Procurement’s Digital Transformation Goals Not in Sync with Development Priorities, Hackett Study Finds
Digital transformation is making it easier for procurement organizations to “do more with less,” according to newly released research from The Hackett Group consulting firm. However, as bluntly stated in its 2019 CPO Agenda: Building Next Generation Capabilities report, “Procurement’s transformation agenda is poorly aligned with its most critical development priorities.”
The procurement industry, according to the report, remains under pressure to act on its critical development priorities for 2019, including improving analytical capabilities, aligning skills and talent with business needs, leveraging supplier relationships, enhancing agility and achieving true customer-centricity.
“The gap between awareness and capabilities in digital transformation is not unique to procurement,” said Chris Sawchuk, principal and global procurement advisory practice leader for The Hackett Group. “We’ve seen similar results in finance, HR and even IT.”
Yet it is disconcerting to see, he added, that many procurement organizations are moving ahead in this area without a comprehensive plan or the requisite talent.
“This is simply not a recipe for success,” Sawchuk said.
The Hackett Group’s research showed that nearly 85% of all procurement organizations believe that digital transformation will fundamentally change the way they deliver services over the next three to five years. The use of cloud-based applications, advanced analytics, robotic process automation (RPA), mobile computing and big data are also expected to grow dramatically, the study found. Yet only 32% of procurement organizations currently have a formal digital strategy and only 25% have the needed resources and competencies in place today.
The research also found that procurement organizations are showing a renewed and expanded focus on strategic sourcing and spend management in response to concerns about a broad range of business risks. The top four areas of projected risk — 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 and driven by technology innovation.
Adding to these challenges are resource constraints. The study found that procurement operating budgets are expected to grow by less than 1% in the coming year, requiring procurement to prioritize and self-fund their goals of improving agility, responsiveness and customer-centricity, and supporting enterprise digital transformation.
“Procurement has been focused on agility for several years now, and today, digital transformation is clearly a strong way to enable that, while at the same time improving efficiency and effectiveness,” Sawchuk said. “But procurement leaders need to make sure they are aware of the technology that’s out there, understand which ones they want to focus on first, and build a foundation on which they can move forward.”
According to the lead author of the research report, Hackett Research Director Laura Gibbons, failing to address these critical development areas poses a significant risk.
“For example,” she noted in a news release, “we see skills and talent as a particularly critical risk factor. Procurement has begun to truly invest in digital transformation, but if it doesn’t have the right people in place, digital tools could end up being misused or wasted. You need the right people, with the right skills in place, to take full advantage of what digital transformation can offer.”
This same issue holds true in several other of these critical development areas, Gibbons said.
“Agility is critical if procurement is to be able to respond to market changes,” she said. “Without a focus on customer-centricity, procurement can miss significant opportunities for improving efficiency, simply because they don’t effectively know what the business needs. And without supplier relationship management, opportunities for innovation can be missed.”
The study recommends that to improve analytical capabilities, procurement must:
- Lay the foundation for sophisticated capabilities by standardizing master data definitions, frameworks and KPIs.
- Work closely with IT to upgrade the data management architecture to support greater accessibility to more reliable enterprise data.
- Invest in staff by providing internal and external training on critical thinking and complex methodologies such as data modeling and predictive analysis.
- Pilot and scale the adoption of big-data analytics tools that can identify performance patterns to predict future outcomes and offer actionable recommendations.
The study said to improve customer-centricity, procurement must:
- Leverage customer journey mapping to understand the impact on customers when designing the digital transformation strategy.
- Cross-train procurement talent in the business lines to develop a deeper understanding of business needs and to lay a foundation of partnership with procurement.
- Create an omnichannel experience for all customer interactions, including an online portal and a 24/7 phone/email help desk as well as in-person support.
To align skills and talent with business needs, the report recommended that procurement must invest in the hiring, training and retention of top talent with skills including business acumen, relationship management and strategic thinking.
Likewise, procurement must collaborate with the human resources organization to create comprehensive talent development programs to remedy known deficiencies, while also leveraging automation to reduce time spent on low-value tasks. Procurement will then be able to redeploy capacity to strategic activities like supplier innovation and relationship management, the report recommends.