Tackling Procurement’s Digital Transformation Capability Gap

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Technology is a double-edged sword. Or at least according to the executives surveyed in the 2017 edition of The Hackett Group’s annual Key Issues Study.

While most procurement organizations think that the “march to digital” will bring fundamental changes to the way their services are delivered, few consider themselves prepared. In addition, executives cited cybersecurity as their top business risk for 2017 — and they expect it to get worse.

In 2016, intensified competition was the highest-ranked risk. This changed in 2017, as 47% of executives named cyber and information security as a high business risk, up from 33% in 2016. Competition, in contrast, sank in perceived importance from 47% in 2016 to 41% this year. When the executives were asked to anticipate what will be high business risks in two years, two-thirds of them picked cybersecurity.

However, as The Hackett Group points out, the top four cited risks — cybersecurity, intensified competition, disruptive innovation and access to critical talent — are “all related to structural transformation of the business, which in today’s world is inevitably digital in nature.”

Closing the Capability Gap

As mentioned earlier, most of the study respondents — 84%, to be precise — think that digital transformation has big changes in store for procurement in the next three to five years, but only 32% have developed a strategy for getting there. And while 89% think that digital transformation will change the talent and leadership needs of their business, only a quarter have those needed resources and competencies today.

Clearly, there is a sizeable gap between procurement’s perception of its current capabilities and what it needs to have in the near future. Compared with other critical development areas, supporting digital transformation is the one procurement is currently least prepared to address (see figure below).

Courtesy of The Hackett Group

The Hackett Group recommends that procurement organizations wishing to close this digital capability gap concentrate its efforts in four areas:

  • Improving the stakeholder experience. If your procurement organization is already world-class and has achieved all of the cost savings and efficiency improvements it can, increasing stakeholder satisfaction is a good goal to pursue.
  • Orchestrating a procurement-as-a-service portfolio. Move toward a more agile procurement-as-a-service operating model. The Hackett Group recommends rebranding the procurement organization to increase awareness and influence among stakeholders.
  • Setting a foundation of analytics-driven insights. Proficiency with big data will be crucial for procurement. More than half of the study participants think that improving procurement analytics will be a bigger priority this year than in 2016.
  • Using technology to accelerate transformation. It goes without saying that technology is at the core of digital transformation. The Hackett Group recommends finding the right mix of suite and niche solutions and staying flexible when new technologies emerge.

The digital capability gap is as much a challenge as it is an opportunity for procurement to improve. In the report’s conclusion is a list of questions for procurement to ask itself. Below is a question from each of the four categories.

The category: Digital stakeholder engagement

The question: Have you segmented the stakeholder base to better understand needs and wants?

The category: Digitally-enabled workforce

The question: Has training been modernized to take advantage of new digital formats?

The category: Digital service orchestration

The question: Is there a vision for delivering procurement-as-a-service?

The category: Insight-driven enterprise

The question: Do you have a plan in place to deliver predictive forecasting in areas like commodity volatility and risk?

I recommend that you check out the report for yourself for the full list of questions, as well as for The Hackett Group’s detailed recommendations on closing that pesky digital transformation capability gap.

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