The Hackett Group outlines five essential business capabilities for digital transformation

Digital transformation is one of those buzzwords that is thrown about in procurement as a common trend that is accelerating at a high pace. Buzzwords are great, but it’s not always clear how they fit into the industry. But new research from The Hackett Group identifies five business capabilities that companies can deploy to improve their digital transformation journey.

Hackett Group described digital transformation as a process of using digital technologies to create new and enhance existing business capabilities. The key though is that these capabilities meet rapidly changing requirements. Speed is also an essential aspect of this process.

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“For many organizations, the business disruption triggered by the pandemic was a real digital wake-up call,” Hackett Group said in the study. “Out of sheer necessity, companies made massive changes in weeks — sometimes days — that otherwise would have taken months to plan and execute. Effectiveness of response was directly correlated with digital maturity or the ability to quickly employ technology to adapt the business model to new needs.”

The pandemic certainly disrupted a lot. But businesses seem to be moving to a recovery zone slowly and surely. It has changed procurement’s priorities.

Hackett Group’s study found that 73% of respondents expect digital innovation acceleration to be a permanent characteristic of the business environment after a return to stability. Meanwhile, 72% expect a lasting shift to digital delivery channels.

Hackett Group also outlined five ways the pandemic changed mindsets about digital transformation:

1. It highlighted the importance of speed to value as a measure of change.
2. It redefined expectations about the growth of technology adoption.
3. It reinforced why companies need to make deliberate technology investment strategies that fuse existing and new capabilities.
4. It proved how valuable it is having a digital operating model to successfully drive positive business outcomes.
5. It confirmed new perspectives about enduring disruption in the new normal.

Hackett Group’s study takes the lens that digital leadership translates to superior value. Because of that, Hackett Group outlined five essential digital business capabilities.

The first capability is digital engagement. This process is all about speeding up and making efficient procurement processes. It’s important that businesses use user-friendly technology and self-service tools. These technologies can look like chatbots/intelligent agents, omnichannel tools, real-time analytics, or customer relationship management systems.

The second capability focuses on the digital workforce and organization. This step focuses primarily on maximizing productivity, intellectual property, and the valuable contribution of individual workers and teams. These technologies look like knowledge management systems, virtual collaboration tools, cloud-based applications and data, and self-service analytics.

The third capability is related to the historical trend that business process automation has not fully lived up to its promise. Because of that, the third step is about digital service optimization, which focuses on capabilities that promote process digitization. These technologies include supplier portals, cloud-based platforms, robotic process automation, supply risk or supplier relationship management tools, business process management, and smart automation.

The fourth capability focuses on the digital ecosystem. More traditional organizational structures are evolving into networks of digital resources, service providers and consumers. This will allow for more innovation and collaboration as companies rely on networks to find resources. These technologies include digital platforms like e-sourcing or e-procurement, virtual collaboration and network tools, and the internet of things.

The fifth and final digital capability is analytics-driven business insight. The Hackett Group said analytics are the biggest differentiator between competition. The need to develop sophisticated analytical capabilities is driving the procurement industry these days. Real-time access is key. These technologies include automated spend analytics, data visualization, master data management tools, machine learning, and smart data capture.

“While the priorities for a particular company will flow from the digital business strategy and objectives, each of these five areas will have a profound effect on the speed to value of transformation and the ability to deliver expected levels of performance improvement,” the study said. “These capabilities are highly interdependent, with business insight as a thread that ties all of them together. Therefore, procurement leaders cannot decouple and approach them as discrete concepts.”

Read more details on the five essential digital capabilities in the Hackett Group’s “Five Essential Digital Business Capabilities” paper.

Spend Matters SolutionMap and TechMatch℠ offer a helpful benchmark when you’re ready to identify a procurement technology provider. 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.