A digital transformation is set to take place in the coming years, and the Procurement world can expect substantial changes as a result.
As Heraclitus once said, “the only thing that is constant is change.” Another thing that is equally true today is that digital is playing a central role in pushing organisations and individuals towards change.
Digital transforms everything, from B2B to B2C and beyond: what we consume and buy, how we consume and buy, and how we work. We are just starting to see some of these changes but what we are witnessing today is just the tip of the iceberg. There is much more to come. Within the next few years, a digital revolution is set to take place, and the Procurement world can expect substantial changes as a result.
This is why Procurement needs to embrace “digital” and succeed in that transformation more than any other function. the function has been lagging behind and the current situation is far from ideal.
The adoption of any change is not something that should be taken for granted. John Kotter, in his international bestseller, Leading Change published in 1996, reports that 70 per cent of change initiatives in organizations and businesses fail. More recent sources reveal a similar situation. Despite years of experience in the project management field, projects continue to face the same issues and obstacles year after year:
Source: Project Management Institute: Pulse of the Profession 2018
History shows that Procurement is also 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 eSourcing by “best-in-class” companies has stagnated at 60 – 70 per cent 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. Although one article cannot cover every aspect of such a vast issue even taking the time to consider the few simple and pragmatic points presented here can already difference between success and failure.
Challenge #1: Understanding the many facets of “digital”
“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.” What Everyone Gets Wrong About Change Management, Harvard Business Review
The most common mistake that organisations make is to look at technology as the solution to all their problems and to think of it it as an end in itself (when it is just a means to an end). A second pitfall is that, many organisations 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, new technology which can enable organisations to do things that were previously impossible.
“Ideally, [the] investment will lead to digitally automated processes, even beyond the transactional purchase-to-pay, with only limited manual support required. Such digital tools and processes will additionally support business process outsourcing and shared-services centers, further boosting efficiency. Ultimately, however, the benefits will arise not simply from reducing costs, but also from freeing up highly qualified procurement resources from mundane, repetitive tasks so they can focus on delivering value to the business.” Procurement 4.0: Are you ready for the digital revolution?, PwC
This poor understanding of what technology can do and what organisations can do with technology is painfully evident in the misuse of words like digitisation, digitalisation, and digital transformation. These terms are often used interchangeably when they actually mean very different things:
- Digitisation is the conversion from analog to digital. Atoms become bits (e.g. digitisation of data). You cannot digitise people.
- Digitalisation is the process of using digital technology and the impact it has (e.g. digitalisation of a process). It is what most digital projects in Procurement are actually about.
- Digital transformation is a digital-first approach that encompasses all aspects of business, not just Procurement (which is why ”the digital transformation of Procurement” is an abuse of language; a good one to make though). It leads to the creation of entirely new markets, customers, and businesses (people, capabilities, processes, operating models,…).
So, before defining what technological approach to take, the first step is to determine and identify the business value that needs to be captured or improved as a result of a digital project.
Challenge #2: Transformation and people
Many organisations make another serious mistake when looking at digital initiatives. They approach them in the same way they would approach simple IT/technical projects, when these projects really need to be about transforming business. n. This tendency also explains another set of common mistakes that result from forgetting the human aspects of these projects.
“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.” 2017 Global Digital IQ Survey, PwC
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 organisation that does not know where it is going will have difficulties defining some of the critical aspects of digital projects. For example:
- deliverables that include, among other things, the requirements for the solution to be implemented (poor requirement management is one of the most common issues),
- scope (which categories, which suppliers, which geographical locations, which processes…),
- roll-out and deployment plans (what, where, when, how).
Rushing in without planning
Being too quick to take action and not allocating enough time to planning is another frequent mistake. Most people have a natural tendency to “do” and many prefer to skip the important planning steps and tend to dive right into new projects without taking time to think. Organizations are also under pressure to get results fast, and can be over eager to “make things happen” putting 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 per cent of the success in negotiations comes from good preparation, but for some reason many forget to apply that same approach when it comes to the implementation of a digital Procurement solution.
Focus on deployment while adoption is left for later
”We’ve spent an awful lot of money on technology, but I still see people working in the old way,” complained the CFO of a large hospitality company. The result is often widely deployed internal applications that no one actually uses effectively.” Convincing Employees to Use New Technology, Harvard Business Review
When an organisation launches a project to deploy a new solution, there is an implicit understanding that the system will also be used. But, 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 to savings, the difference between a deployed solution and an adopted solution is like the difference between negotiated and realised 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).
Another way is possible and needed!
“Insanity: doing the same thing over and over again and expecting different results.” –Albert Einstein
The use of digital technology in Procurement is not a new topic. However, the way Procurement organisations approach such projects has to change. Experience shows that results are not at their best; Procurement technology is still far from being widely adopted and there are still many areas that will need to improve before teams can actually benefit from past initiatives.
More importantly, “digital” means much more than using a piece of software. It is a critical capability and characteristic in a world that is becoming more and more complex and is characterized by VUCA (Volatility, Uncertainty, Complexity, and Ambiguity). Only digitally-enabled Procurement organisations will thrive in our modern world because they will be able to transform apparent threats into opportunities and deliver more and better business value to the rest of the organisation.