Despite a growing business case for digital transformation – according to our recent analysis, the return on investment could be as high as 600% – progress has been measured. Until last year, that is. The pandemic triggered the digital wake-up call that many organizations needed. Companies made massive changes to maintain business and operations through digital channels because they had to. Now, we have to maintain that momentum while working from a proactive rather than a reactive position. The way to do that is to focus on building five core digital capabilities within your procurement function.
The mandate has strengthened
The experiences of 2020 underscored the value of a digital operating model and solidified perspectives about the role of digital transformation in the next normal. In our 2021 Key Issues Study, approximately 73% of respondents said they expect acceleration of digital innovation to be a permanent characteristic of the business environment after the return to stability, and 72% expect an enduring shift to digital delivery channels.
Not surprisingly, enterprise digital transformation catapulted to the No. 1 priority for 2021, up five spots in the ranking from the previous year. Procurement executives ranked it fourth in priority, behind only reducing spend cost, reducing supply risk, and increasing the ability to act as a strategic advisor to the business – and it will be critical to advancing many of the other items on the 2021 procurement agenda.
A framework for accelerating digital transformation
Today’s procurement technology landscape is broad, with rapidly evolving tools and players, and ambiguity that still surrounds the potential benefits and return. With the stakes high and investment dollars limited, how can you be sure you are making the right moves?
We have found it effective to focus on building five essential digital business capabilities (Fig. 1): digital engagement, digital workforce and organization, digital service optimization, digital ecosystem, and analytics-driven business insight.
FIG. 1 The Hackett Group’s Digital Acceleration Framework
To illustrate these digital business capabilities and the technologies that enable them, we gathered examples from across our work with various procurement leaders.
- Digital engagement
A flood of technology innovations has transformed the way procurement engages with customers, suppliers, partners and other stakeholders – and the field is still rapidly evolving. These technologies can optimize stakeholder experiences by digitizing and integrating interactions across channels and leveraging data.
While standardizing processes at the back end, procurement should focus on providing user-friendly technology and self-service tools that increase efficiency and speed, reduce errors, and improve experience. Development of digital engagement capabilities should emphasize knowing the suppliers and internal stakeholders, customizing interactions, enabling stakeholders to access services or information in different ways (web, phone, app, email, etc.), ensuring consistent interaction across channels, and providing analytics and insight in real time.
Examples of the digital engagement capabilities that procurement organizations are developing
- Spend dashboards and real-time access to data
- Buying desks designed to engage and inform stakeholders
- Seamless multichannel engagement
- Built-in customer privacy and security
- Intelligent agent-assisted self-service
- Chatbots/intelligent agents
- Intelligent devices and omnichannel tools
- Data visualization and real-time analytics
- Customer relationship management systems
- Digital workforce and organization
Technology has changed the nature of work by automating routine tasks, digitizing workflows, connecting co-workers in virtual teams, and untethering and empowering knowledge workers with personal productivity tools. These capabilities use digital tools and platforms to maximize productivity, intellectual property creation, and the value contribution of both individual workers and the teams in which they work. Most of today’s digital capabilities enable workers through remote access to applications and self-service provisioning: knowledge management tools; workforce collaboration platforms such as Microsoft Teams, Zoom and Slack; and other means of communication and engagement.
The next wave of digital transformation will have an even more profound impact on the workforce than traditional automation and, for many roles, will change the nature of work beyond recognition. This will be the result of a perfect storm: the entry of a digitally native generation into the workforce, the mass adoption of traditional technologies that eliminate most repetitive tasks, and the rapid maturation of cognitive technologies.
Examples of the digital workforce and organization capabilities that procurement organizations are developing
- Seamless access to enterprise data
- Common, easy-to-use communication, collaboration and creativity tools
- Access to analytical tools
- Knowledge management systems
- Virtual collaboration tools
- Cloud-based applications and data
- Self-service analytics
- Digital service optimization
Historically, business process automation has never fully lived up to its promise due to the inherently dynamic nature of business processes and operating models, and the inability of business applications to adapt to changes at the speed at which business operates. Without a major overhaul of technology platforms and upgrade of information technology (IT) capabilities, this agility gap will only widen. Digital service capabilities center around the use of content and process digitization, business process management, automated workflows and approvals, robotic process and cognitive automation to maximize the efficiency and effectiveness of procurement services, and the execution of underlying processes.
To optimize digital service, procurement organizations will need to fully adopt cloud-based applications across the source-to-pay landscape – both to streamline and automate traditional, rule-based processes, and enable the efficient delivery of new services. These tools must be faster to implement, easier to configure and more intuitive to use than tools used in the past.
Examples of the digital service optimization capabilities that procurement organizations are developing
- End-to-end process design and intelligent automation to eliminate manual dependencies and continuity risks
- Autonomous decision-making based on artificial intelligence
- Virtualization of procurement service delivery
- Supplier portals
- Cloud-based modern application platforms
- Robotic process automation technology
- Supply risk and supplier relationship management tools
- Business process management, workflow and orchestration solutions
- Smart automation technologies
- Digital ecosystem
Traditional organization structures and value chains are evolving into networks of digitally connected resources, service providers, and consumers. The business-to-business networks, knowledge networks and internet of things (IoT) are examples of emerging digital ecosystems. Within a knowledge network, companies may, for example, crowdsource innovation, collaborate with strategic suppliers to innovate, or incorporate customer feedback into product development. An ecosystem based on the IoT may enable entirely new business models, products or service offerings.
Digital pathways that connect procurement with business stakeholders, suppliers and third-party service providers will enhance the value that procurement brings to the organization. These also augment process efficiency and improve user experience.
Examples of the digital ecosystem capabilities that procurement organizations are developing
- Automated supplier networks
- End-to-end life cycle management solutions supplemented by best-of-breed technologies with seamless connectivity
- Digital platforms such as e-sourcing and e-procurement
- Virtual collaboration and network tools
- Analytics-driven business insight
Superior ability to mine data for business insight is an important – and for many industries, the most critical – competitive differentiator. Digitally native companies like Uber, Amazon, Facebook and Google optimize their service offerings almost in real time based on analytics-driven insight. Established industrial age firms like Caterpillar, GE and Bayer are redefining their business models, generating analytics-based revenue streams. Consumer packaged goods giants like Unilever and Procter & Gamble compete based on the analytical capability of their marketing functions.
The pressure to deliver on enterprise strategy – and then monitor and assess performance against that strategy – is driving procurement organizations to adopt more sophisticated tools and analytics capabilities. Modernizing data management platforms, managing data as a strategic asset and applying new analytics solutions will accelerate speed to value.
Examples of the analytics-driven business insight capabilities that procurement organizations are developing
- A single data repository with consistent definitions and governance
- Master data management
- Integrated business planning
- Real-time data access and visibility
- Prescriptive and predictive analytics for better decision-making
- Automated spend analytics
- Data visualization
- Master data management tools
- Machine learning
- Smart data capture
Of course, your specific priorities for developing digital business capabilities will depend on unique enterprise and functional business strategies and objectives. Also, keep in mind that these capabilities are highly interdependent, with business insight as the thread that ties all of them together. Therefore, you cannot decouple and approach them as discrete concepts.
Fast-track your procurement digital journey
While procurement organizations are increasingly becoming the owners of their digital journey, you will still need to work closely with the technology organization to ensure that system/tool selection is consistent with the overall enterprise direction. You will also need to make sure your own organization develops and maintains adequate capabilities to execute its digital business strategy. This includes capabilities for identifying and prioritizing opportunities, implementing new solutions at speed, and optimizing digital functionality following deployment.
The following steps can help you mobilize quickly yet intelligently for digital transformation:
- Segment procurement digital capabilities into the five categories described above.
- Determine the baseline maturity of these capabilities using an established maturity framework.
- Identify the key gaps and opportunities within your procurement processes.
- Develop a heat map that prioritizes areas for digital innovation.
From there, you’ll begin to see a clear picture of the direction you need to take.
 Our analysis of benchmark data projects that a $10 billion company, with business services organizations operating at a digital world-class efficiency level, spends $15 million more on technology than the typical organization of its size, and it has a $106 million lower operating cost.