Author: HACKETT GROUP
Procurement organizations have significantly shrunk the capability gap in digital transformation over the past year, with two thirds now having a strategy in place and nearly half having the resources and competencies needed to execute, according to new Procurement Key Issues research from The Hackett Group, Inc. Procurement leaders expect to rely on digital transformation to help them achieve an array of critical objectives in 2018, including cost-cutting, improving agility, and improving their ability to serve as a trusted advisor to the enterprise.
Procurement organizations are expected to dramatically increase their use of robotic process automation and AI related technologies (i.e., cognitive, machine learning, virtual assistants) over the next two to three years, the research found, as they also expand their use of more mainstream technologies such as cloud-based applications, advanced analytics, data visualization, and mobile computing.
But their ability to execute digital projects will require reassessment of competencies and realignment of resources, as procurement budgets are expected to remain virtually flat in 2018. In addition, while procurement leaders acknowledge the importance of strategic enterprise objectives, including expanding procurement’s influence, elevating the role of procurement, and improving agility, procurement’s ability to address them is low. The study identified similar capability gaps in four key internal capability areas for procurement, and offers guidance for how these can be addressed.
The Hackett Group’s research identified four key capability areas where procurement must improve in 2018: aligning skills and talent with changing business needs; measuring and managing procurement performance and business value; obtaining more value from existing suppliers through relationship management; and obtaining more value from existing categories through category management. These key capability areas reflect the need to continually innovate and expand collaboration by investing in resources and technology that promotes actionable intelligence, improves the user experience, and enhances supplier collaboration.
“Last year, procurement leaders told us that digital transformation was a priority. But most simply didn’t have the strategy and resources in place to move forward,” said Chris Sawchuk, The Hackett Group Principal & Global Procurement Advisory Practice Leader. “This year, that gap has closed significantly. Momentum is growing. More organizations are planning for digital transformation and more are in a position to do something about it. But a significant number of companies have not gotten there yet, and digital transformation has the potential to be such a game changer that these procurement organizations are at risk.”
Virtually all study respondents (95 percent) said that they now believe digital transformation will fundamentally change the way procurement services are delivered within two to three years. A full 30 percent said that they expect procurement processes will be touched by digital transformation activity in 2018, foreshadowing a year of both benefits and disruption. The percentage of organizations with a formal strategy for digital transformation more than doubled year over year, from 32 percent to 66 percent, and the number of organizations indicating they have the resources in place to handle the transformation also rose sharply, to 46 percent.
The study found that procurement executives expect dramatic growth in the use of an array of mainstream and emerging technologies over the next two to three years with data being the major theme. Broad adoption of master data management is expected to grow by 3.8X. Broad adoption of advanced analytics is expected to see 3.2X growth, and data visualization adoption is expected to more than double. Moreover, the use of AI is expected to augment analytic capabilities within current technology infrastructures, where just over 30% are piloting in areas such as cognitive computing and virtual assistant technology.
“In an era where data is the new currency, digital transformation efforts must be able to use it for competitive advantage. The future of procurement will be dictated by how it can best use this data to improve insights and predict future outcomes,” said Constantine Limberakis, senior research director, Procurement Executive Advisory Program.
The study also found that emerging digital technologies focused on process efficiency such as robotic process automation and blockchain are expected to see higher adoption levels. Use of robotic process automation by procurement is expected to grow by 4.5X in the next two to three years, with nearly 40 percent of procurement organizations already engaged in pilots. While still in its early stages, use of blockchain technology is also optimistic, expected to grow by 4X, with a third of procurement organizations already engaged in pilots.
“Robotic process automation and blockchain are digital technologies that have the potential to help procurement yield new levels of data accuracy and intelligence. RPA can help procurement teams dramatically improve process quality and focus more on strategic analysis and other activities that add value,” said Limberakis. “Blockchain can have a truly transformative effect, as it promises to revolutionize checks and balances between buyers and suppliers.”
Procurement budgets are expected to fall by 0.3 percent in 2018, according to The Hackett Group’s research. Taking into account an expected 3.6 percent growth in revenue in 2018, this creates a significant productivity gap that procurement organizations must overcome, which will make it challenging to invest in digital transformation efforts.
In addition, the study found capabilities shortfalls around procurement’s ability to address five key enterprise objectives: expanding procurement’s influence; elevating the role of procurement; improving procurement’s business agility; supporting enterprise digital transformation; and deepening spend influence. While procurement leaders understand that all these areas are important, they also acknowledge that their ability to address them is very low, the study found.
Similar capability gaps were identified in several internal development areas for procurement, including: aligning skills and talent with business needs; measuring procurement’s performance and business value; obtaining more value from existing suppliers; and obtaining more value from category management.
The Hackett Group’s 2018 Procurement Key Issues research, “The CPO Agenda: Expanding Procurement’s Influence Through Change and Innovation,” is based on results gathered from more than 160 executives in the US and abroad, most at large companies with annual revenue of $1 billion or greater. A complimentary version of the research is available for download, following registration, at this link: http://go.poweredbyhackett.
About The Hackett Group
The Hackett Group (NASDAQ: HCKT) is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices digital transformation firm to global companies, offering digital transformation including robotic process automation and enterprise cloud application implementation. Services include business transformation, enterprise analytics, working capital management and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement and information technology, including its award-winning Oracle and SAP practices.
The Hackett Group has completed more than 13,000 benchmarking studies with major corporations and government agencies, including 97% of the Dow Jones Industrials, 89% of the Fortune 100, 87% of the DAX 30 and 59% of the FTSE 100. These studies drive its Best Practice Intelligence Center™ which includes the firm’s benchmarking metrics, best practices repository and best practice configuration guides and process flows, which enable The Hackett Group’s clients and partners to achieve world-class performance.