84% of procurement organizations envision a digital transformation - but only 32% have a strategy. What do CPOs need to know to plan digital procurement properly?
According to the Hackett Group’s 2017 Key Issues Study, “84% of procurement organizations believe that digital transformation will fundamentally change the way their services are delivered over the next three to five years. Yet only 32% have developed a strategy for getting there.”
This is a frightening situation. There is a massive gap between where CPOs see where Procurement should be and where it is. Also, CPO lack clarity on how to get there.
On top of that, in another report on the Digital Transformation of Procurement, the Hackett Group highlights that “only 25% say that procurement has the right resources and competencies today to execute that transformation.”
What is Digital Procurement?
Digital Procurement is more than just using a piece of technology. It is a complete overhaul that has further reaching consequences than what most people think when they speak about digital transformation.
“The digital operations advantage is about more than great tools. It’s a combination of people, processes, and technology connected in a unique way to help you outperform your competitors”. Leading Digital: Turning Technology into Business Transformation, George Westerman, Didier Bonnet, and Andrew McAfee.
To avoid the usual abuse of language when talking about digital transformation, we should be precise about the vocabulary we use for digital procurement. People often use the words digitization, digitalization, and digital transformation interchangeably.
To some extent, the misuse of these words explain why so many CPOs are not able to articulate a digital strategy. Most organizations already use some technology so they do not see what more they can do to become truly digital.
Here is our take on defining the keywords of digital procurement:
- Digitization is the conversion from analog to digital. Atoms become bits (e.g. digitization of data). You cannot digitize people or a process.
- Digitalization is the process of using digital technology and the impact it has (e.g. digitalization of a process).
- Digital transformation is a digital-first approach that encompasses all aspects of business, regardless of whether it concerns a digital business or not. It leads to the creation of entirely new markets, customers, and businesses.
Most of the time, when people talk about the “digital transformation of Procurement,” they speak of digitization or digitalization. For example, in the P2P process:
- Scanning of invoices is a typical example of digitization.
- The use of an eProcurement tool is an example of digitalization.
What Can Procurement Do To Become Digital?
The definitions above highlight how the concepts are nested. Digitizing information makes the data easy to access, copy, share, transfer, and process. Using digital data is more efficient than using it in analog form. The next step is the digitalization of a business process by using technology to improve or transform it with the aim to generate more revenue and / or to reduce costs.
Digital transformation is the broadest of the three terms. It is quite different from digitalization. Digitalization is often an incremental improvement or an adaptation of an existing and non-digital process that increases efficiency. Digital transformation is designing new ways of doing things that generate new sources of value. It is more related to effectiveness. It encompasses all of the enterprise, not just a specific process or function. This is why talking about “the digital transformation of Procurement” is not 100% correct.
The main pillars of a digital transformation are:
- Data (analytics, and information management): know your customers, know your suppliers, etc.
- Focus on customer experience and value / service delivery: the aim being to become the concept of customer / supplier of choice because
Stakeholder experience is where many procurement organizations must work on. Procurement is known for hiding behind complex and not very user-friendly processes. It is seen as a hindrance more than an enabler of its partners. This explains why many departments tend to resist involving Procurement in their external spend.
”Every business, no matter how old, has the opportunity and the ability to digitally remaster its products and services.” Mark Raskino & Graham Waller from Gartner in Digital to the Core: Remastering Leadership for Your Industry, Your Enterprise, and Yourself
These experiences are designed with the “digital-first” philosophy. This means that technology plays a key role in enabling new ways of doing things that benefit the Procurement organization, its internal customers and its suppliers.
CPOs must work now on assessing the potential of the latest technologies like:
- Blockchain: For smart contracts, asset management, payments and more
- Drones, self-driving cars / trucks, delivery robots and similar developments that will impact every supply chains in the world in the next years
- 3D printing
- Sensors and the Internet of Things (or the Internet of Everything)
- Cognitive Procurement: Artificial intelligence, machine learning, robotic process automation (RPA), digital assistants and chatbots
- Energy: There is an energy revolution and renewables offer tremendous opportunities
Some of these emerging technologies have the potential to revolutionize business by creating new possibilities:
- “Zero length supply chain”
- “Batch size one” (mass customization)
These are opportunities that will disrupt the markets of many companies and the markets of many suppliers of these companies.
"Digital business transformation is about doing things differently – creating new business designs by using digital technologies in combination to blur the boundary between the physical and the virtual worlds. It’s not just about automating or inserting technology into an existing process. Nor is it about replacing paper or people." Gartner
Even if the expression “digital transformation of Procurement” is, by definition, wrong, it still makes a lot of sense to use it, as long as we are aware of the abuse of language. It fosters a new perspective and approach to redefining how Procurement operates. The purpose is to make organizations antifragile to prosper in our modern VUCA (Volatile, Unpredictable, Complex and Ambiguous) world.
Where to Start?
This is a lot of information to process, so how can CPOs and procurement organizations start taking concrete steps to plan their digital strategy?
We have developed a digital procurement checklist to help you determine exactly how advanced your organization is. With this checklist, you can identify your strengths and weaknesses and see which factors you can work on.
Download the Digital Procurement Checklist here: