New Hackett research: Spend cost reduction back at the top of the CPO agenda

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The Hackett Group has published its latest research into the top CPO agenda items for 2021. While the sample size is not huge, it does form a realistic indication of business priorities from a cross section of industry, with 300+ senior execs from finance, HR, IT, procurement, supply chain, and global business services responding from midsize and large organizations.

The jury is still out on when they see a stabilizing of business conditions, with 41% believing they might see improvements by the second half of the year and 36% predicting it will take longer. There’s not a lot in it, but it’s true to say that the fallout from the unprecedented business disruption of 2020, including the dramatic shift to remote working, will continue to shape procurement’s priorities for 2021 and beyond.

So for the CPO agenda, the report clearly lays out the top 10 priorities. Having had their hand forced to support business-critical operations by the disruption of 2020, they are now reprioritizing their agendas to focus once again on "spend cost reduction" (awful term but basically "spend reduction" — a staple of the procurement diet which is still as critical as it was, although slightly overtaken by "becoming a strategic advisor to the business" in recent years).

“Procurement must continue to focus on its core mission of spend cost reduction,” the report states, “leveraging digital tools and business partnerships to maximize savings. For example, specialized procurement technologies can elevate the strategic sourcing process, and leveraging new data sources can widen the marketing intelligence available to sourcing teams.”

And as you’d expect, supply risk management has emerged as the procurement function’s second most important objective for 2021. Supply assurance clearly means greater focus on managing supplier relationships and collaborating for value that is non-spend related.

The 10 most-cited areas of focus for CPOs:

  1. Reduce spend cost
  2. Reduce supply risk to ensure supply continuity
  3. Act as a strategic advisor to the business
  4. Accelerate procurement digital transformation
  5. Improve procurement agility
  6. Modernize procurement application platforms
  7. Align skills and talent with changing business needs
  8. Improve analytical and reporting capabilities
  9. Enable corporate sustainability goals
  10. Increase spend influence

“The year ahead will bring the most dramatic shift in enterprise priorities since the inception of our annual Key Issues Study,” says Hackett.

It’s interesting to note that corporate sustainability made it into this top 10 list for the first time, representing a broader focus on corporate social responsibility. But right at the top is the time-old issue of reducing costs, as it says: “under the prevailing crisis recovery conditions, cost takes center stage. Procurement must continue to deliver its most basic value proposition: spend cost reduction. The combination of significant 2020 cost cuts and increased workloads is straining many procurement organizations, and this will continue into 2021.”

Risk management is of course a major concern this year, with “a major increase in business risks across the board — from supply chain disruption to cybersecurity, to regulatory change to the economic implications of prolonged pandemic-related restrictions. All parts of the organization, especially procurement, will feel the effects of this high-risk business environment and need to factor this into their 2021 transformation agenda.”

One big mover this year is enterprise digital transformation, which rose five places to become the lead in the top five overall enterprise initiatives when we look at the percentage of companies with major initiatives on the agenda. “After going through an accelerated digital learning curve during the crisis,” the report says, “companies plan to capitalize on the lessons learned.” Also unsurprisingly, diversity and inclusion programs rose by seven places to reach this top five list.

Procurement leaders are also projecting significant growth in the adoption of tools for data visualization, and advanced analytics and modeling tools in 2021 (26% and 25%, respectively). But among the top procurement issues, this area was designated as having the lowest ability to address. “Developing modern analytical capabilities is a complex process,” it states. “Setting up a strong master data management program is the first — and one of the most critical — steps. Without access to extensive, trustworthy data, little can be gleaned from its analysis. Developing analytical skills is also essential for strategic decisions, predictive insights and agile behavior.”

In accelerating its digital capabilities, the study finds that procurement is rapidly shifting toward cloud-based systems, with spend suites and best-of-breed solutions expected to grow significantly (by 29% and 22% respectively). “Adoption of advanced emerging technologies in procurement remains constrained,” it says, “with both virtual assistants and cognitive computing/AI only expected to see an 11% growth rate, with few large-scale deployments. But procurement’s success will depend, in large part, on broader implementation and adoption of modern enabling tools.”

This is a well designed report. It takes each of the top 10 priorities in turn and succinctly explains why they are such, giving background and supporting graphics.

Laying out the top targets for 2021 is all well and good, but you also need insight into how you address them. So the report also offers an understanding of the hurdles getting in the way of that and gives a perspective on the 10 most critical actions and accomplishments that procurement will be judged on one year from now.

The full research is available to download for free here: 2021 Procurement Key Issues Research.

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