How to make the case for procurement technology investment: Expert practitioners share their tips
Spend Matters SolutionMap offers a helpful benchmark when a company is ready to identify a procurement technology provider to support its procurement business processes, and our new TechMatch℠ tool can get you a shortlist fast. But before you get to this point, you must successfully make the case for investment within your organization, and that’s a major hurdle for many.
John Proverbs, Head of Procurement at the semiconductor firm KLA Corp., says there’s actually a critical step to success that is often overlooked: to embed procurement technology investment into the overall strategic IT roadmap of your organization. Set a long-term vision for the procurement organization at large. Identify what tools and systems you’ll need for the future. Request resources as part of the company’s overall technology strategy instead of on a one-off basis, and the IT function will become an ally.
Every company has an IT planning process. Find out how the IT roadmap is determined and follow the defined process to plan and fund for future procurement technology. You may still have to compete against other programs, but you’ll already have a seat at the table. You will have positioned procurement/supply chain as a collaboration partner with systematic investment planning.
Alan Rice, VP Global Procurement at Primo Water Corp., reminds us that technology is just an enabler of procurement and CPOs must approach it as such. First, build an organization with the right goals, people and processes — then determine how technology can offer support.
Alan stresses the importance of assessing organizational maturity first, before you make a case for technology investment.
“Procurement groups are driven either by the gap or the goal and they need to create that bridge in order to reach their destination,” he said. “You need to benchmark your procurement organization at large through key metrics such as: What is the ROI of your procurement organization at large? What is the ROI per procurement FTE (full-time employee)? How does that compare against other organizations of similar spend and size? What is your spend under management versus total spend? Identify procurement’s cost, what you bring to the table and where you should be as a function to support the overall goals of the enterprise.”
Tomas Wiemer, Digital Procurement Transformation Leader at the computer networking firm Juniper Networks, said ROI is a key factor for companies trying to decide what technology to buy.
“The CFO continues to be challenged by the investment ‘payback’ in procurement technology, especially when it’s aimed at integrating the ‘user experience’ for employees and suppliers,” Wiemer said.
In his experience, most companies remain very traditional in terms of financial calculations requiring either a headcount reduction or the decommissioning of existing tools to approve an investment. As a practice leader, Tomas finds this approach unsatisfying because it fails to consider the user or supplier experience.
“Many companies talk digitalization, but they have barely 25-30% of a digital plan and 70% remains open,” Tomas said. Then you have to make a case for investment but, especially in procurement, it can be hard to place a number on functionality enabling open access and supplier innovation.
So, how do you set a long-term procurement technology vision and “make the case” for investment?
It’s key to know where you stand in comparison to the market: What are your competitors doing? What is best-in-class? How technologically advanced are your customers — and what do they require of their suppliers? What’s the impact of today’s and tomorrow’s regulatory environment? What are Spend Matters, Hackett, CEB/Gartner predicting? Mapping your comparative position and taking strategic factors such as regulations and customer requirements into account are key to get the buy-in from your company’s leadership and even your shareholders.
In terms of developing a business case in advance of investment, it will require a “reasoned guestimate” — What will a solution cost (annual subscription, implementation costs), do you need an implementation partner, what does the implementation and possible data migration process entail? You’ll need to put a hard-dollar estimate on the expense side. Other than deriving investment information through industry, technology and provider research and doing the math based on your company size and number of technology users, networking is a key element of the process. Besides attending relevant conferences and networking events, consider joining or establishing a local cross-industry networking group and engage in conversations with your key customers to get a sense of their internal procurement processes, recent technology investments — and their achieved hard and soft benefits.
Now you need to sell the upside of making an investment in procurement technology. Many companies make the mistake of focusing primarily on achieving incremental savings — but executives know that well will go dry in time. So you also need to think beyond ROI, even though it’s important. Also sell the investment around efficiencies, effectiveness, compliance and risk management improvements.
John said contract lifecycle management offers a good example: “Consider CLM: It’s less about ROI and more about managing risk and compliance for most companies as these have become board-level concerns,” he said. “A strong argument can be that technology will free up resources to do core procurement responsibilities — not other (non-procurement) responsibilities, but more strategic/less tactical activities.”
He warns that, although it’s good to include cross-functional benefits in a business case, you should not base your case on the benefits for other functions. Instead, focus on what you, as a procurement executive, can control and deliver upon.
John also encourages alignment with finance and auditing on all procurement investment projects, not just the stakeholders. Finance cares. It owns the controls and wants to minimize risk. Having finance as your advocates goes a long way toward success.
Beyond direct resource requirements and benefits, also be sure to have a solid understanding of the implementation timeline, how to drive adoption/required user training and maintenance needs going forward. Companies can be especially cautious to invest in new technology if they have previous experiences of poor user adoption. Having a solid implementation and user adoption plan can remove such reservations.
Jamie Crump, President of The Richwell Group, a management consulting firm, said making the case for a technology purchase requires meaningful data and a meaningful understanding of how your company does budgets for projects like this.
“Providers say a technology will save you anywhere from 10-70% — that’s not helpful,” she said. “If you seek investment in procurement technology, you’ll first have to identify your company’s funding process — which may seem obvious but it’s a step often overlooked. A funding process may be different for all companies, but there is always an executive needed to sign off on the investment — and executives deal in facts, data and numbers. If you can provide those, you’re likely to get the sign-off. I give a lot of ratios: ‘For every $ you give, you’ll get back $$$.’ These could be made up of direct savings, streamlining, etc.”
To get to this information, Jamie says you first need a solid understanding of your business.
“Don’t look at a Spend Matters before you do your homework: You need to know what you are spending and how — being able to validate where we are (needlessly) hemorrhaging $$$$ a year.”
Frank Callaghan, SVP Sourcing and Procurement at the real estate firm CBRE, advised to get the executive team on the same page before buying technology. “It’s important to align all affected internal stakeholders when investing in enterprise-wide procurement technologies,” he said. “It can’t be determined solely by the biggest spend in the room. It needs to be a collaborative conversation.”
Frank also mentions that you need to identify what kind of customer you are to ensure selecting a right-fit provider. For instance, it’s revealing to think about your risk tolerance: Can you afford to work with a bleeding edge provider where you can expect a range of outcomes/performance with an eye on the bigger prize, or do you need a proven leader offering solid but hardly disruptive functionality?
Another thing to bear in mind from the get-go, Tomas said, is compatibility. He recommends investing upfront in the RFI to identify which technology can be integrated with your existing IT infrastructure.
“Otherwise you may end up with 3-4 options on paper but integration challenges may do the provider selection for you,” Tomas said. “Most companies take shortcuts when developing the RFI. It’s assembled in a week just to get a sense of the market. Then they move forward only to struggle later on in the process because of incomplete information and false assumptions.”