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Digital Transformation of Procurement In 4 Basic Steps

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The response to a Procurement Insights poll asking the question; “What is the most significant risk that procurement faces in 2020?” was telling in that the number one risk was not cyber-attacks, job security or supplier performance.

More than 40 percent of those who responded said that “digital strategy implementation” was the greatest risk procurement faces in 2020.

In this Knowledge Note, I will provide a breakdown of what is known as the Progressive Implementation Methodology. Based on four key elements or building blocks, this methodology will overcome the slow digital adoption and unfavorable outcomes associated with traditional consulting methodologies.

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Digital Transformation of Procurement In 4 Basic Steps

  1. 1. AchievingDigitalSuccess Why the Digital Transformation of Procurement Is More About Implementation Methodology Than Technology Author: Jon W. Hansen JON HANSEN  PROCUREMENT INSIGHTS  819-230-2131  OTTAWA, CANADA  JON@PIMEDIA1.COM
  2. 2. A C H I E V I N G D I G I T A L S U C C E S S A B S T R A C T » 1 ABSTRACT The response to a Procurement Insights poll asking the question; “What is the most significant risk that procurement faces in 2020?” was telling in that the number one risk was not cyber- attacks, job security or supplierperformance. More than 40 percent of those who responded said that “digital strategy implementation” was the greatest risk procurement faces in 2020. A Deloitte Global CPO survey which reports that “most companies that have fully implemented digital technologies are not satisfied with the results,” is further verification of the above poll results. So, what is happening? Given that we are – according to Gartner, in the postmodern ERP era, it would be reasonable to assume that the intuitive, user-friendly technology of the digital age would have removed the past barriers to successful procurement automation. The barriers which included low user adoption, long implementation timelines, and operational inefficiencies are no longer an issue. Today’s digital technology, including RPA and AI, are amazing tools. However, the problem, unlike the past, is not with the tech – it is an implementation strategy and people resource problem. No matter how “advanced” the technology may be, the methodology of developing and implementing a digital procurement strategy is crucial to success. What this means is that you must look beyond the technology to assess your organization’s digital readiness and align yourself with the right partners to realize your objectives. In this Knowledge Note, I will provide a breakdown of what is known as the Progressive Implementation Methodology. Based on four key elements or building blocks, this methodology will overcome the slow digital adoption and unfavorable outcomes associated with traditional consulting methodologies.
  3. 3. A C H I E V I N G D I G I T A L S U C C E S S A N A L Y Z I N G T H E P O L L R E S U L T S » 2 ANALYZING THE POLL RESULTS When you think about “risk management” in procurement, a familiar list that includes cyber attacks, economic instability and supplier consistency, to name a few, probably come to mind. These are, without a doubt, all legitimate areas with which you must be mindful. However, and based on the results of an ongoing Procurement Insights poll asking readers the question; What is the greatest risk procurement professionals will face in 2020? Forty-three percent chose “digital strategy implementation.” Economic/political instability (22 percent) and supplier reliability (16 percent) were a somewhat distant and surprising second and third concern. The results of the above poll – which went out to the more than 16,000 Procurement Insights followers, seem to reflect andverify the findings from a recent Deloitte survey of Chief Procurement Officers. According to Deloitte “a large percentage of companies” that have “fully implemented modern technology” are not satisfied with the results. The areas of contention for CPOs include their new technology’s inability to address supply chain risk and compliance in which 81 percent express dissatisfaction, supplier management (71 percent), and contract management (64 percent). Even in areas of functionality where it is a relative given that technology will result in significant improvement such as sourcing, invoice processing andpayments and requisitioning and ordering more than 50 percent of CPOs are unhappy with the results they are seeing. “Interestingly, though, a large percentage of companies that have fully implemented these modern technologies are not actually satisfied with the results.” – Deloitte 2019 Global CPO Survey
  4. 4. A C H I E V I N G D I G I T A L S U C C E S S A N A L Y Z I N G T H E P O L L R E S U L T S » 3 The above findings raise the question; is it the technology that is failing us, or is it the implementation approach or methodology? As stated earlier, today’s digital technology, including RPA and AI, are amazing tools. Intuitively user- friendly, high end-user acceptance and adoption have significantly reduced the implementation timeline from years to months and in some cases, even weeks. Add into the equation the fact that today’s users are considerably more familiar and therefore more comfortable with technology, thebarrier to success is not elongated implementation timelines or end- user resistance. The problem is the continuing reliance on outdated consulting and implementation models.
  5. 5. A C H I E V I N G D I G I T A L S U C C E S S A N A L Y Z I N G T H E P O L L R E S U L T S » 4 To overcome the unfavorable outcomes previously highlighted, you must employ a Progressive Implementation Methodology based on four key elements or building blocks: 1. Assessing your organization’s digital readiness; 2. Confirming the cultural fit between key strategy development and implementation stakeholders; 3. Facilitating the implementation & execution of the strategy; 4. Maintaining ongoing alignment with core organizational objectives. I will examine each of these “building blocks” in the next section.
  6. 6. A C H I E V I N G D I G I T A L S U C C E S S B U I L D I N G A S O L I D F O U N D A T I O N F O R S U C C E S S » 5 BUILDING A SOLID FOUNDATION FOR SUCCESS With more than 35 years in the high-tech industry and almost has long in procurement I have overseen successful implementations with clients such as the Department of National Defence and the New York City Transit Authority to name just a few. The proprietary technology in those early years was, by today’sstandards, complex and cumbersome. While integration within existing IT infrastructureswas far from a plug-and-play capability, requiring significant resources and expertise, the ultimate foundation for implementation success had four elements or building blocks that are still applicable for today’s“digital” technology. One - Organization Readiness Good technology will not overcome bad practices and processes. Whether we are talking about the lengthy andoverarching ERP technology implementations of the past or the seamless introduction of the intuitive pay-by-the-drinkdigital platforms today, inefficient processes and practices will derail any initiative. Poor data governance, misaligned objectives between different stakeholders within and external to the enterprise, outdatedviews of the procurement role andfunction by senior management are all influencing factors. When combined with unrealistic expectations centering on digital technology being a magic bullet, it is easy to see why many CPOs participating in the Deloitte survey are disappointed with the results of their digital strategies. Unfortunately, themethodologies of traditional consulting firms did not take the proper time – if any time at all, to assess the digital readiness of the client choosing instead to focus on achieving the “end result” by way of introducing new technology. Through a series of Joint Application Development or JAD sessions, there was the adoption of a “Can Do” mindset that did not seek the inevitable gaps in the client’s practice, processes andculture. The emphasis was instead on the functionality of the technology and how to integrate into the enterprise with the belief that once up andrunning the technology would redefine and fix the existing process leading to successful outcomes.
  7. 7. A C H I E V I N G D I G I T A L S U C C E S S B U I L D I N G A S O L I D F O U N D A T I O N F O R S U C C E S S » 6 Part of the reason for leading with technology is that traditionalconsulting firms are general practitioners who do not have procurement expertise. As a result, the appeal of the technology being the one constant with each client made the “technology first” approach the most logical and viable implementation strategy. The poor outcomes with most ERP-based e-procurement initiatives show that this methodology does not work. Unfortunately, this same approach or methodology is still being used by traditional consultancies today, and as it was in the past, the results are less than optimal. Given the continuing disappointing results despite the advancement of technology, requires a new and more progressive implementation strategy starting with the assessment of the client’s digital readiness. Two - Cultural Fit and Collaboration On August 1st, 2007, the I-35 bridge in Minneapolis collapsed. Tragically 13 people died with many more sustaining injuries. Besides wanting to honor those whohad lost their lives, there was a great deal of pressure to have the bridge built quickly to restore a major artery between the Twin Cities. Despite the many challenges with such a complex project involving so many different stakeholders, the bridge was rebuilt 3-monthsearlier than expected and on budget. The reason for the success is that the state of Minnesota abandonedits normal procedures for managing a project of this magnitude. They instead chose to use an open-book framework where costs were known, andrisks were “jointly identified” and shared equally among all stakeholders. There was also ongoing andopen communication between all parties that allowed them to address any issues that arose quickly andeffectively. The I-35 story is an example of how successful collaboration with a shared vision andcultural fit between all stakeholders delivers optimal results. In this kind of relationship, all partnersare equal and active contributors with each bringing their “own” unique perspective, skills and needs to the table in an open and transparent “partnership.” This level of collaboration andcultural fit is often absent with traditional implementation methodologies. Instead, the relationship is “reduced” to one in which the client mostly defers to the provider’s or consultant’sexpertise resulting in a one-way dialogue. The dynamic exchange between stakeholders that is necessary to progressively adjust andadapt the plan to real-world circumstances while maintaining the alignment of all stakeholder interests is not possible under this unilateral model. Therefore, there is a higher risk of initiative failure.
  8. 8. A C H I E V I N G D I G I T A L S U C C E S S B U I L D I N G A S O L I D F O U N D A T I O N F O R S U C C E S S » 7 In this regard it is noteworthy when the State of Minnesota reverted to the unilateral model with the next bridge project, it took twoyears longer than expected to build the bridge, and the project went over budget. In short, and as I had pointed out in a recent Forbes article in which I talked about the I-35 story, those who consistently look beyond a transactionalmindset and adopt a relational approach achieve a cultural fit that is critical to success. Three - Strategy Execution and the New Consultancy It is one thing to come up with a plan; it is entirely another thing to make it work. According to a McKinsey survey of 1,650 incumbent company executives, while there is a universal acknowledgement that digital transformation is inevitable, 20 percent of the executives who gave responses indicate that they have a digital strategy. Of those, 2 percent indicate that said strategy involves their supply chain. The chasm between acknowledging digital necessity and digital action and realization ultimately comes down to the fact that there is a great deal of uncertainty regarding the steps that an organization needs to take to make digital real. Despite the strategic importance of an organization’ssupply chain – or perhaps because of it, there appears to be even greater uncertainty regarding what to do next. When I talk about the emergence of a new consultancy, it is in direct response to the “what’sthe next step” question. These new consultancies about which I am talking are built arounda by procurement, for procurement model in which the consultantshave in-depth and practitioner-based expertise. Think of it in the context of procurement professional first, consultant second. When you work with consultants whohave real-world, practical procurement experience, there is an inherent understanding of the inner workings of the procurement process – including the unique challenges andintricacies of a complex, global supply chain. With this level of understanding, the likelihood for cooperatively establishing and successfully executing a digital strategy improve dramatically.
  9. 9. A C H I E V I N G D I G I T A L S U C C E S S B U I L D I N G A S O L I D F O U N D A T I O N F O R S U C C E S S » 8 Four – ProcurementFirst and Ongoing Alignment Along the lines of the Brian Tracy quote regarding perfection, an ongoing alignment with organizationalobjectives is “not a destination but a continuousjourney that never ends.” While technology is a great enabler, success begins and ends with a strong procurement practice that can leverage technology efficiently and effectively to drive desired outcomes. More to the point, good technology will not make a weak procurement practice better, but a solid procurement practice will make a good technology effective. Traditionally, general practitioner consultancies lack the bench strength regarding procurement knowledge and expertise. Their implementation methodology is usually heavily weighted on a technology-first approach in which they structurethe procurement practice aroundthe tech rather than the tech aroundthe practice. With the new by procurement, for procurement consultancies, ongoing alignment is “built into” the strategy from the beginning because the emphasis is on building a better practice first and then adding the technology. As a result, your organization will have the ability to properly leverage technology to achieve objectives on a consistent and continuous basis. In this context, the Deloitte survey in which CPOs are expressing their dissatisfaction with digital technology is, in reality, an expression of dissatisfaction with their procurement practice. The graphic below indicating that 62 percent of CPOs do not believe that “their teams have the skills and capabilities to deliver their procurement strategy” speaks to this truth.
  10. 10. A C H I E V I N G D I G I T A L S U C C E S S C O N C L U S I O N » 9 CONCLUSION There is an increasing demand for Procurement organizations across the globe to perform a larger, more strategic role in overall corporate growth while delivering sustainable business value. In their effort to meet these new conditions, procurement organizations must transform their legacy processes, structure and culture, and align them with the ever-changing needs of the company. Traditional methodologies that predominantly lead “with” technology will not be successful in facilitating this transformation. An updated and more timely strategy development and implementation methodology “delivered” through a new consultancy model are needed to achieve significant benefits resulting in long-term sustainable procurement value. The Progressive Implementation Model presented in this Knowledge Note provides the proper framework for transforming your procurement practice – including how to identify and engage the right consulting partner.
  11. 11. A C H I E V I N G D I G I T A L S U C C E S S V E L O C I T Y P R O C U R E M E N T » 1 0 VELOCITY PROCUREMENT In commissioning Jon Hansen to write this Knowledge Note, Velocity Procurement’s objective was to obtain an unbiased third-party assessment of both the need for a new, more dynamic implementation model to maximize industry success with digitally transforming procurement, as well as the methodology by which said objective could be achieved. As one of themost senior andwell-respected thought leaders in both the procurement and high-tech industries, Jon Hansen is known for his thorough research, independence, andexpertise. We hope that you have foundhis insights beneficial. Velocity Procurement’s vision is to deliver best in class procurement consulting services, process improvement, technology and managed services to help our customers manage their ongoing procurement operations. We quickly acclimate and become highly vested in our customer’s success through long term partnerships. We are obsessed with delivering impactful solutions with fast implementation. Visit our Website to learn more: http://www.velocityprocurement.com

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