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Ahead of Procurement Leaders’ Data Intelligence & TechX London Forum in November, Julian Birkinshaw, professor of strategy and entrepreneurship and deputy dean at London Business School, shares his insights into how businesses and their procurement functions can better prepare themselves for a disruptive future.
Procurement Leaders (PL): How are companies failing to make themselves fit for the future?
Julian Birkinshaw (JB): Successful companies have a habit of becoming very good at one particular thing and, even though they can see the changes in the business environment around them, they are often incapable of responding and adapting accordingly.
Every industry is littered with stories of established, well-known companies failing to reinvent themselves and subsequently being beaten up by startup firms and other new companies entering the marketplace.
When we look at what is holding these established companies back, I think there are three main factors. The first is that businesses fall into what we call ‘competence traps’ where they are doing something they enjoy, have always done it and do it well, regardless of whether their customers are still asking for that product or service.
The second is getting stuck in a web of existing relationships with suppliers and stakeholders and being too afraid or unwilling to break from these old ways of doing things and trying something new.
The third is all about mindset and the way the business begins to believe its own hype about the company and its products and, as a result, ignores anyone that challenges it.
Overall, established businesses have the assets to remain relevant, but these three factors create a sort of ‘success syndrome’ that can mean firms fail to adapt.
PL: What role do procurement teams need to play in making sure the business is fit for the future?
JB: Procurement professionals stand at the frontline. They are in constant communication with supplier organisations, such as startup companies and small businesses, who are coming up with innovative ideas and challenging established thinking. This puts the function in a position where it can pick up early warning signs of how things are changing long before the rest of the business. It is important to be tuned in to those early signals and listen to these suppliers as they can inform the business of new trends or of what competitors are up to in their space.
PL: How can individual procurement executives drive these changes quickly?
JB: Every employee has a formal position in the business they operate in and this hierarchical structure creates a long drawn out process, which means businesses are slow to respond to change.
‘Adhocracy’ – a term I have coined – turns this idea around and argues to pick up the pace in a fast-changing environment, a business needs to take action and be entrepreneurial first and foremost, rather than waiting until formal processes are in place. For procurement, this means making the function more open to working with new suppliers and trying them out in a low-risk way before undergoing a long onboarding process to bring them into the supply chain.
This also requires a procurement professional who is ambidextrous in that they can optimise the existing supply chain on the left side while also being alert to how the business environment is changing on the right, to help the business reinvent itself in line with what is happening at the time.
PL: In the era of Big Data what do CPOs need to know about procurement analytics?
JB: You can’t ignore the vastness of data now available in the world, and lots of service providers and platforms are there to help procurement teams analyse it. But my advice would be to approach this data with a degree of caution because of what I like to think as ‘the dark side’ of data. If procurement professionals become slaves to technology and the analytical engine, then they can run into ‘analysis paralysis’ – where people love data and analytics but there is so much of it they hit a point where they are unable to do anything with it.
It is crucial to be aware of the limits of analytics as well as the benefits, and recognise every business decision must be made through a combination of both analysis and intuitive judgements.
Analytics is data driven and provides confidence in the decision-making process as it is accurate and numerical, while intuition draws on real-life, subjective experiences. There must be tradeoffs between making decisions based on data and based on experience.
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This article is a piece of independent writing by a member of Procurement Leaders’ content team.