Digital Transformation is No Time to Have a Confidence Crisis
I talk to Chief Procurement Officers (CPOs) all the time about their challenges and frustrations. Few if any seem held back by a lack of confidence or uncertainty about whether procurement needs digital transformation. In fact, CPOs are most often frustrated, because they know what they and their teams are capable of doing on behalf of the enterprise, but they don’t necessarily have the support required to translate that potential into results.
Part of the challenge is that procurement is trying to make the case for transformation using numbers that don’t carry the same weight that they used to. Savings… spend under management… addressable spend… If there is a confidence crisis holding procurement back, the crisis lies in the numbers used to calculate procurement’s contribution.
Procurement tries to prove that they deliver savings, but it is getting more and more difficult to document where those funds go. As finance is so fond of pointing out, savings rarely survive all the way to the bottom line. Maybe they were diverted for something strategic or highly worthwhile, but it creates a Return on Investment (ROI) problem for procurement – one that may prevent further investment if value is determined by savings alone.
The time has come to reinvent the way procurement is positioned so that they gain (or regain) strong executive-level support. The only way to do this is to stop talking exclusively about getting savings and start delivering value to the company as a whole. Everything procurement does from this point forward – including digital transformation – demands confidence to the point of boldness.
Procurement’s brand and scope – opportunity for growth, not a costly irritation
In many organizations, procurement is seen as a cost center rather than a source of top-line growth. The procurement ‘brand’ is associated with efforts to enforce savings and compliance, especially in response to the ever-increasing number of regulations and societal constraints. This often (albeit unintentionally) leads procurement to limit operational flexibility by establishing complex purchasing processes and restricting supplier choice. While rigorous governance may be very important, especially in regulated industries and supply chains, it does very little to produce internal friends or allies.
Procurement is more important today than ever before. Globalization, geopolitics and economics impact our supply chains every day, and procurement is on the front lines working to help solve the problems created as a result. In addition, we see more demand for corporate social responsibility and sustainability, initiatives that require increased interaction with and oversight of tier one and two suppliers and subcontractors.
In companies where procurement is tactical — lacking strategic positioning or enterprise alignment — negative internal perception may be enough to spark a crisis of confidence. Their teams manage suppliers, put contracts in place and negotiate prices, but they are not part of the mainline business.
More mature, sophisticated procurement organizations are not immune to the perception problem. I have often observed a lack of urgency from procurement organizations in companies where the function is not already well supported by the CEO or the business. If procurement doesn’t have the confidence to articulate how they can materially contribute to business development, they are unlikely to gain support for transformation.
One platform, one transformation equals greater vision, confidence
Today’s technology can alleviate technical human work so procurement can move onto other, more value-oriented, efforts, but getting the maximum effect requires both vision and confidence.
The challenges associated with digitizing procurement processes across a large, complex organization are often underestimated, and many projects fail to deliver as a result. In some cases, digital transformation fails because of absent executive sponsorship, and in other cases because of IT-mandated constraints or poor technology choices. Some projects fail because procurement tries to deploy everything at once globally, and yet other projects never take off because procurement tries to do too little too slowly.
Procurement technology is complex because it must meet the needs of many different user groups. Take Customer Relationship Management (CRM) as a contrasting example. CRM is a high-powered, data driven enterprise technology platform whereas sales is just one team of people. eProcurement is cross-functional and it is everywhere. Everybody in the company needs something at some point – including services and direct materials. There are different categories, business lines, types of suppliers, countries, and supply chains, and all of them have to be managed by one procurement platform. Rallying so many stakeholders and requirements is impossible without confidence.
eProcurement technology has become the preferred method for controlling multiple processes and staying ‘in the loop’ from a visibility perspective. If eProcurement can be made so simple that users quickly adopt the solution, using it is less of a distraction from their primary role. Procurement is also relieved from tactical work without losing access to the information required to support strategic spend management activities — saving money and bringing more value to the business at the same time.
Trying to digitize procurement separate from broad, ongoing global transformation efforts is a mistake, meaning that procurement will have to step up and lead the way – perhaps without waiting to be invited.
A modern charter of procurement is needed
While my perspective is largely driven by technology trends, I wanted to gain a broader understanding of procurement’s confidence level and the factors that may be affecting it. For that I reached out to Joe Payne, Vice President of Professional Services at Source One Management Services, a Corcentric Company. His perspective plus the time he has spent working side by side with procurement organizations, begins with a look at the “macro” environment.
He suggested we start by thinking about the topics covered by industry conferences, blogs, articles and webinars that have been the same for the last ten years. Procurement has been talking about Artificial Intelligence (AI) for 10 years, millennials for 10 years, etc.
Procurement’s legacy is a back-office function, and it’s tough to get it off of that track. Everyone wants to talk about what they should be doing and where they should be heading, but too many people who grew up in that back office environment can’t get to the next level. As a result, procurement keeps failing to move ahead.
On a micro-level, procurement’s challenge is about aligning expected outcomes with actual outcomes — realities versus expectations. Joe’s inquiries and experience reveal that the C-suite wants cost savings, working capital improvement, inventory cycle time reduction, cost avoidance, etc. Internal stakeholders care more about the value and responsiveness they get from suppliers. They want procurement to provide knowledge about the things they buy and improve how they make spending decisions.
Procurement can align what C-suite and stakeholders want, but if they fail to achieve balance from the outset, it is very hard to make changes later – and that is where we have proof of lagging procurement confidence. When resistance to change persists because of institutionalized, old school approaches low procurement confidence can become a roadblock.
In saying this, we do not mean that procurement hasn’t changed at all in ten years. Best practices such as strategic sourcing and supplier relationship management have been broadly adopted by companies of all sizes and maturity levels. Procurement is far more willing to pursue support from third-party service providers today than ever before.
In the past, consulting firms would be hired by the C-suite or by finance to ‘fix’ or compensate for procurement. Procurement naturally saw those providers as a competitor and a threat. But as procurement has evolved and gotten involved in new technology, supplier diversity and spend visibility, they realized they didn’t have the expertise they needed in-house and took action.
The heart of the remaining problem is that procurement tends to stay in its own bubble. Much of the industry still believes their primary role is to “gate keep” the business and ensure compliance. Until they adopt a modern ‘Charter for Procurement,’ they won’t change their way of thinking or realize how far behind they are. Risk, savings and compliance are and will always be part of procurement’s scope, but so are customer service, supplier partnerships, enabling the business, and eliminating red tape.
When old-school thinking puts people into a defensive position against procurement transformation, it throttles how well the organization can compete. Procurement has to start by objectively baselining their current state. Is it stagnant? Are there improvements to be made? If procurement can’t get past the belief that nothing is wrong or that their process isn’t broken, they can’t progress to the next step – no matter how confident they are.
Let’s make procurement loud and proud
So what is procurement’s confidence status quo? I believe it is strong, and that is a good thing, because it is likely to be put to the test in the months and years to come.
Procurement practitioners must communicate the value they can bring to the business and to the productivity of the company. They have to do this in a way that recognizes enterprise culture and priorities but doesn’t sacrifice an enduring mandate based on resource efficiency and fiscal responsibility. It is essential for procurement to embrace and fully contribute to digital transformation efforts underway elsewhere in the company, helping finance get real-time information or supporting online collaboration between stakeholders and suppliers.
Given the current rate of change in emerging technologies, procurement must also repeatedly look at what is possible thanks to the AI revolution. It may bring new opportunities for efficiency and can contribute to the perception of procurement as an innovative team.
As the procurement workforce evolves, even more change will be ushered in. The obvious example is the impact of hiring millennials. They see things completely differently, partly because they are digital natives and partly because they were not part of the legacy ways that the rest of procurement is often weighed down by.
I was at a conference a few years ago where a young, passionate CPO was talking about how he and his team were shaking up procurement. When the company was building a new factory, they negotiated long term agreements for energy rather than automatically paying annually for electricity. They financed a new renewable energy farm which cost less than paying for energy traditionally over the same timeframe.
Another CPO completely dismissed what the presenter was saying. It was such a striking comparison. Not all new ideas are good, but if we aren’t open to them, if we don’t compare them side by side and let them fight it out on their individual merits, procurement will never get any better. Procurement practitioners will never do anything new.
Change is difficult, but a clear opportunity exists to hire a new generation of buyers. Procurement must align their workforce with the core business and select professionals who are passionate about using technology to reinvent supplier collaboration, automate tasks and provide new insights — thanks to predictive analytics.
Any team – even a confident one – that thinks they are going to lead significant process or technology change without a few setbacks is doomed to fail. Procurement must set expectations for the leadership team, for affected users and for themselves, but without self-doubt being at the heart of the message. These expectations must reach everyone. Universal buy-in is the goal. The transformation message must be broadcast loudly and clearly, with no reservations, if everyone is going to be on the same page.
I believe in the confidence of procurement! I see it on display every day in hundreds of ways! More importantly, procurement has earned the right to have confidence. Procurement has been on a long journey to reach this point, and the trip isn’t over, but no one with a lack of confidence would have made it this far.
ABOUT THE AUTHOR
Julien Nadaud, a recognized global visionary in eProcurement and spend management, is the Founder, Chairman and CEO of b-pack, which joined Determine, Inc. in 2015, and Corcentric in 2019. In his role as Determine’s Chief Product Officer and Corcentric SVP of Innovation, his focus is to create innovative technologies in strategic sourcing, supplier management, procure-to-pay and contract management for customers. He is based in Atlanta, GA, and has teams in US and Europe. As an acknowledged industry leader, Julien’s impressive career of advanced innovations includes designing and implementing solutions at leading companies in the US, Europe and Asia. He designed the Determine Cloud Platform, which seamlessly integrates the full suite of modular source-to-pay and contract management solutions. He now focuses on experimenting and implementing new ideas leveraging artificial intelligence and blockchain.
Joe Payne, Vice President of Professional Services, Source One Management Services, a Corcentric Company, contributed to the technical subject matter of this article. Joe helps companies reduce costs and manage change. He leads a team of consultants and analysts, developing insights into the challenges organizations face when undertaking initiatives to reduce costs through strategic sourcing and negotiation best practices. His areas of expertise include procurement transformation, team building, strategic sourcing, supplier relationship management, business process reengineering, and financial reporting. He has extensive experience helping Fortune 500 companies and large healthcare organizations implement sustainable procurement transformations. His specialties include strategic sourcing, change management, cost reduction, team building, leadership, supplier relationship management. (See Joe’s LinkedIn article titled The Procurement Prerogative)
Contributing author: Joe Payne, Vice President of Professional Services, Source One Management Services, a Corcentric Company