How to win at the digital transformation of Procurement?
Note on terminology: In this article, I use "Procurement-as-Platform" (or PaaP) to describe an operating model for Procurement. It is inspired by eBay, Amazon, Apple and the most recent symbols of the sharing economy like AirBnB and Uber. It will have the benefits, I think, to foster a change of perspective, mindset, and culture in the Procurement community.
Procurement must not be an anachronism.
At a function level, what Procurement does (buying goods or services from external sources) hasn’t changed much and will not. What does change is the world that Procurement operates in. Procurement does not operate in a vacuum so how it does the job has to reflect his times (and continuously do so). Also, it has to take into account with/for whom it does it. It is about addressing expectations, serving stakeholders, attracting talent, and much more.
To avoid confusion, I want to emphasize that it is not the same as Procurement platforms, a trendy and overused term, that describes a type of Procurement software. PaaP is much more than that.
“Today’s fastest growing, most profoundly impactful companies are using a completely different operating model. These companies are lean, mean, learning machines. They have an intense bias to action and a tolerance for risk, expressed through frequent experimentation and relentless product iteration. They hack together products and services, test them, and improve them, while their legacy competition edits PowerPoint. They are obsessed with company culture and top tier talent, with an emphasis on employees that can imagine, build, and test their own ideas. They are maniacally focused on customers. They are hypersensitive to friction — in their daily operations and their user experience. They are open, connected, and build with and for their community of users and co-conspirators. They are comfortable with the unknown — business models and customer value are revealed over time”. The Operating Model That Is Eating The World, Aaron Dignan.
Digital Procurement is no longer an option but still uncommon.
There is an extensive literature describing what “world-class” or “best-in-class” Procurement organizations are. Some of their critical attributes can be summarized by speed and agility as both are highly valuable in a global, disrupted and ever-changing world.
Also, it is, I hope, clear that digital is the key to getting there.
So, it is no surprise that the digital transformation of Procurement is high on CPOs’ agenda. But, being on the agenda is not enough. What matters is to be clear about that it means (vision) and to know how to make it happen (execution). The current situation is that most Procurement organizations and CPOs do not have a digital strategy. And even less a structured roadmap for action.
“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.” 2017 Key Issues Study, The Hackett Group.
One of the explanation is that most of the literature I mentioned earlier does not help in developing a clear picture of what the result should be. It focuses too much on describing the means: the tools to digitize and automate processes. On top of that, if you add the relatively large offering on the solution market it explains why the attention of CPOs on the premature question: which one to select?
“CPOs are also asking which of the new digital solutions will bring real value to their companies today. Which of the many “digital procurement” software vendors will live up to their promises? What should their company’s roadmap for digital procurement look like?” Driving superior value through digital procurement, McKinsey.
Digital is more than just using a software!
“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.
So, to develop the right vision of what a digital Procurement organization is and to become one, it is important to look at digital from higher grounds; from an operating model point of view. It is the only approach to reap the benefits of digital. It is not just about automating decade-old processes. It is about doing things in a new way that is more efficient and effective in delivering value and growth to the rest of the organization.
A recent report by the Hackett Group (The CPO Agenda: Keeping Pace With and Enabling Enterprise-Level Digital Transformation, The Hackett Group) somehow helps in framing and defining better the digital journey that lies ahead. Taking from that report and also by looking at examples of companies that embody and exemplify the concept of digital operating model, it is possible to formulate what the digital transformation of Procurement means and how to get there.
“Procurement-as-a-platform” is what digital Procurement is about!
All the companies I mentioned at the beginning of this article share the same operating model. This model has been brilliantly described by Aaron Dignan:
His model (Purpose, Process, People, Product, and Platform) is interesting as it extends the classic People, Process, and Technology (or Talent, Transition, and Technology — How Do We Drive Technological Advances? Part I, Sourcing Innovation). It also puts front and center crucial aspects unique to the full potential of a true digital transformation.
“[Companies like Amazon, Airbnb, and Uber] aren’t just market matchmakers using data-driven algorithms to drive better buyer-seller matches; they invest in new value creation. In platform markets, cultivating user capability becomes as strategically important as reducing transaction costs. Successful platforms empower their users”. The Best Platforms Are More than Matchmakers, Harvard Business Review.
Envisaging Procurement as a platform brings together, in a coherent and consistent “package” several characteristics and attributes that will contribute to Procurement’s survival and/or to elevating its role to a strategic one. It also creates the foundations required to be more adaptable and responsive to trends in the modern economy and society.
For example, in another report, he Hackett Group lists the Five Imperatives for Creating Greater Procurement Agility:
- Reallocate resources from transactional focus to value adding
- Embrace digital transformation
- Leverage analytics-based decision making
- Adopt stakeholder/customer centric service design and delivery
- Re-skill the Procurement function
PaaP addresses all five because platform-based operating models:
- remove friction and focus on the object of the “transaction” by empowering and engaging parties to get and deliver more. They embed the principle that efficiency fuels effectiveness.
- will also enable Procurement to support the digital transformation of the whole company.
- can not exist without data (and a lot of data) as it fuels their recommendation engines and is the base of tailoring experiences to the specific needs of each user.
- are a means to get access to more and, potentially, on-demand expertise by changing the way the workforce is managed and delivery channels (Procurement-as-a-Service, contingent workforce, gig economy…)
Also, looking at Procurement as a platform is coherent with the peculiar role that technology plays in today’s digital and physical business world.
“The effect of digital technologies is to blur the distinction between creating value in the tangible world of atoms and creating value out of the data that comes from sensing and controlling that tangible world”. Digital to the Core: Remastering Leadership for Your Industry, Your Enterprise, and Yourself, Graham Waller & Mark Raskino.
Purpose: empowered relationships as competitive advantage
As a response to a world in constant change, long-term relationships between customers and suppliers in the supply chain is emerging as a critical way to get competitive advantages. It is what I described as SRM²:
PaaP allows organizations to translate the SRM² principles into practice. It is because to function, platforms rely on:
- an excellent understanding of each party (stakeholder/supplier) through data
- a laser focus on delivering value (the definition of what the value is being variable from company to company and from category to category)
- generating growth (reduction of waste, new markets, innovation…) by enabling participants to realize their full potential
This is what creates adherence and adoption.
It is important to remember that it is not just about digital solutions. PaaP is about the whole experience of working with (and in) Procurement. It encompasses all the various touchpoints in the Procurement processes: the digital ones and the physical ones. Another key characteristic of PaaP is to deliver a first-class and experience (digital and in real life) removed of frictions, of unnecessary bottlenecks, and of unnecessary intermediaries.
Process: experience, journeys, and touchpoints
“Speed and access change everything. [M]assive organizations are feeling intense pressure to innovate, as unencumbered startups take shots across their bows. Legacy processes that enforce bureaucracy, command-and-control structures, waterfall development, and risk management are still largely the standard among big corporations, yet they are liabilities in this fight”. The Operating Model That Is Eating The World, Aaron Dignan.
In many organizations, people complain about the technology that they use at work (and not just Procurement technology) and say “It should be as easy as Google or Amazon.” This explains why technology providers describe their offering to be Google-like or Amazon-like as they are what people often use as benchmarks. This shows that polishing and simplifying the design of the experience (the term experience covers the process and the technology that it supports) is important. (But, it would be a misunderstanding of the psychology of change to believe that it is the only aspect that matters for long-term adoption).
“There can be little question that the relatively mundane, repetitive jobs in today’s Procurement functions will disappear. Indeed, that extends to many jobs that SHOULD be mundane and repetitive and are only ‘complex’ because we choose to make them so (and it should be noted, this is an issue that is endemic to business activity, in no way specific to Procurement)”. Procurement — it’s time for a re-birth, Tim Cummins, CEO of the International Association for Contract & Commercial Management (IACCM).
As technology usually follows process, blaming technology to be too complex is very often a reject of the process itself. And, as the quote above illustrates, processes became complex by design (maybe not consciously, though).
So, Procurement has to also move to an experience-based approach to designing its processes. Like it is the standard practice on the sales/marketing side of business. To do so, it should not only aim at automating current processes but at obliterating them:
“Companies tend to use technology to mechanize old ways of doing business. They leave the existing processes intact and use computers simply to speed them up.” Reengineering Work: Don’t Automate, Obliterate, Harvard Business Review.
Striving to remove frictions changes the perspective. Instead of continuing to do the same as before (and doing most probably like all others — the so-called best practices), it encourages to look at doing things that were previously impossible.
“Challenging people to visualize processes as platforms completely changes how trade-offs between innovation, optimization, and user experience are debated and discussed”. Instead of Optimizing Processes, Reimagine Them as Platforms, Harvard Business Review.
Here are a couple of examples of processes illustrating a user-experience based approach.
The first example that comes to my mind is what Amazon did with Amazon Go.
Beyond the buzz and technobabble, Amazon Go should provoke the interest of Supply Chain professionals.
By the way, it is “just” taking the use of vending machines (for MRO, for office supplies, or other consumables) a step further.
“We can start to imagine all those occasions and processes where the administration of stuff being handled, moved, bought, consumed could be made “touchless” — no need for the humans involved to do” anything consciously in order for the parties involved to know that the activity has taken place”. Amazon Supply Chain Innovation — Just Help Yourself!, Spend Matters UK
Compare the seamless experience of Amazon Go with a typical consignment process! Now, imagine what that consignment process could be if it was designed in the same spirit as Amazon Go. The design of the experience is centered on “growth”. Meaning that it enables parties to mutually realize their potential and remove the superfluous from the foreground and make it happens behind the scenes.
- Assistants and chatbots:
Another illustration of entirely rethinking processes as experiences, journeys, and touchpoints to make them more efficient and effective (and in par with mainstream ones) is what I called a Procurement assistant:
The idea behind the assistant is what the technology world is currently doing (Siri, Cortana…). Chatbots and conversational commerce are hot topics in the tech sphere. Even if no one has yet fully figured it out and moved beyond the gadget/geeky aspects (except, maybe, Amazon — again! — with Alexa), it is a massive opportunity to revamp experiences regarding interactions and personalization.
The blockchain, beyond Bitcoins and other digital currencies, has the potential to drastically change the way organizations manage transactions and the exchange of value. But there is more.
As I mentioned earlier, PaaP supports the SRM² model. And, for the model to work, a certain number of conditions exist. One is trust:
- between the supplier and the customer,
- between the Procurement organization and the other departments,
- between the Sales organization and the other departments.
These three “circles of trust” are the building blocks of a genuine dialogue (instead of one-way communications). Blockchain is the means to create digital trust between parties by bringing security and transparency in transactions.
“[The] blockchain is a major breakthrough. That’s because its decentralized approach to verifying changes in important information addresses the centuries-old problem of trust, a social resource that is all too often in short supply”. Blockchain technology: Redefining trust for a global, digital economy, Michael Casey
One of the more direct benefits of using blockchain is to lower transaction costs. From contracting (more on that later) to payments, blockchain removes intermediaries and fees. It is therefore the ideal solution to streamline processes where what you do to buy costs more (or close to) that what you actually buy. It will have Procurement rethink what to do with the tail spend! Also, the experience is quite different when compared to traditional processes. Easier and faster are the keywords as explained in this episode of the Thriving At The Crossroads podcast.
In addition to payments, the blockchain opens new horizons for contract management. As Alec Ross says in “the industries of the future” (using the purchase of a house as an example), contracting hasn’t fundamentally changed in the last 45 years and involves a lot of papers, lots of signatures and lengthy procedures. It is because of the lack of trust between parties with regards to the financial transaction and the timeframe of such transactions. Also, the need to prove/define ownership adds to the burden. As already mentioned earlier, blockchain can make payments real-time, and it also solves ownership issues as blockchain records log who owns what in an easily retrievable (public), up-to-date, and secure manner (which also represents benefits for IP protection).
On top of that, execution of contracts can be drastically streamlined and automated with smart contacts:
“A smart contract has the capability to facilitate, execute and enforce the performance of negotiation of a contract. The entire lifecycle of a smart contract is automated and can provide valuable as a complement to or substitute to a legal contract”. Blockchain enabled Trust & Transparency in supply chains, Jørgen Svennevik Notland
Other applications tap into the traceability and transparency that the blockchain embeds. By being a permanent and secure record of all transactions between all tiers of the supply chain, it can replace all existing paper-based systems. Plus, as it is available publicly (anyone or all partners in a network), it is broader and deeper than usual practices that only apply to Tier 1 (sometimes Tier 2) suppliers.
“The project — a collaboration between Walmart, IBM and Tsinghua University in Beijing — was first unveiled in October, when the project partners claimed they were creating a new model for food traceability, supply chain transparency and auditability. “By harnessing the power of blockchain technology designed to generate transparency and efficiency in supply chain record keeping, this work aims to help enhance the safety of food on the tables of Chinese consumers,” noted an IBM press release. In fact, the pilot project was initially planned to track and trace Chinese pork; U.S. produce was added later.” Walmart Testing Blockchain Technology for Supply Chain Management, Bitcoin Magazine.
Blockchain may sound like science-fiction or for the uber-geeks only, but it is not. Mainstream companies and actors use blockchain or enable the use of it. For example, Microsoft. Also, blockchain exemplifies the “platform” philosophy. Organizations can build numerous applications on top of the blockchain architecture (technical platform). Also, it removes friction and intermediaries allowing
“The notion of shared public ledgers may not sound revolutionary or sexy. Neither did double-entry book-keeping or joint-stock companies. Yet, like them, the blockchain is an apparently mundane process that has the potential to transform how people and businesses co-operate”. The promise of the blockchain. The trust machine, The Economist
All the examples I just mentioned illustrate the fact that Procurement has to think about engaging internal customers/stakeholders and suppliers in different ways. Procurement has to build omnichannel and replicable but unique experiences that fits with:
- the type of purchase,
- who purchases,
- the context of the purchase.
- Human touchpoints:
The concept of omnichannel experiences extends to the real world. Not everything is about technology and digital. Human touchpoints are also very critical to manage, maintain, and nurture relationships.
For example, organizing business reviews (BR) with key stakeholders and with major suppliers is an opportunity to look at the business from a different perspective than during day-to-day interactions. Here too, it is crucial to design the BRs in a way that matches the relation and the business needs. BRs are moments where involved parties have more intimate and trust-based exchanges about where they are and where they want to go.
In the same spirit, setting up “single points of contacts” (SPOC) participates, like the BRs, to creating more proximity and intimacy between Procurement and stakeholders.
“The client contact is mapped out, and the procurement team becomes aware of every senior new role or person in the organisation they need to consider. They execute these important steps — they contact and communicate with them; they make a point of understanding their particular business objectives; they understand what type of person they are; they collect information and keep up to date with issues and goals in those business teams”. The Fujitsu Procurement Transformation Story (Part 2), Spend Matters UK
The same is transposable to the supply side: one buyer is assigned as the main contact of a supplier. He is able to speak for the whole organization during BRs, negotiations, and escalations. That gives him access to a higher level of interlocutors at the supplier. It also provides the suppliers with privileged access to information, market, and power.
People: new ways to manage talent
Physical touchpoints exemplify that business is Human-to-Human (H2H) and that all of it must not be left to technology. Considering Procurement as a platform whose primary objective is to efficiently and effectively manage the dependencies between an organization and its suppliers has the effect to position the choice of
- delivery models (in-house, BPO, Procurement-as-a-Service,…),
- organizational models (centralized, decentralized, Center of Excellence…),
- workforce/talent management and enablement,
as somehow secondary and as a consequence of their purpose.
Also, the various possibilities listed above can co-exist in the same organization. The principles of omnichannel and personalization also apply there. Depending on the category, the stakeholders, the internal resources, the organization can select the most appropriate model. The objective being to employ the best talent (from an individual and collective point of view) and to continuously adapt to the needs and the market.
Many organizations do not have the required expertise available in-house for all the categories they manage. They focus on the most critical ones. And, because of a particular project or because of a merger & acquisition or because of the emergence of new technologies on the supply market, what was marginal may become vital. To ramp-up capabilities and to temper its talent, the organization can decide to:
- train his current resources
- source and hire new talent
- tap into the gig economy (the market of independent contractors and freelancers)
- rely on the wisdom of crowds (crowdsourcing, for example, is one of the many ways to use external resources for a specific task or problem instead of hiring a consultant or expert).
Technology (automation and AI) redistributes work and redefines skill sets. Cognitive Procurement is about “People + Technology” and not “People vs. Technology”:
This reinforced collaboration with machines has profound impacts that PaaP can help mitigate as it provides a system that is more agile, scalable, and adaptable.
“Automation has begun to displace human workers, as some predicted, but the effect is more than just replacement — it’s advancement. The influx of sophisticated technologies will enable us to think of work in new and innovative ways. […] We are witnessing the emergence of the “liquid workforce” and the “human cloud” as new workforce models. The “liquid workforce” refers to employees who are able to re-train and adapt to their environment in order to stay relevant during the digital revolution”. The future is automated. Here’s how we can prepare for it, The World Economic Forum.
To conclude, I have to acknowledge what could be potential objections. Some of the companies mentioned as “models” have had their shares of issues (regulatory and social). Some are far from being profitable.
The fact is that they exist and are what people are getting familiar with. From a design and experience point of view, they are “references” and prefigure profound changes in the business world. So, I believe that Procurement has to rethink the way it operates and is used.
These organizations and the platform model are an inspiration. When Procurement will see itself as a platform (with all what that means), it will be in a far better position to provide companies with a competitive advantage by enabling all other functions that depend on external goods and services to unlock their full potential and to do so in the most efficient, effective, and sustainable way.
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