Defining success metrics and ROI in digital transformation: A procurement perspective

Digital transformation in procurement is no longer a question of ‘if’ but ‘how.’ Organizations invest heavily in (smart) workflow automation, analytics and AI-powered solutions to drive efficiency, enhance supplier relationships, improve decision-making and more. However, many procurement teams struggle with a critical challenge: how to quantify the return on investment (ROI) of these digital initiatives.

For years, procurement success was largely measured in cost savings. While reducing expenses remains important, digital transformation extends procurement’s role far beyond price negotiations. The impact of technology on procurement is multi-dimensional and encompasses efficiency, risk mitigation, supplier innovation and sustainability. Without a structured framework for measuring success, organizations risk miscalculating their transformation’s impact, leading to misguided priorities and underwhelming results.

This challenge is not new. As early as 2005, experts were already emphasizing the importance of a structured approach to procurement technology implementation. As Robert A. Rudzki, Douglas A. Smock, Michael Katzorke and Shelley Stewart, Jr. noted in Straight to the Bottom Line:

“Don’t jump the whole hog into technology. Walk and then run if it works. Establish meaningful metrics to measure its performance. Make sure each piece fits into a long-term puzzle.”

This quote remains highly relevant today. Too often, organizations adopt technology without clear success metrics, leading to fragmented implementation and uncertain value realization. A well-defined approach ensures procurement teams not only select the right tools but also track their impact effectively.

This article explores a structured approach to measuring digital transformation ROI in procurement, ensuring that technology investments drive real, measurable business value.

Measuring value and ROI in digital procurement transformation

Understanding ROI

To measure the success of digital transformation in procurement, organizations must first redefine what constitutes ‘value.’ Traditionally, procurement teams focused on Total Cost of Ownership (TCO), aiming to reduce direct expenses related to goods and services. However, a broader perspective — Total Value of Ownership (TVO) — considers additional benefits such as risk mitigation, supplier innovation and operational efficiency.

A modern procurement function must balance efficiency and effectiveness. Efficiency ensures that procurement teams do things right, optimizing workflows, automating manual processes and reducing cycle times. Effectiveness, on the other hand, ensures procurement is doing the right things — aligning with business goals, strengthening supplier relationships and fostering innovation.

Defining and categorizing KPIs

To track procurement’s digital transformation, organizations must establish clear Key Performance Indicators (KPIs). These KPIs fall into two broad categories: those that measure the value delivered and those that measure the initiative’s success.

Broader business-driven KPIs

Financial metrics remain important but should not be the sole measure of success. Such KPIs can be:

• Financial impact: Cost savings, working capital efficiency and TCO reduction.
• Operational efficiency: Improved procurement cycle times, automation rates and error reduction.
• Strategic value: Procurement’s influence on innovation, risk management and environmental, social and governance (ESG) factors.

For more on this topic, we recommend the following four-part mini-series we published a few years ago: “Foundational Procurement KPIs Every CPO, Supply Manager and Buyer Needs to Know:”

• Foundational KPIs
• Are KPIs balanced or obsolete?
• The ‘Keys’ that unlock the value of spend management
• Deep diving into ‘Spend Under Management’

Technology-related KPIs

When organizations invest in digital tools, adoption and utilization become critical indicators of success. Procurement teams should track:

• User adoption and compliance: Measuring the percentage of transactions/activities completed digitally, supplier onboarding rates and system engagement to ensure technology is being fully leveraged.
• Process automation and efficiency: AI-driven insights, workflow optimization and reduced manual touchpoints indicate an organization’s ability to scale procurement operations.
• Data-driven decision making: The extent to which procurement teams rely on analytics for forecasting, risk assessment, supplier selection, sourcing decisions, etc. is a strong indicator of digital maturity.

Leading vs. Lagging indicators: Ensuring comprehensive measurement

One of the biggest mistakes organizations make is relying solely on lagging indicators — metrics that measure past performance rather than predict future success and adherence to the change that is being promoted. A balanced approach includes both leading and lagging indicators.

• Leading indicators: These provide early insights into the likely success of a digital procurement initiative. Examples include:
  • Percentage of suppliers onboarded to a new platform.
  • Number of procurement personnel trained.
  • Early compliance rates with automated contract management systems.
  • Number of sourcing events done in the e-sourcing solution (or even better, percentage of spend tendered in a period).
• Lagging indicators: These validate realized benefits, often tied to cost savings, efficiency and performance. Examples include:
  • Cost savings achieved through AP automation, (re-)sourcing, etc.
  • Reduction in cycle times after implementing a digital workflow.
  • Supplier performance/risk improvements.
  • Increase in stakeholder satisfaction scores.

A balanced approach to KPIs ensures that procurement teams not only measure digital transformation outcomes but also identify areas for continuous improvement. To that effect, several frameworks help procurement organizations measure and optimize digital ROI:

• Balanced scorecards: These align procurement KPIs with broader business objectives, ensuring that cost savings do not overshadow strategic value creation.
• TCO vs. TVO: Organizations must transition from simple cost tracking to long-term value measurement.
• Spend under management (SUM): Rather than measuring how much spend procurement oversees, organizations should focus on the quality of procurement’s influence over spending decisions.

Avoiding pitfalls in KPI design

KPIs should drive meaningful behaviors, but poorly designed KPIs can do more harm than good. The term ‘Cobra Effect’ originates from British colonial India when a bounty was offered for every dead cobra that people would bring in. The intent was to reduce the number of snakes roaming the streets of Delhi. However, something unexpected happened. People started breeding cobras to collect the reward. Realizing that the government canceled the program, which led breeders to release their snakes, worsening the problem. The lesson? A poorly designed KPI and incentive. The government didn’t want dead snakes, it wanted fewer snakes.

The science of motivation is a complex topic and numerous studies in behavioral economics have demonstrated that people are biased and often unconsciously make irrational decisions. Therefore, organizations must use caution when designing KPIs to avoid the folly of rewarding A, while hoping for B.

Similar unintended consequences arise in procurement when KPIs are misaligned with business objectives.

For example, an organization implementing an e-sourcing solution may create a KPI to follow how many events are created in the solution. The aim is to track progress and, at the same time, reward the best performers. Tracking the number of Requests for Quotations (RFQs) seems to be a good KPI. But, people quickly understand how the KPI works and how they can trick it. They do as they used to do before (RFQ to suppliers by email …). Once they are ready to award the RFQ to a supplier, they create the RFQ in the e-sourcing solution and only send it to the awarded supplier to ask them to re-submit their offer via the tool. Regarding the KPI, they have done a good job as they increased the number of RFQs they sent via the platform. But, at what cost!

So, what should the organization have done? Develop better and more complete KPIs to track:

• How many RFQs are issued via the e-sourcing platform
• The scope of RFQs (number of parts, number of invited suppliers)
• The percentage of offers received in the tool
• The percentage of RFQs awarded in the tool

With such KPIs, it could detect issues like:

• Buyers using the tool to just do ‘+1’ for their KPI (as described above)
• Low adoption (including on the supplier side)
• Process non-quality: too many or too few suppliers in RFQs, users not closing the loop (no awards in the solution), offline activities, etc.

Moving from static ROI measurement to continuous value realization

“When a measure becomes a target, it ceases to be a good measure.” Marilyn Strathern, British anthropologist

Digital transformation in procurement is not a one-time event but an ongoing journey. Organizations that succeed in measuring and optimizing ROI do so by defining value-driven KPIs, balancing leading and lagging indicators and continuously refining their approach.

By integrating AI, automation and analytics, procurement teams can shift from simply tracking cost savings to driving real, measurable business impact. A structured, strategic approach to KPI measurement ensures that digital transformation efforts deliver sustainable value, positioning procurement as a key enabler of business success.

For more on this topic and even more details on developing the right set of KPIs for digital initiatives (value KPIs, transformation KPIs, baselining, business case considerations, etc.), readers can download this guide.