According to The Hackett Group’s 2017 Key Issues Study, 84% of procurement organisations believe that digital transformation will fundamentally change the way their services are delivered over the next three to five years. Yet only 25% say that procurement has the right resources and competencies today to execute that transformation. Nevertheless, the enterprise’s “march to digital” continues unabated, with double the number of respondents reporting transformation initiatives are under way this year. If these projects are to succeed, procurement will need to hone its own capabilities and apply them to guide business stakeholders in their own transformations.
A Critical Area for Development: Supporting Enterprise Digital Transformation
The ultimate measure of procurement’s performance is its ability to support the company’s overall business strategy. Doing so will require some procurement organisations to make far more than incremental changes. But with procurement’s operating budgets expected to grow by less than 1% in the coming year, only a select few of the highest-priority initiatives can be funded.
In this resource-constrained and risky environment, business services (IT as well as finance, HR and procurement) are united in their 2017 goals of improving agility, responsiveness and customer-centricity, and supporting enterprise digital transformation.
While respondents to our Key Issues Study rated support for these business objectives as highly important, they also acknowledged that their ability to address them effectively in the coming year is low. The intersection of these two ratings forms the “critical development zone” in The Hackett Group’s capability priority grid (Fig. 1). Any capability that falls in this zone requires urgent improvement. It is therefore a great concern that the critical development area that procurement is least prepared to address is supporting enterprise digital transformation objectives.
How Procurement can Close the Digital Capability Gap in 2017
Other data collected in the study sheds light on why digital objectives dominate the critical development list. Function leaders in general (and procurement leaders, even more so) expect that digital transformation will fundamentally alter their companies’ business models, operations, product portfolios and competitive landscapes – hence the high importance ratings. But far fewer are confident that the enterprise and their own function have the strategy, resources and competencies to execute the transformation. For example, only 25% of respondents from procurement organisations believe their companies have the resources and competencies to execute transformation (Fig. 2).
To close the digital capability gap in 2017, procurement must prioritise its efforts in four key areas (Fig. 3):
• Improving the stakeholder experience.
• Orchestrating a procurement-as-a-service portfolio.
• Setting a foundation of analytics-driven insights.
• Leveraging technology to accelerate transformation.
Priority #1: Improving the Stakeholder Experience
While essential for all procurement teams, improving the stakeholder experience is especially important for world-class organisations. These groups have reached the point at which most of the significant opportunities for cost savings and efficiency gains have already been unearthed, making identification of new sources of value essential. Raising stakeholder satisfaction will build trust and help procurement gain the organisational permission to take on higher-value work.
To do so, a structured approach to improving the stakeholder experience is most effective. It requires rebalancing the service portfolio to focus on the areas with not only the highest demand but also the most potential to contribute to company revenue. Success will hinge on procurement’s ability to:
• Build an omnichannel and personalised stakeholder experience, including enabling multiple buying channels, and making them available anywhere/anytime to stakeholders
• Deliver value beyond savings
• Segment the stakeholder community to find the right service level mix
Priority # 2: Orchestrating a Procurement-as-a-Service Portfolio
An "as-a-service" portfolio refers to streamlining the buying experience and creating an organisational model that permits procurement to be closely aligned to its primary stakeholders so it can react quickly to changing requirements. To achieve this, procurement must: • Develop a well-balanced portfolio of sourcing and purchase-to-pay service offerings • Rebrand the procurement organisation to increase awareness and influence • Optimise use of Centres of Excellence (CoEs) and placement of resources globally.
Priority #3: Setting a Foundation of Analytics-Driven Insights
As procurement’s role matures from transactional facilitator to trusted business advisor, proficiency with the next generation of analytics – a.k.a. “big data” – will be a key enabler. Big data has been a game-changer in customer analytics, offering an unprecedented ability to quickly model massive volumes of structured and unstructured data from multiple sources. Over half of study participants indicated that they expect improving procurement analytics to be a higher priority in 2017 than in 2016 (Fig. 4).
To take full advantage of advancements in analytics, procurement must: • Invest in training for analytics CoE and special projects teams • Deliver new forms of market intelligence • Mitigate risk through predictive forecasting:
Priority #4: Leveraging Technology to Accelerate Transformation
Technology is at the heart of any digital transformation. For example, business-to-business networks make it possible for trading partners of differing levels of technological sophistication to work together. They provide the platform for an ecosystem of source-to-pay applications supporting not only order and invoice automation, but also regulatory compliance, risk and corporate social responsibility. To ensure a success transformation, procurement must:
• Find the right mix of suite versus niche software solutions
• Build flexibility into the roadmap to take advantage of emerging technology
• Help improve technology sourcing for the company
Conclusions and Recommendations
If procurement is to remain relevant in 2017, it must embrace the tenets of digital transformation as discussed in this report. A lack of confidence by the business about its ability to execute digital transformation brings procurement both opportunities and challenges. By addressing its own shortcomings in capabilities and resources, procurement can transform as a function and strengthen its role as enterprise transformation enabler and advisor.
Procurement leaders should ask some hard questions (Fig. 5) to assure themselves that steps are taken to avoid being left behind as the enterprise moves toward digital transformation.
A complimentary version of the full research described here is available for download, following registration, by clicking here.