digital transformation initiatives. This involves three steps:
While we closed out 2017’s series acknowledging that most organisations are at the beginning of their digital journey, it appears procurement teams have an intense desire to lead this effort in concert with the organisation’s overall digital strategy.
Giles Breault is the cofounder of The Beyond Group, a specialised advisory firm that focuses on how organisations develop and transform their procurement and productivity functions. He was previously global head of productivity at Novartis Pharmaceuticals.
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.