World-Class Procurement: Redefining Performance in a Digital Era

To thrive in an era of intensified competition and volatility, the onus is on procurement to evolve its capabilities to not only become more efficient but also enable the enterprise to realize its strategic objectives. According to The Hackett Group’s 2019 benchmark data, a customer-centric approach to service delivery is helping world-class procurement organizations influence 93% of spend and generate 75% more savings than the peer group. Further, the emergence of digital tools such as robotic process automation and advanced analytics has given typical procurement organizations not only a new way to accelerate progress toward world-class status, but even exceed it if they fully optimize their technology architecture while reevaluating the way they work.

The Digital Imperative

Digital competition is shaping the business model of the future. Although few businesses are truly there yet, business leaders understand that digital is changing everything. Nearly 60% of business leaders from a variety of functions responding to our 2019 Key Issues study say digital transformation has already had a high or very high impact on their industry, a number that will grow to 72% within two to three years. Forty-six percent report it has strongly affected their operating model today; 72% expect it will do so within two to three years. When looking only at responses from procurement executives, the expectations are similar. Eighty-six percent of them anticipate a high impact on the procurement function’s performance over the next two to three years, and a similar percentage say digital transformation will have a substantial influence on their operating model.

A variety of trends are pressuring procurement organizations to digitize their operations. Rising consumer demands, disruptive technologies and increasing competition all require that businesses adapt quickly or be left behind. Procurement is not exempt from these demands and will need to step into a more strategic role as a business partner and operational enabler. Adoption of digital tools, agile thinking and behavior, advanced analytics and performance measurements adapted to the digital era are all core elements in the future procurement organization.

World-Class Digital Service Delivery

Procurement organizations achieve world-class performance and business value by maximizing performance through their service delivery capabilities; this is the “how” of digital world-class performance. With the customer at its core, the service delivery model focuses and influences the digital, agile and data-driven enterprise culture that must surround and orient around the customer. Proven and emerging best practices provide the horsepower and transfer momentum from the outer ring of six interconnected service delivery capabilities. These are:

• Technology: Leveraging digital tools to enable automated transactions and workflow, improve data quality, and accelerate information analysis and delivery
• Service Design: Adapting from a process-led to customer-centric design, using new methods (e.g. , design thinking)
• Analytics and information management: Delivering informed options for purchasing, managing risk and spotting areas of opportunity based on external and unstructured data
• Organization and Governance: Defining what services will be provided from where and designing the organization to support future decisions about the operating model.
• Service partnering: Development of strong relationships between procurement and external business partners
• Human capital: Innovative learning and development programs to hire, train and retain digital skills and talent

Strategic Implications

Becoming a world-class procurement organization and attaining the strategic partner role starts with a comprehensive framework for transformation, grounded in a clear business value proposition. The scope of the transformation needs to be holistic, as improvements in just one or two areas will not move the needle. While certain components of the service delivery model will be in greater need of transformation than others, performance improvements that will deliver the quickest benefits should be prioritized. Critical action items for most procurement organizations include the following:

• Review KPIs and take action where improvement is needed: Metrics should gauge the drivers of performance and strategic goal achievement. Additional thought should be given to ensuring that customer experience metrics are incorporated into the updated performance metrics. Work with business leaders to develop initiatives aimed at improving these performance barometers.
• Put customers at the center of service design: Design service delivery for different workforce segments and levels of management. Apply methods such as focus groups, design committees, user personas, customer journey mapping and iterative prototyping.
• Use digital technology to increase productivity and improve the customer experience: Provide information and tools that increase the productivity of procurement staff and the workforce as a whole. Use a “mobile first” principle to enforce simplicity of design. Introduce smart automation such as chatbots to handle routine inquiries.
• Build analytics capabilities: To develop better insights and decisions, assign dedicated analytics resources in every area of procurement. Establish data management governance and processes to provide consistent, usable and meaningful data for analytics.
• Develop procurement’s data savviness: Train staff to solve problems using data and package analytical findings into business-relevant stories and recommendations.
• Increase procurement’s business acumen: Recruit from other parts of the business. Assign staff to cross-functional teams to learn about the operations of different parts of the organization.