Despite that narrowed gap, making progress in 2018 may be challenging
MIAMI & LONDON—Procurement organizations have significantly shrunk the capability gap in digital transformation over the past year, with two thirds now having a strategy in place and nearly half having the resources and competencies needed to execute, according to new Procurement Key Issues research from The Hackett Group, Inc.
Procurement leaders expect to rely on digital transformation to help them achieve an array of critical objectives in 2018, including cost-cutting, improving agility and improving their ability to serve as a trusted advisor to the enterprise.
Procurement organizations are expected to dramatically increase their use of robotic process automation and AI related technologies over the next two to three years, the research found. They will also expand their use of more mainstream technologies like cloud-based applications, advanced analytics, data visualization and mobile computing.
But their ability to execute digital projects will require reassessment of competencies and realignment of resources, as procurement budgets are expected to remain virtually flat in 2018. In addition, while procurement leaders acknowledge the importance of strategic enterprise objectives, including expanding procurement’s influence, elevating the role of procurement, and improving agility, procurement’s ability to address them is low. The study identified similar capability gaps in four key internal capability areas for procurement and offers guidance for how these can be addressed.
The Hackett Group’s research identified four capability areas where procurement must improve in 2018: aligning skills and talent with changing business needs; measuring and managing procurement performance and business value; obtaining more value from existing suppliers through relationship management; and obtaining more value from existing categories through category management. These key capability areas reflect the need to continually innovate and expand collaboration by investing in resources and technology that promote intelligence, improves user experience, and enhances supplier collaboration.
Virtually all study respondents (95 percent) said they now believe digital transformation will fundamentally change how procurement services are delivered within two to three years. A full 30 percent said that they expect procurement processes will be touched by digital transformation activity in 2018, foreshadowing a year of both benefits and disruption. The percentage of organizations with a formal strategy for digital transformation more than doubled year over year, from 32 percent to 66 percent, and the number of organizations indicating they have the resources in place to handle the transformation also rose sharply, to 46 percent.
The study found that procurement executives expect growth in the use of an array of mainstream and emerging technologies over the next two to three years with data being the major theme. Broad adoption of master data management is expected to grow. Broad adoption of advanced analytics is expected to see growth and data visualization adoption is expected to more than double. Moreover, the use of AI is expected to augment analytic capabilities within current technology infrastructures, where just over 30 percent are piloting in areas such as cognitive computing and virtual assistant technology.
The study also found that emerging digital technologies focused on process efficiency such as robotic process automation and blockchain are expected to see higher adoption levels. Use of robotic process automation by procurement is expected to grow by 4.5X in the next two to three years, with nearly 40 percent of procurement organizations already engaged in pilots. While still in its early stages, use of blockchain technology is also optimistic, expected to grow by 4X, with a third of procurement organizations already engaged in pilots.
Procurement budgets are expected to fall by 0.3 percent in 2018, according to The Hackett Group’s research. Taking into account an expected 3.6 percent growth in revenue in 2018, this creates a significant productivity gap that procurement organizations must overcome, which will make it challenging to invest in digital transformation efforts.
In addition, the study found capabilities shortfalls around procurement’s ability to address five key enterprise objectives: expanding procurement’s influence; elevating the role of procurement; improving procurement’s business agility; supporting enterprise digital transformation; and deepening spend influence. While procurement leaders understand that all these areas are important, they also acknowledge that their ability to address them is low, the study found.
Similar capability gaps were identified in several internal development areas for procurement, including: aligning skills and talent with business needs; measuring procurement’s performance and business value; obtaining more value from existing suppliers; and obtaining more value from category management.