CPO Rising: The State of Procurement
In 2019, Chief Procurement Officers and their teams are standing on the shoulders of giants, watching the Fourth Industrial Revolution disrupt global commerce and beginning to feel the effects. The business world is transforming itself through data-driven innovations and insights, but procurement has lagged behind many of its functional peers within the enterprise. But, as the average age of a procurement staff (and their leaders) has decreased over the last decade, more CPOs continue to view technology investments as a top strategy. In truth, most CPOs see room for immediate improvement and believe that their organizations should be performing better. What has worked in the past is no longer good enough in 2019; it will be even less so in the future. This means that CPOs must take new steps if they are to maintain their momentum or risk falling back. More specifically, procurement teams must continue doing what they have been doing, while also finding newer, more innovative, and more impactful ways to expand the value they create within their enterprise and across their supply chain.
A decade ago, Ardent Partners wrote in depth about the need to stay ever vigilant and on the lookout for the new, game-changing ideas in CPO Rising 2011: Innovative Ideas for the Decade Ahead. A few years later, in CPO Rising 2014: Convergence, the growth of procurement’s influence and its subsequent convergence with other business functions and units illustrated how innovative, effective, and widespread the procurement function had become. But as has been discussed, procurement’s success in driving value – measured by the total spend under its management, the savings it realizes, and the addressable spend that it sources, among other ways – has started to slip. And although respondents to this year’s survey feel quite assured with procurement’s impact on the organization and the positive trend of that impact, they also provided indicators to the contrary.
Managing the Right Things
While procurement’s overall performance metrics have been stagnant this past decade, their impact is being felt to a greater degree by their businesses. As Figure 1 shows (next page), a vast majority of CPOs believe that their procurement organizations either have their procurement resources tightly-aligned with the most important business projects and initiatives (27%) or that their procurement resources are generally-aligned and are usually working in unison with the business (52%). The total of those two groups is nearly double the number that was captured by these two groups in 2018. Additionally, 20% of CPOs believe that their procurement resources support the business, but are also strongly focused on its own goals. Almost no CPO considers their team as poorly-aligned and siloed off from the rest of the enterprise. These numbers strengthen the argument that procurement is as agile and impactful as its leaders collectively think it is.
Different Year- Different Pressures
The specific business pressures that procurement teams face this year suggest that many groups now feel the need to commence a digital transformation, automate and link processes to make them more efficient and effective, and mine Big Data. Unlike in 2018, when the top business pressure for procurement was to communicate its value and performance to the rest of the organization, 31% of respondents stated that they feel most pressured to drive digital transformation by increasing and or enhancing the level of automation. Digital transformation has morphed from a buzzword to a high-leverage strategy. As noted both earlier and below, procurement departments are not aggressive users of technology and by and large, struggle to keep pace with the level of innovation available in the solutions market.
Year after year, Ardent Partners sees sub-par adoption numbers for automated supply management solutions across the source-to-settle value chain; it is no wonder that CPOs and their teams feel downward pressure to automate, transform operations, and align themselves with the rest of the enterprise in the process.
The pressure to automate processes and drive digital transformation for procurement is more urgent than any other business need in 2019. It tops the need to streamline and or improve processes for greater efficiency and effectiveness (23%, a new addition in 2019), and the need to identify more savings (22%), which has steadily declined year-over-year as a business pressure. In fact, the continued decline in procurement’s need to identify more savings– from 91% in 2009, at the height of the Global Recession to where it is now – continues the decade’s long story of the shift in priorities for CPOs and their teams. There is significantly more to driving value and making an impact than identifying (and realizing) more savings. It remains an important business pressure and a priority for CPOs and procurement at large. But clearly, driving automation and digital transformation, streamlining and improving processes, and increasing efficiencies and overall effectiveness are the strategic drivers CPOs are focusing on this year to achieve results.
Achieving Next-Level Performance
A logical extension of the business pressures facing procurement in 2019 is an analysis of the resources and catalysts identified by CPOs to reach their next level of performance (or expanded value). The levers they believe are needed to drive their initiatives and improve performance; the strategies they intend to execute upon in order to achieve results; and the challenges or hurdles they encounter or expect to encounter along the way, are significant.
The CPO Rising 2019 survey tells a familiar, logical, and ultimately a reassuring story for procurement: better data visibility can be gained from enhanced analytic capabilities (37%), made possible with new or improved technology (33%), and employed by more talented and technically capable staff (30%). When viewed this way, it is a simple and fairly straightforward formula for CPOs and their teams to enhance their performance and drive greater enterprise value.