Digital success – What makes Procurement’s challenge so different?

Like it or not, Procurement and Supply teams are in the midst of a digital revolution that looks set only to advance. Digital is transforming everything from B2B to B2C and beyond: what we consume and buy, how we consume and buy and how we work. That means all parts of a business are on the spot to keep up and ‘do digital.’ Procurement, we would argue, needs to embrace ‘digital’ more than any other given it touches every part of the organization; however, as our analyst Bertrand Maltaverne wrote in the not too distant past:

“History shows that Procurement is not immune to recurring challenges, especially when it comes to the procurement technology that has been around for years. However, adoption (by teams, by stakeholders, by suppliers) is not a reality for most organizations. Analysts and research firms have all reached the same conclusion. For example, many reports show that the adoption of e-sourcing by ‘best-in-class’ companies has stagnated at 60% – 70% since 2007. So, considering its past record of poorly managing digital initiatives and the growing need to respond to ever more frequent and profound changes (both representing threats and opportunities), Procurement must urgently learn from the past and find new ways to transform and move forward.”

So what’s the challenge for Procurement, and why is it tougher for Procurement than many other functions (like HR or Finance) to make tech work for them?

A few reasons include:

• While larger organizations have the transaction volumes (and probably existing tools) to justify taking on a complete digital transformation of their procurement process, that’s just not the case for many small companies. Larger organizations likely have matured and updated their tech environment over many years with best-of-breed or suite solutions, so it’s easier for them to get the organization on board with an end-to-end digital transformation. But mid-size organizations that already have an ERP system in place often struggle to convince the CFO that even more tech is needed for procurement to add value to the business.
• Time and resources can also be a stopping point. The months of investment needed to understand what to automate and with which technology can be daunting.
• Because Procurement touches the whole business, it can be difficult to get every department on board, not just with the funding and resources but also adoption.
• Procurement has traditionally been very transactional, introducing systems that are not easy to use or seem too complicated can be another blocker in an organization that is not prone to change.
• Procurement has many moving parts. Sourcing alone involves the many and often manual processes for RFxs, like RFIs, RFPs, RFQs, etc. (think emails and spreadsheets), and that means catering to the many suppliers, matching their needs and abilities. Then there is all the ERP data, the countless hours of transaction data entry and the minefield of interpreting that data to be meaningful.
• Procurement also has to deal with maverick spend, and persuading employees, buyers and suppliers not to get around the adopted process is hard when it’s an easier option than sticking to sometimes archaic systems and elongated processes.
• Add to that lack of water-tight contracts, badly negotiated terms, money leakage, non-compliance …

Yet at the end of the day, it’s the business that has the most to gain: getting rid of inefficient manual data processes and paper-based comms trails, gaining visibility and reducing risk.

Our analyst writes that a few simple and pragmatic approaches can make the difference between success and failure.

The overlooked facets of ‘digital’

Harvard Business Review wrote in What Everyone Gets Wrong About Change Management that “Executives increasingly use the term ‘transformation’ as shorthand for ‘digital transformation.’ But the ongoing digital revolution does not itself constitute a transformation — it is a means to an end, and you must define what that end should be.”

Poor understanding of digital

One pitfall is that many organizations tend to use new technology “to mechanize old ways of doing business. They leave the existing processes intact and use computers simply to speed them up.” By doing this they are actually missing out on the real value and transformative impact of some of the latest technologies. When implemented strategically and intelligently, it can enable organizations to do things that were previously impossible.

This poor understanding of what technology can do and what organizations can do with it is painfully evident in the misuse of words like digitization, digitalization and digital transformation. These terms are often used interchangeably when they actually mean very different things – see our definitions here.

One road to failure is putting the cart before the horse. Before defining the technological approach to take, procurement should determine and identify the business value that needs to be captured or improved as a result of a digital project.

Transformation and missing people

Another — and more serious — mistake is to approach digital initiatives in the same way that you would a simple IT/technical project when what’s needed is a business transformation view. This tendency also explains another set of common mistakes that result from forgetting the human aspects of these projects.

A PwC survey found: “In the most basic sense, people have been the missing variable in the digital transformation equation. Instead of the prior decade’s obsession with business-IT alignment, enterprises must now pursue a more balanced approach to digital transformation that’s equal parts business, experience and technology.”

Absence of (or weak) meaning

”If you don’t know where you are going, any road will get you there.” — Lewis Carroll

A surprising but persistent issue in digital projects is the lack of real business/use cases that detail ‘why’ the change is a necessary one (goal, purpose, vision). This lack of purpose makes it almost impossible to create the proper conditions for a successful change, to motivate people and to drive adoption.

An organization that does not know where it is going will have difficulties defining some of the critical aspects of digital projects, like:

• Solution requirements management.
• What’s the scope (categories, suppliers, geographical locations, processes? etc.).
• Roll-out and deployment plans (what, where, when, how).

Lack of planning

Many people have a natural tendency just to ‘do’ and skip the important planning steps needed for a new project. But then, procurement organizations are under a lot of pressure to get results fast, and that puts even more pressure on project teams to deliver. What is interesting is that preparation and patience are important and valued in many other areas of procurement. For example, procurement practitioners know that 90% of the success in negotiations comes from good preparation, but many forget to apply that same approach when it comes to the implementation of a digital solution.

Focus on deployment while adoption is left for later

When an organization launches a project to deploy a new solution, there is an implicit understanding that the system will be used — this is yet another typical mistake. Assuming that because a system is in place people will use it is ignoring the fact that most people are creatures of habit. To draw a parallel with savings, the difference between a deployed solution and an adopted solution is like the difference between negotiated and realized savings. Adoption will not happen automatically. To achieve true adoption, specific action needs to be taken to get people onboard, and these steps need to be defined and accounted for from the start (resources, budget, time).

Procurement technology is still far from being widely adopted, and there are still many areas that need to improve before teams can actually benefit from digital initiatives. Digital means much more than using a piece of software. It is a critical capability for today’s transactions — so it’s imperative that procurement puts forward a good business case to procure it!

Visit Spend Matters Digital Procurement Survival Guide for more.