Customer-centric focus can help digital procurement departments stay relevant and unlock upside

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Modern procurement departments expect digital transformation to raise their profile across their business beyond just helping their main customer — the CFO.

They want to be strategic partners with all of the C-suite leaders, but does digital deliver this? Is there a disconnect with procurement that may be exacerbated by digital (done badly) as it expands to serve other customers — the various functions across the business?

For example, how is procurement’s value measured when helping customers like product development teams or the group assessing corporate social responsibility (CSR)?

Success for procurement’s customers like these cannot be measured just by cost-cutting. Procurement should also offer influential information that adds value and helps move the business forward.

Once procurement understands how to be agile in serving customers — internal stakeholders and ultimately every end user — it has so much upside to drive value for the business. A recent study by The Hackett Group analyzed world-class procurement departments — those that have digitally transformed and overhauled the way they work.

“A customer-centric approach to service delivery is helping world-class procurement organizations influence 93% of spend and generate 75% more savings” than average procurement departments, the study said. By this token, a digital and customer-centric approach can unlock more influence, impact and deliver savings.

In an article last month, we explored the advantages of digitally transforming procurement but also the need to understand that technology alone isn’t the answer — that, by itself, it won’t necessarily make your procurement department more successful.

To learn more about digital transformation and the customer-centric approach, we did a Q&A with Simon Geale, SVP of Client Solutions at Proxima, a leading procurement consulting firm.

Q&A

Spend Matters: What happens when procurement departments adopt the latest technology but don’t restructure how the departments work?

Simon Geale: Historically when buying enterprise tech, we’ve bought features and benefits in exchange for investment. Our business cases are contingent upon the right sort of adoption and the skills to unlock the benefits.

So the straightforward answer is that you can buy the latest technology but not get all of the associated outcomes or benefits. A further risk is that you may also be overpromising to customers and asking your team to do things they are not trained to do, are not good at or simply don’t want to do.

The technology should give you opportunities to reskill, get creative, find more opportunity and do more exciting things. If you don’t move into doing that, the business will fill the gaps. So “digital inertia” could bring about the death of some functions.

I suspect many of us have a piece of impulse tech at home that costs a lot, looks nice, but we don’t really understand it or use all the features. We are periodically aware that we overpaid, and don’t get the most out of it. Nice if you can afford to do it but wasteful if you are on a budget. Back in the corporate world, we have strategies, objectives, business cases and budgets. We are doing things for a reason, and we don’t have that luxury. There are consequences.

As procurement serves more stakeholders across a business, what does it mean to be customer-centric in procurement operations?

I like to define customer-centric as understanding the “customer’s why” and being able to put it at the heart of what you [procurement] do and how you do it.

As humans, we like the sort of logic that procurement brings us, but we love and engage with the things that appeal to our customer values. These could be things like energy, empathy, speed, insight, ease, service or something that just feels right. I call it logic vs magic; to be customer-centric you need a bit of both. That’s a challenge for humans and software houses.

As an exercise, forget procurement for a second and try writing down 10 different business users who depend upon suppliers. Now write why they need suppliers, what they value from the suppliers, and how they would ideally like to find and interact with the suppliers.

When serving the CFO, procurement is typically measured on cost-savings. How does procurement measure performance or success when dealing with so many different customers across the business? What’s even an appropriate KPI for ethics or sustainability?

That is a core challenge for the CPO. If you view procurement as one single function with one main customer or reporting line (most often the CFO), then you will always end up with financial measures.

Today there are now some emerging examples of CPOs who understand how the constituent parts of their function serve different customer groups, with different objectives, behaviors and expectations. They define their measures accordingly, balancing corporate and functional objectives.

In creating an undeniable link to business strategy and customer needs, you arrive at the right measures. For ethics and sustainability, this might mean things like diversity, carbon, use of small businesses, gender equality, etc. Other customer measures might include things like revenue, margin protection, quality, speed, user experience and more.

I think cost stays relevant, but as you get more into strategic activities, connected supply chains and business programs, the balance shifts from price to wider measures of business value.

Digital talent platforms are used more to hire contractors, and procurement is playing an increasing role in engaging services and how gig workers impact the business. How is buying goods different than buying services?

There are, of course, differences in how you identify, source, construct deals and manage suppliers. There are also numerous systems, processes and even cognitive advances that we can use to plan and purchase. But for me, the key thing for procurement and organizations is how you can understand markets, engage upstream in the need, and downstream in the relationships. That’s where the real value of suppliers comes from.

In the modern world there are new considerations that take us beyond goods or services; are you buying flexibility or standardization, inputs or outcomes, cost or return. What’s the business need? Do you need innovation, collaboration, how do you engage start-ups, etc.?

These are the types of conversations that mature procurement functions should be having; powered by data and digital rather than wholly replaced by it.

How can procurement departments celebrate the success of stakeholders?

If you are integrated with stakeholders and working in pursuit of common goals, you probably won’t need to ask this question. We have numerous Proxima clients who find fun and engaging ways to share their success with us. And in turn, we love making them successful and we celebrate with them.

I’d advise anyone looking to building better stakeholder relationships to research into trust, looking at things like the trust equation as a means of putting yourself in your customers’ shoes for a second.

Does that help with change management — or even in sales?

I think most of the current research identifies something like an “80% failure rate” in digital transformations. For procurement, I think a lot of this comes down to our ability to design processes, functions and tools that customers want to engage with, and capability that they trust.

As for sales, they’ve been doing this better than us for years. Look at retail and consumer goods as sectors under pressure that are having to be customer-centric, digitize and humanize at the same time. They are ahead of most of us, so lots to learn.

Is there anything else we need to know about building a customer-centric procurement function?

We run a survey of customers of procurement that delves into how they feel about the service they are provided with. It can produce some arresting insights into that magic and logic I referred to before. If you’d like to talk about it, of course get in touch. As a CPO, your challenge is to digitize in order to humanize.

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