CPO Rising: Procurement Strategies for Success
Innovation is both a powerful word and a broad concept. Innovations can be complex; and they can also be simple. Some innovations are market-driven while others are engineering-led. Innovation can create new markets and innovation can create new dilemmas. Whether it results in an industry “game-changer” or a simple, incremental improvement, innovation is generally in the eye of the beholder.
Innovation is also a process, not an idea. Peter Drucker, the prolific management theory expert, defined innovation as “change that creates a new dimension of performance;” a positive change, something that creates new value or increases current value. Drucker’s definition is useful in explaining the real truth about innovations – that most are incremental in nature and build upon earlier work – most do not happen overnight.
For example, consider today’s iPhone XS – Apple’s flagship smart phone. It did not suddenly appear – it is the product of nearly two decades of incremental innovation by Apple, beginning with the development and introduction of the iPod Classic in October of 2001. Some developers have even argued that the idea of the iPod originated decades before, in the movie, 2001: A Space Odyssey, and in patents. The point is that one of the world’s most innovative products may have originated 40+ years ago when only science fiction writers and enterprising techies could conceive of the technology and its impact on the business world and society more broadly.
House of Procurement: When Innovation Knocks, Answer the Door
Given the level of organizational maturity, it is no surprise that most procurement-led innovation today focuses on the incremental; but, the reality is that many of the enterprise’s larger and longer-term opportunities will depend on how well procurement identifies and drives innovation within the enterprise and across the supply chain. In 2019, essentially half (49%) of all procurement teams report that they proactively work with their business stakeholders to understand innovation and their R&D needs; and that they also work to bring relevant suppliers to the table to discuss innovative ideas. After all, procurement neither operates in a vacuum, nor has it cornered the market on innovation.
Internal stakeholders and progressive suppliers all have innovative ideas to contribute to the larger discussion on driving more value through procurement and throughout the enterprise. Chief Procurement Officers not only have to reach across the hall to spark innovation, they also have to open their door when innovation knocks.
As the research states, 35% of all procurement teams still reactively respond to changing business needs and only occasionally tap their relevant stakeholders for their advice and input. And 16% of all procurement teams rarely, if ever, work on innovation and R&D initiatives with the rest of the enterprise or their supplier base – a missed opportunity to innovate and incrementally improve performance.
Procurement-led innovation is less of a formality in 2019 than it is dependent on organizational culture and business priority. It also shows that 14% of all CPOs and procurement teams have a formal supplier innovation program wherein they prioritize working directly with their supplier base to develop and integrate innovative ideas and technologies. This is generally considered a Best-in-Class approach and a proven method to identify more market opportunities and drive greater value. After all, supplier innovation does not simply “happen” – it is not a “light-bulb idea.” Rather, it takes continuous effort over an extended period to incrementally improve operations, processes, products, and services.
Best-in-Class procurement departments, on average, manage 89% of enterprise spend and they do it more efficiently and with greater impact than their competitors. They align themselves more closely with executives, adopt and utilize technology to a greater degree, and standardize their processes more consistently, which combine to drive better visibility and superior performance. Besides adopting the core strategies and tools of the Best-in-Class procurement teams, Ardent recommends the following strategies and approaches for CPOs and procurement departments seeking to improve their performance:
- Digital transformation (for beginners): For the procurement teams that are stuck with predominantly manual and/or inefficient processes and systems, it is time to think holistically about introducing technology into the source-to-settle process. Adopt the mindset and approach required to achieve a digital transformation, then simplify processes before mapping them to technology. Make sure to prioritize supplier enablement to drive system throughput and the Cloud to more regularly and rapidly access innovations. Also prioritize visibility into data, processes, and suppliers; and above all else, remember to engage key stakeholders early and throughout the process.
- Digital transformation (for continuing success): While starting a digital transformation project has its unique challenges, continuing down this often long and winding road takes vision, determination, and patience. The most important thing to remember is that incremental change is better than no change; and that incremental change can in itself lead to innovative and game-changing results. If budgets, time, and staff/talent do not allow for rapid, large-scale investment in new technologies, adjust timelines and opt for a smaller, multi-phased initiative.
- Digital transformation (for advanced procurement teams): Progressive, innovative CPOs and procurement teams that are agile, data-driven, innovative, and proactive change agents and value drivers continue to lead the way using solutions to reimagine the possible in procurement and supply management. These procurement “rock stars” are playing a tune that should be copied.
- Embrace agility as a strategy, and as a value driver: The days of “command and control” procurement operations are waning. Markets shift too fast; news cycles are too short; and innovation moves too rapidly to spend months or even weeks deliberating over basic decisions. Procurement needs to respond faster to market dynamics and business challenges. Chief Procurement Officers need to hire smart, talented, and resourceful staffers whom they can trust, and then empower them to make snap decisions based on data, intelligence, and the opportunities they present.
- Develop and implement a Big Data strategy: Procurement organizations need a systematic approach to capture, process, analyze, and respond to the different internal, supplier, and third-party data streams that can impact their work and decisions. Without such a strategy, procurement teams will be hard-pressed to manage and monetize the steady streams of data that continue to pour into their units and remain unable to uncover hidden insights and maximize opportunities.
Procurement, in the new millennium, has been on a remarkable winning streak. But, truth be told, a good number of CPOs gained their acclaim by simply entering the competition. More recently, the stakes have started to rise, while a new set of rules and parameters are redefining the game.
In 2019, overall procurement performance has leveled off; and the teams that do the same things over and over again, will get different (as in increasingly worse) results. In this context, standing idly by is the new procurement definition of insanity. Even those that more broadly adopt today’s best practices will eventually start to lose ground while their best competitors race to build both a bridge to the future and the means to transport everyone across it. Their vehicles will be fueled by agility, data-driven intelligence, and innovations both game-changing and incremental; but they will need savvy stewardship and steady guidance to reach their destination.
Procurement needs a reboot. To expand value creation in the decade ahead, the modern CPO will need an open and intellectually-curious mindset that has a capacity to thoughtfully consider new ideas and actively push them forward. CPOs must follow the courage of their convictions as they start to reframe the procurement function and how it engages and operates. Where courage does not exist, it must be manufactured. Remember that in business, the meek inherit nothing. Tomorrow’s best CPOs must develop new ways to break through inertia and drive better outcomes. They must inspire change, even as they execute it. Above all, they must unflinchingly see procurement as a competitive advantage and then work relentlessly to realize their vision.
By Ardent Partners and Canon Business Process Services
Published in CPO Rising: #ValueExpansion, April 2019
Reprinted with permission.