This year marks the sixth year that the Beyond Group has held its Procurement Productivity Think Tank, in which we have dealt with top-of-mind issues such as supplier relationship management (SRM), innovation sourcing, next-level procurement skills and procurement digitalisation. Procurement is undergoing a fundamental transformation that will redefine its role and value to the modern corporation and these Think Tanks reach the heart of the issues behind this change.
The theme for 2018 built on the previous year’s output, where we recognised that pressure was mounting on procurement teams to launch digital programs that would drive more value and embrace this coming revolution. The focus for 2017 was to understand how Procurement teams were leveraging new technology to become more agile and efficient, but we realised few companies actually had launched a formal digitalisation programme. This led us to conclude that organisations should build and lead digitalisation efforts with less random experimentation and with much greater emphasis on aligning company (and procurement) needs with specific technologies that yield real benefits in a minimal timeframe.
We also recognised that while procurement teams were increasingly stepping away from transactional activities (a correct move in our opinion), they were also giving up control of who decides which system is used for operational procurement (a move we strongly advise against.) We therefore advocated that procurement should continue to be a key part of the teams that select operational procurement platforms – and have veto power. These decisions have often devolved to financial or operational teams that do not recognise that transactional systems are the foundation of collecting useable information and insight.
Given we had found few examples of companies that had a procurement digitalisation strategy and plan, we undertook the idea to propose and develop a digitalisation roadmap for procurement teams: a deliberate set of steps that embrace new digital technologies to enable greater value delivery without the dead-end investments in unusable or unnecessary tech and wasted time.
Thus, we launched the 2018 series: Deploying the procurement digital roadmap.
We first spent time with the many experts, futurists and practitioners from within as well as outside of our group to create a draft digital roadmap framework. Although the group was at least satisfied that our roadmap had all major elements in place and very likely in the correct order, like most models, when graphically displayed, have a tendency to show its limits as well as the hard truths it reveals. The step-by-step linear progression in our model very likely contrasts with the much sloppier reality in which no organisation can expect to smoothly glide from one stage to the next without being entangled in several steps at the same time.
The flow of our Think Tank followed the model and we spent our first session exploring the first four (foundation) steps. As in many other strategic processes, we try to look first at what the company is trying to achieve and then cast forward to understand the endpoint procurement needs to reach to meet the company’s objectives.
ALIGNING WITH THE COMPANY’S DIGITAL PLAN
Step one begins with understanding the company’s goals and aligning procurement objectives with these. It amazes me how many times we see organisations whose functional activities miss this single and critical element of alignment. Normally this misalignment does not take the form of a stated mismatch between functional and corporate objectives, but rather at the operational level – where myriad day-to-day tasking and reward systems incentivise behaviours and results that are in open conflict with the company’s stated aims.
From this alignment, the model calls for the next three steps that seek to define an endpoint procurement wants to go during the planning horizon.
WHAT WILL PROCUREMENT LOOK LIKE?
Step two suggests the function should actively define how it will be structured and be responsible for, once all of this digital tool-building has been completed. We know the journey will never end but defining some intermediate point, five years in the future, for instance, is a good starting point at which we can rationally understand what the function will continue to do and stop/start doing.
The next step takes that idea further and proposes that defining the new roles of procurement (and the converse – which ones will be unsettled) is foundational to understanding the gap between what exists today and what is needed for the future.
ACQUIRING NEW COMPETENCIES
The fourth step is about deliberate planning for developing or recruiting the talent needed to lead and deliver the digital future. True digital leadership skills are still scarce in today’s market.
It is important to note that all of this planning and alignment is done before any single digital technology is contemplated. At this stage, we are just assuming technology will be an enabling factor that will automate the function towards its objectives. Some further insights came from the first session:
In our second session, we concentrated on the stage at which leaders make technological choices and decide an investment path.
UNDERSTANDING THE DIGITAL PUZZLE PIECES
Step five is the point at which organisations should look closely at technologies across the various functions and match them with the problem they are meant to solve. In our previous steps, clear direction has been given to as to what the new technology must do and this step initiates the search process.
FOUNDATION AND ADVANCED TECHNOLOGIES
The sixth step takes the idea of understanding the technological menu one step further. While it may appear to be an amplification of the prior step, the group’s discussion exposed a fundamental issue: most organisations are still trying to solve the same problems they have been working on for many years. Procurement teams are still dealing with disparate systems, poor and unmanaged data, uneven global policy application, and incomplete implementations of previous rounds of source-to-contract (S2C), procure-to-pay (P2P) and SRM programs.
While digital technologies promise an evolutionary leap in efficiency, analysis and insight, building a technological castle on such a poor foundation simply begs for the same incomplete solutions of previous rounds of automation.
Procurement teams should evaluate technologies essential to their commercial success and separate them from more advanced technologies that rely on a strong foundation of data, data management, and effective lower level processes.
Step seven is the activity of choosing technologies to purchase and deploy. The critical notion here is that any technology has an associated cost of acquisition and implementation. If any system is to be cascaded throughout the company and driven deep enough to be meaningful, the business must make a sizeable investment. The decision process is, therefore, not just selecting the best technology – it is also committing to a specific investment path.
Deciding which technology is only part of the issue, gaining acceptance to make significant investments that will tie up company resources is a much greater commitment. However, it cannot be overstated that this is procurement’s chance to lead and gaining the approval of the CIO and CFO is a critical test of the plan’s solidity.
BUILDING DIGITAL READINESS
The only remaining issue is: can the procurement team lead the way? Digital readiness is a product of many things but clearly one of the biggest issues is that, in the words of one of our members, “procurement is trying to solve tomorrow’s problems with yesterday’s brain”. That is, procurement teams cannot call on digital thinkers and leaders to drive through a revolutionary digital implementation – they must have the internal capability to drive implementation, extract and use the insights from new technology, as well as also engage other digital leaders and internal resources.
During this session, useful insights were identified for considering the adoption of new technologies:
|Drive your process top-down. Clear governance coupled with realistic expectations is the surest way to substantial benefits.||Give away governance and technology decisions for P2P systems to other functions. This may solve process issues but often doesn’t lead to better insights.|
|Widen the talent net and hire tech leaders within procurement that are not bound by a ‘procurement mindset’.||Continue to rely on legacy systems, investing further time and resources and delaying the inevitable migration.|
|Start with a problem and focus on issues that you want to solve, and do not try to ‘float all boats’.||Prolong the use of outdated processes and automate instead of transform. Digital technology demands new processes in order to capture benefits.|
|Accept that there will be failures, even in a well-governed environment.||Ignore the basics, as cleansed reliable data and robust governance are foundation elements that cannot be ‘jumped over’.|
|Build cross-functional integration as a way to get more people with ‘skin in the game’.|
In our model, we suggest implementation takes place after step 12. However, this is the place where most companies begin the implementation journey; the goal has been set, the organisation prepared, technologies have been prioritised, and an investment plan has been agreed, so everything is set to go. While this is true, the organisation must solve other key issues to derive the full benefit of the digitalisation process.
We acknowledged procurement technology exists within an ecosystem of other systems and structures and wherein its use may be subdivided across several organisations. The third portion of our roadmap fully embraces this notion.
INTEGRATE INTO ORGANISATIONAL ROLLOUT
Step nine proposes procurement organisations seek the broadest support for their technology implementation strategies. In practical terms, we advocate organisations place the procurement rollout within the broader context of a companywide digital technology deployment. Limited rollout efforts that treat the procurement portion as a separate and distinct effort have a tendency to lose momentum and executive visibility.
We then come to a step that is critical to the issue of effectiveness of the procurement technology. That is; what is the organisation structure and who will be responsible for its use and performance. Specifically, will the procurement technology (particularly fundamental processes like data management, S2C, P2P, and SRM), be held within a general Business Services function?
APPLY IN A GLOBAL BUSINESS SERVICES ENVIRONMENT
Most large procurement organisations are either giving away the operative procurement activities to a global business services (GBS) function or have been entirely absorbed by one. Such functions have a tendency to focus on efficiency without recognising that the insights to make better buying decisions are an equally important output.
The increasing trend of moving part or all of procurement functions into GBS structures, in our opinion, moves the procurement function further away from internal clients and results in buyers focusing less on strategic issues and more on operational performance. Whether this trend diminishes the strategic role of procurement is not at issue here, but the critical questions we focused on were:
Respective takeaways from these discussions were:
BUILD COLLABORATION PLATFORMS AND MANAGE THE WIDER ECOSYSTEM
The final steps in our roadmap are opposite sides of the same coin. Step 11 proposes that procurement functions ensure collaboration platforms with external entities are constructed and effective. True collaboration is the capstone of the procurement cycle. The depth of this collaboration is much more than the traditional SRM platforms that seek to measure and improve supplier performance. Collaboration platforms imply that the buyer and seller collaboratively search for new value and innovation, implying both a technology platform and systemic facilitation embedded throughout the company.
Step 12, meanwhile, implores procurement teams to reach beyond their own organisations and more effectively work towards the business advisory role to which the function has long aspired. While this final step may partially be enabled through technology, the larger issue is technology is displacing the traditional role of procurement. Connecting to the wider ecosystem means that procurement must redefine and rebrand itself to internal clients as well as rewire the collaboration model beyond the company walls.
Digitalisation offers up a world of insights and operational benefits that the function has never been able to fully claim on the back of its prior automation efforts automation. The quality of available technology is already transforming the role of the function and is likely to completely redefine it in the next several years. The efforts we have seen so far, however, in spite of them being truly revolutionary, have often been more random forays into this very complicated landscape. A roadmap model that helps organisations understand where they want to go and what they want to achieve and thus tailor a technological solution to those problems, can make the journey less of a haphazard affair.
There comes a point at which most global procurement teams will have led their organisations through a digitalisation process wherein a significant portion of the procurement process is automated, robotised, augmented with artificial intelligence (AI) and, as much as possible, without human intervention. Procurement will have moved from using descriptive data in a reactionary way towards using predictive data in proactive ways underpinned by a fully automated process. While this is a wonderful state of affairs, it is easy to see the technology will replace the vast majority of the function’s current role.
Virtually every process that procurement teams now ‘own’ can be robotised adding AI into this equation creates an automated procurement function that is better informed, more commercially adept, more objectively analytical and quicker to manage processes. What then for the function? Is it simply evolving towards an automated function watched over by a few technologists to keep the whole thing running or is there still a place for human intervention, intuition and guidance in the form of a supply base advisory service?
These are big questions procurement professionals will need to answer sooner rather than later. We have already seen many organisations downsizing their strategic procurement teams in favour of offshored or outsourced processing houses that are doing a great deal more than simply managing the requisition-to-pay process. Through digital enablement, they are steadily taking over the traditional ground that has been the foundation of the procurement function for many years. The question we ask is, how does procurement continue to add value in this new landscape, and that is precisely what we will investigate in this year’s Think Tank – A new dawn: Redefining procurement’s contribution in a post-digital world.
If you are interested in finding out more about any of the topics touched upon in this article, contact the Beyond Group at firstname.lastname@example.org
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.