Challenges and strategies facing the Procurement function in 2020
Digital transformation holds great potential for procurement, but how far have businesses really come? Although a key procurement trend a recent report reveals little progress since 2017. The Digital Procurement Report 2019 identifies challenges including lack of budget, data integration, and IT skills (JAGGAER).
These contributing factors have delayed more rapid progress; yet, digital transformation remains a key strategy for businesses. And procurement should be central to maximise return on investment. Here we look digital transformation and its role for procurement departments in 2020 and beyond.
Identifying digital transformation
Digital transformation is essential for all businesses large and small. In a digital world, organisations need technology to stay competitive and relevant. But the term is so broad, a ‘catch-all’ slogan, that it’s not clear what it means. Exactly what steps are required? How does our strategy need to change? Will it be worth the investment?
Digital transformation is the integration of technology into all areas of a business. It sounds simple but is far from it. The objectives behind it are to rethink operating models, to innovate, to become more agile in your response to customers and rivals.
• 66% expect to generate more revenue
• 48% predict that more business will arrive via digital channels
• 40% want to empower employees with digital tools
• 30% will reduce costs
Companies working on digital transformation, Gartner
Done right it’s likely to fundamentally change how you operate and deliver value to customers. The need is clear; a Forrester study says that a large percentage of leaders believe that by 2020 almost half of their revenue will be influenced by digital.
Meanwhile, Gartner found that 66% of companies doing digital transformation expect to generate more revenue from their operations, while 48% predict that more business will arrive through digital channels. Other reasons for doing it were to empower employees with digital tools (cited by 40%) and to reduce costs (cited by 39%).
Procurement 2025: enabling digital transformation
Digital technology is having an impact on procurement strategy around the world. A key study, Efficio’s Procurement 2025, explores the way in which procurement leaders are approaching transformation. Key findings include:
• Digital procurement technology will enable better data-driven decision-making
• Instead of investing in new tech, businesses want to better harness existing technologies
• Challenges include low levels of supplier support for new technology and solutions
So, technology can enable streamlined processes, predictive analytics and data-driven decisions. But businesses must find a way to use existing, proven technologies to do this; lack of budgets mean that investing in new technology is not an option. This throws up further challenges, often systems are not simple turnkey, plug in, sit back solutions.
These challenges may make digital transformation feel like a never-ending road. How can CPO’s ensure the benefits of digital transformation, while also overcoming the challenges? The Hackett Group suggest focusing on four main areas; citing that these will lay the foundations to embrace technology.
“When they can improve the overall stakeholder experience, create and launch a procurement-as-a-service portfolio, build a foundation of analytical insight and accelerate transformation using technology, procurement can more easily embrace technology – potentially increasing its standing within the wider business and gaining a significant competitive advantage over any rivals.”
The CPO Agenda: Keeping Pace with and Enabling Enterprise-Level Digital Transformation
Enabling digital transformation is not just about what procurement can do better – it’s also about what they don’t need to do. When budgets and resources are stretched it’s about reclaiming time and efficiency. Adding value to the business. Providing a better stakeholder experience. Delivering on these aspects is essential if digital transformation is to succeed.
Adopting a digital transformation strategy
One thing to bear in mind is the importance of strategy in making transformation happen. McKinsey reports that less than 30% of digital transformation initiatives succeed. A MITSloan report counters that it’s strategy, not technology, which drives digital transformation. And this makes sense.
Strategy drives digital maturity. The report found that only 15% of companies that are at the early stages of going digital say that they have a clear digital transformation strategy. Meanwhile 80% of companies who are digitally mature do have a clear strategy.
Simply the act of going digital isn’t enough. It doesn’t imply innovation, customer-centricity or strategic value. So before you forge ahead with your digital transformation strategy, remember;
• Embrace innovation and think fast
• Watch and be ready to adopt trends
• Harness the power of data
• Be ready for change, embrace the Internet of Things
• Adapt to the new needs of customers
Digital transformation is about more than digital; its strategy and culture. If you think your company will embrace digital slowly, think again. Your competitors will be moving quickly.
It is here that we see the biggest differences between start-ups and established companies. Start-ups are agile, and have a unique opportunity to build digital systems and processes into their business from the start. More established companies need to embrace new cultures and technologies before they’re disrupted by innovative newcomers.
• 70% of respondents indicated their companies had a digital transformation strategy in place [2018 survey by Tech Pro Research]
• 64% of businesses are introducing more automation to improve process efficiency [2018 IDG survey]
• Less than 30% of digital transformation initiatives succeed [McKinsey]
CPO’s can utilise digital transformation to show that procurement is an enabler. Through the smart use of automation, predictive analytics and innovative thinking the procurement function can enhance competitive advantage.
While procurement and finance share the same goals, digital tools can facilitate a better partnership. Going beyond cost-savings, transformation initiatives can free up resources and investment for other areas, helping to deliver key value drivers for the business.
Organisations with a forward-thinking CPO stand to become more agile, more responsive and more competitive. With the procurement function at the heart of the business, at the beginning and end of the supply chain, CPO’s are in a unique position to drive change, rather than being driven by it.
How we can help
Against a backdrop of economic uncertainty and technological changes, smarter working is in demand. Working strategically in a ‘business partner’ relationship can deliver savings across your business; including improved processes and efficient supply chains.
Find out more: to discuss your multi-category requirements, contact us today.