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Procurement’s digital transformation gap

The Hackett Group’s Key Issues Research IDs four areas procurement can focus to enable digital transformation


March 17, 2017
Purchasing B2B

MIAMI & LONDON—While procurement leaders may be aware of the potential impact of digital transformation on the way they deliver services, few are confident that they have the necessary strategy, talent and competencies in place, according to new key issues research from The Hackett Group, Inc. The result is a gap between procurement’s transformation agenda and enterprise-level digital transformation priorities, and the risk that this gap may widen.

The Hackett Group’s research identified four key areas procurement can focus on to enable digital transformation: improving the stakeholder experience; orchestrating a procurement-as-a-service portfolio; setting a foundation of analytics-driven insight; and leveraging technology to accelerate transformation.

The research showed that nearly 85 percent of all procurement organizations believe that digital transformation will fundamentally change the way they deliver services over the next three to five years. The use of cloud-based applications, advanced analytics, robotic process automation (RPA), mobile computing and big data are also expected to grow dramatically, the study found. Yet only 32 percent of procurement organizations currently have a formal digital strategy and only 25 percent have the needed resources and competencies in place today.

The research also found very high levels of exposure to a broad range of business risks and sharp projected increases in these same risks over the next two years. The top four areas of projected risk—cyber-security, intensified competition, disruptive innovation and access to critical talent—are all related to structural transformation of the business, which in today’s world is inevitably digital in nature and driven by technology innovation.

Adding to these challenges are resource constraints. The study found that procurement operating budgets are expected to grow by less than one percent in the coming year, requiring procurement to prioritize and self-fund their goals of improving agility, responsiveness and customer-centricity and supporting enterprise digital transformation.

“The gap between awareness and capabilities in digital transformation is not unique to procurement—we’ve seen similar results in finance, HR, and even IT,” said The Hackett Group principal and global procurement advisory practice leader, Chris Sawchuk.  “Yet it is disconcerting to see that many procurement organizations are simply moving ahead in this critical development area without a comprehensive plan or the requisite talent. This is simply not a recipe for success.” 

The Hackett Groups research detailed four areas that digital transformation of procurement organizations should focus on: 

Improving the Stakeholder Experience—Top-performing procurement organizations have already unearthed most of the significant opportunities for cost savings and efficiency gains, and many are now focusing on improving the stakeholder experience as a way to create additional value. Raising stakeholder satisfaction is a strong strategy to help procurement gain organizational permission to take on higher level work. The Hackett Group’s research identifies three areas strategies that are key to success in this area: build an omni-channel and personalized stakeholder experience; measure value beyond savings; and segment the stakeholder community to find the right service level mix.

Orchestrating a Procurement-as-a-Service Portfolio—An ‘as-a-service’ portfolio refers to streamlining the buying experience and creating an organizational model that permits procurement to be closely aligned to its primary stakeholders so it can react quickly to changing requirements. To achieve this, The Hackett Group recommends that procurement take the following steps: develop a well balanced portfolio of sourcing and purchase-to-pay service offerings; rebrand the procurement organization to increase awareness and influence; and optimize use of centers of excellence and placement of resources globally.

Setting a Foundation of Analytics-Driven Insight—As procurement’s role matures from transactional facilitator to trusted business advisor, a key enabler is proficiency with ‘big data,’ next-generation analytics that offer an unprecedented ability to quickly model massive volumes of structured and unstructured data from multiple sources. To take full advantage, The Hackett Group recommends that procurement organizations: invest in training for analytics, center of excellence and special projects teams; deliver new forms of market intelligence, in part by using third-party category intelligence reporting services; and mitigate risk through predictive forecasting.

Leveraging Technology to Accelerate Transformation—Technology is at the heart of any digital transformation. To ensure a successful transformation, The Hackett Group suggests that procurement should: find the right mix of suite versus niche software solutions; build flexibility into the roadmap to take advantage of emerging technology; and help improve technology sourcing for the company.

The Hackett Group’s 2017 procurement key issues research, The CPO Agenda: Keeping Pace With and Enabling Enterprise-Level Digital Transformation, is based on results gathered from executives from more than 180 large companies in the US and abroad, most with annual revenue of $1 billion or greater.