Research Results: Improving the Alignment of Procurement and IT

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In part 1 of this series, I discussed the rationale for the Procurement-IT research study that I’m running in conjunction with the Institute for Supply Management, in preparation for the upcoming Global Procurement Tech Summit in Baltimore March 14–16. For most readers of this blog, I don’t need to explain the importance of having Procurement and IT being aligned, but if you agree that outsourcing and digitization (especially in the cloud) will continue as major trends, it’s a foregone conclusion. But, let’s see what procurement practitioners have to say, based on the first 150 validated responses in our data set, which is over 200 and growing.

Before I get started, let me say that I’m only going to be sharing a few insights here. The only way to get the full results is to either attend the GPTS, or for practitioners, to complete the study.

  • Overall, the relationship effectiveness between procurement and IT seems okay for most, but over one quarter of respondents still feel that the relationship is generally ineffective. It’s a mixed bag. So let’s dive a littler deeper.
  • The perceived effectiveness, or lack thereof, also correlates with the actual level of automation that procurement has been able to realize. Those with high effectiveness have been able to achieve an automation score of 53% as compared with a 35% score for those with ineffective relationships. This score was the average of scores for the following eight automation metrics we used:
    1.     RFQs/bids processed in an e-sourcing tool (not Excel)
    2.     Indirect requisitions created and approved electronically
    3.     Indirect POs sent electronically to suppliers
    4.     Invoices received electronically from suppliers
    5.     Contracts residing in an electronic contract repository
    6.     Line-item spend history that can be auto-classified to supplier, cost center, and category or commodity
    7.     Percent of strategic or critical supplier relationships in a supplier management app (e.g., supplier scorecards)
    8.     Percent of your suppliers using an interactive self-service supplier portal (i.e., supplier enter data)
  • As you might expect, the transactional metrics scored higher than the others, and the gaps were less between those with effective relationships and those without. The big differences, though, showed up in areas such as eRFX, contract management and spend visibility. The more effective organizations made sure that procurement received the tools it needed even though IT had its own objectives. In fact, only 23% of procurement respondents claimed that IT didn't let its own interests get in the way of maximizing procurement or business outcomes. We’ll discuss procurement’s internal “cust sat” of IT in a moment.
  • In terms of future technology focus areas, you’d think that the three non-transactional gap areas above would be the highest priority for future focus. And you’d be mostly right.  E-sourcing, a technology area that has been around forever, is the biggest area of focus.  E-sourcing takes work to implement — mostly due to change management — which is why there’s an entire session focused on that at the upcoming GPTS. Contract management comes in second on the priority list (over a quarter of respondents cite this as a major focus area). Interestingly, spend visibility is less of a focus, even though it is a major gap area, and perhaps this is because while foundational, it’s not an actual heads-down process workflow area.
  • Supplier management and self-service supplier portals sit at the bottom of the automation list, but supplier management is No. 3 as a major focus area. There aren’t really good standalone portal solutions in the market, but supplier management is indeed improving, and firms are finally starting to ditch their BASS systems (aka Big Ass SpreadSheets) for commercial offerings.
  • The “balance of trade” between procurement and IT is indeed real from an alignment standpoint. Procurement’s influence on IT correlates with IT’s influence on procurement, and both correlate with overall relationship effectiveness, which we saw above also correlates with level of actual digitization. The study also found correlations of these dimensions with procurement’s internal customer satisfaction that it receives from IT — I’ll describe these 12 customer satisfaction elements in a subsequent post — and also the level of adoption of 12 best practices that firms are using to gain Procurement and IT alignment (also to be covered later). But to net it out, both groups need to stay in close contact with each other, be involved in each other's planning, cross-fertilize resources between the groups, have adequate investment in whichever groups are funding or supporting the technology and have some basic metrics alignment.
  • The issue of resources and investment is, in fact, a big deal. In the study, we asked for the full time equivalents (FTEs) of IT support procurement — and also of procurement supporting IT. I’m still sorting this all out, but it’s going to be a very cool “bi-directional benchmark” of sorts. We also asked for a perceptual assessment of whether there was enough budget and resources, as well as a separate question on the extent that the technologies actually purchased were being implemented well. Not only that, we asked for the operating model regarding 1) who funded the technology and 2) who selected the technology. (Fascinatingly, one of these had a big impact on relationship effectiveness and the other had very little.) Each of these questions had its own RACI model of sorts.  Based on all this, we can diagnose the impact of under-funding, under-utilization and also under-performance due to a dysfunctional operating model. OK, so what? What we found is that resource levels do in fact have an impact — it’s not just complaining. We also found that resource levels matter depending on the operating model, but also in turn depend on the extent that the groups who are funded are perceived by the enterprise not just as cost centers.

I need to cut this long post here but will dive more deeply into the customer satisfaction elements and the best practices in subsequent posts. We’ll also cover how companies are actually overcoming these barriers. And I will include a nice quotable quote below to give you a flavor. Stay tuned and I hope to see you at the GPTS in a few weeks!

“Procurement must be able to create and communicate a long-term strategy that demonstrates how we will drive business success and how new procurement tools will enable this strategy. IT generally looks out one to three years to decide what projects to support. Each project must have a compelling ROI, and procurement must be able to support our requirements.”

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