To thrive amid uncertainty, technology and digital transformation will be key.
The prospect of a global economic downturn, geopolitical uncertainty and talent shortages driven by long-term demographic shifts all weighed on the minds of executives as they responded to our 2023 Key Issues Study.
Executives are looking to technology as they consider how to manage the forces of change: 45% of executives said they are accelerating digital transformation (automation, advanced analytics and modeling) – more than any other response measured, including capital spending and cost reduction programs. The cloud has moved to the forefront as the platform organizations must leverage for agility, growth and transformation. In the study, 42% of enterprises reported having legacy solutions that must be replaced.
But organizational disconnects hold back many companies from achieving the transformation they are targeting. More than one-quarter of study participants across business functions said the inability to successfully transform their business and related functions is of key concern.
Amid unprecedented uncertainty, procurement executives ranked their priorities for the coming year
With the winds of change, procurement priorities are shifting
Supply continuity remains the top procurement priority for 2023. Spend cost and digital transformation also remain among the top five priorities for 2023 – but the study did observe some shifts. Given the economic environment, it is not surprising that combating inflationary price increases soared to No. 2. Improving analytics and insights and capabilities also rose several spots as organizations realize the importance of being able to support more predictive, prescriptive, and intelligent decision-making to tackle challenges like inflation and supply continuity.
There are significant disconnects between procurement priorities and planned initiatives
While many of the procurement function’s top 10 planned improvement initiatives mirror the priorities, some are not well aligned. Interestingly, talent management does not feature in procurement’s top priorities for 2023, yet it is the function’s No. 1 improvement initiative for the year, with 68% of organizations planning to address this area. Executives view talent management as a relatively mature capability area, which most likely explains its absence from the top 10 priorities.
That’s not the only imbalance. Only about one-half of organizations have planned initiatives to address supplier relationship management and third-party risk management – both keys to the No. 1 priority, supply continuity. Similarly, only 44% have a core procurement technology initiative, which is central to digital transformation.
Significant and meaningful progress won’t happen without action. Therefore, procurement executives need to do a better job of properly aligning resources and priorities.
Chief procurement officers (CPOs) are concerned about the maturity level of key initiatives
Procurement leaders view maturity to be lower for one-half of the priority improvement initiatives – making these critical areas for development.
After several years of reduced or flat staffing and budgets, procurement expects small increases in 2023, but it won’t be enough
Addressing these diverse priorities will require resources. The Key Issues Study confirms and quantifies what procurement executives already know: They must find a way to do more with less. In 2023, the procurement workload is predicted to increase by 10.6%, reflecting the broadening of priorities, but with little increase in head count and operating budget. This creates a productivity gap of 7.4% and an efficiency gap of 7.8%. After several years of reduced or flat levels of staffing and operating budgets, the modest projected increases in staff and budget shrink the magnitude of these gaps somewhat relative to last year’s study (11.4% and 12.4%, respectively) – however, procurement executives still have a significant challenge in front of them.
Procurement leaders will rely on technology and digital transformation to close the gaps
Overall, procurement leaders expect to increase technology spending, indicating a growing reliance on technology to increase productivity, efficiency and effectiveness.
Where procurement is investing
Digital transformation continues to be an essential enabler of procurement organizations’ ability to do more with less through better intelligence and increased speed, customer-centricity, and competitive advantage. The Key Issues Study looked at current adoption levels of digital technologies, as well as projected increases in adoption in 2023. Growth projections for 2023 reflect the perceived importance of technology enablement. Executives expect the greatest growth in adoption for contract life cycle management solutions (19%), supplier onboarding/portals (18%), supplier risk and performance management (17%), and project pipeline and savings dashboards (16%).
Many procurement technologies largely meet or exceed expectations today:
Despite delivering on business goals, many digital technologies remain stuck in the pilot phase
For procurement to succeed, digital technologies need to achieve enterprise scale. Currently, they do not. The Key Issues Study showed that procurement organizations have significant opportunities to expand these technologies beyond pilot projects or small-scale deployments.
Procurement teams are starting to move beyond the core to implement functionality to support supplier life cycle management, as well as other supporting and emerging technologies. While large-scale deployment of these technologies is still limited, with product pipelines and savings dashboards being the highest at 49%, there is an exciting level of piloting for supplier risk and performance management tools, as well as tail spend management solutions.
Most organizations are sourcing this functionality through point solutions, which is indicative of ongoing development in these solutions. As this functionality matures over time, we expect it to become incorporated into source-to-pay suites.
Procurement’s analytics adoption also remains mixed
Success requires providing reliable and forward-looking data and intelligence to end users, including capabilities such as modeling and projecting the impact of inflation. Digital and other technologies are at the center of this capability, yet adoption remains mixed. Data analytics and reporting ranked second among the top 10 procurement improvement initiatives planned for 2023, with 65% of organizations anticipating action in this area during the coming year.
Nearly one-half of companies surveyed have large-scale deployments of spend analytics tools, and another 44% have pilots in place. More than one-half of companies that have deployed spend analytics technology use point solutions. Still, this is among the technologies with the highest anticipated growth in 2023. On balance, executives believe these tools meet or exceed expectations.
On the other hand, procurement remains slow to adopt advanced analytics – even though organizations that have adopted advanced analytics are largely satisfied with their ability to deliver on business objectives. Only 10% of companies surveyed have large-scale deployments, and about one-third have pilots in place. Projected growth in adoption lags many other technologies.
One-half of organizations surveyed have a procurement center of excellence for analytics currently in place, while another 40% are piloting or planning for one.
Strategic business partnering is a key part of the transformation puzzle
Procurement organizations continue to view becoming a strategic advisor to the business as an enabler to achieving performance goals and delivering on an expanding list of enterprise and functional objectives. Having a place at the table is key to the function’s effectiveness.
Business partnering is a key capability to increase the function’s influence and become a trusted advisor to the business. Two-thirds of procurement executives anticipate taking action over the next year to strengthen governance and improve information flow as a means of elevating their business partnering capabilities.
Sharpen your focus for 2023
We believe procurement executives must look beyond the typical recession playbook – cutting staff and canceling investments – to support their business stakeholders during the upcoming year. Certainly, realigning investments to reflect current top priorities is critical for making meaningful progress toward objectives. Here’s what else we think will make the biggest impact in 2023:
- Make sure your team is equipped with the right capabilities for effectively managing inflationary pressures.
- Architect your technology landscape purposefully – seeking to find the right balance of integration provided by the enterprise resource planning and suite solutions versus the more specialized functionality of point solutions.
- Pursue continuous digitalization of core transactional processes to improve efficiency and accuracy, as well as to enable advanced analytics.
- Embed and expand responsible procurement programs through a robust set of policies, processes and governance that support corporate environmental, social, and governance objectives.
- Invest in business partnering capabilities to elevate your function’s stature as a strategic business advisor.
Download the full report to learn more about CPOs’ top priorities for 2023, including ensuring supply continuity, combating inflationary price increases, reducing spend cost, strengthening third-party risk management, and improving procurement agility and stakeholder-centricity.