Exploring Big Data and Procurement Leveraging McKinsey’s Foundational Analysis (Part 1)

Over on Spend Matters PRO (our subscription research service), we've already started a detailed series looking at the big data and procurement. We won't repeat our detailed analysis on our public site (aside from sharing some series excerpts here and there to whet the appetite for the level of insight we're attempting to provide). But what we will do is leverage a foundational analysis that McKinsey conducted in 2011 considering the case for big data, describing it in their study title as "the next frontier for innovation, competition, and productivity."

Within this analysis, McKinsey summarizes their findings by suggesting that there are "five broadly applicable ways to leverage big data that offer transformational potential to create value and have implications for how organizations will have to be designed, organized, and managed." The five "broadly applicable ways to leverage big data" that McKinsey suggests are:

  1. Creating transparency
  2. Enabling experimentation to discover needs, expose variability, and improve performance
  3. Segmenting populations to customize actions
  4. Replacing/supporting human decision making with automated algorithms
  5. Innovating new business models, products, and services

In the published McKinsey study, procurement barely factors into the equation, even within the five categories, at all (it's disconcerting, in fact, the lack of examples and mentions). Yet the five referenced ways to leverage big data overall each contain a range of implications for purchasing and AP, let alone broader supply chain (which does factor somewhat into McKinsey's analysis, at least more so than procurement).

In a series of posts considering McKinsey's analysis, we'll look at each of these in more detail, starting post with "creating transparency." As Spend Matters readers consider this series on big data, we would like to suggest the importance of looking at big data as part of a broader means of overall procurement transformation, not simply extending functional tools such as spend analysis or shared benchmarks. Indeed, big data can -- and should -- be as important to procurement as the advent of strategic sourcing was. But unlike process-driven approaches to improving the function, the ability to successfully leverage big data in procurement requires the right talent, resource allocation, IT savvy and functional charter as well.

- Jason Busch

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