Today, every industry is seeing the impact of digitization. M&A and consolidation are increasing, innovative disruptors are raising more venture capital than ever before and each internal function in large enterprises is strategizing on how to embrace and incorporate technology. One of the most exciting areas for technology application — and often one of the less discussed areas of core competitive advantage — is the procurement office. Digital transformation of the supply chain increasingly has implications for reducing third-party risk, increasing corporate compliance and building a more inclusive and diverse collection of business partners.
Though there is significant opportunity in large-scale transformation, procurement leaders often struggle with the execution of digitization: lack of organizational buy-in, legacy IT infrastructure and competing priorities leave the procurement department under-resourced and under-utilized. The key to change is to be bold and think big. A seemingly counterintuitive position, most digital transformations fail because they aren’t digital transformations; they are point solutions focused on adjacent impact.
To capture the maximum amount of value through digital transformation, there is a five-part virtuous cycle organizations should follow. Rinse and repeat:
1. Determine the true art of the possible.
In kicking off a strategic transformation, it is imperative for leaders to explore every parameter and clean-sheet the solution. Business leaders often fall into the trap of constraint-driven thinking and path dependency; solutioning is driven by existing technology capabilities and short-term operational hurdles as opposed to long-term value creation.
In determining the art of the possible, leaders should ask thought-provoking questions: 1) What are the overarching challenges my industry is facing? 2) What is the mission of our business over the next five years? 3) What are the cutting-edge technologies in my industry and how have they been applied? 4) What are the advanced technologies that have not been embraced by my industry and why? 5) What are the relative steps of value creation for procurement organizations of varying maturity? 6) Is there a “mobile versus landline” opportunity, i.e., is there a technology development that enables us to skip an infrastructure step throughout transformation?
Procurement leaders need to set a clear and inspiring vision. This can feel daunting, but without this step, incremental thinking will prevail.
2. Develop a bottom-up perspective of your effort.
In designing a detailed bottom-up plan of how to execute the art of the possible, take inspiration from the technology industry. Procurement organizations should leverage innovative practices like design thinking, agile ways of working, lean startup principles, user interaction and engagement, user experience, as well as cross-functional leadership — lessons from design, engineering, product, marketing and growth.
One of the most important elements of this stage is establishing the user journey. Document each user (from critical change agents to tangential stakeholders) and map the specific role they will have in enacting a full-scale transformation. Similarly, identify the interdependencies between different functions. This exercise will enable you to envision a practical pathway to the desired end state.
3. Establish the business case.
Transformation is synonymous with speed; companies often feel the pressure that delaying execution leads to disruption vulnerability and value destruction. This is undoubtedly true. However, speed must be balanced with inspiration; transformations done well all categorically start with a bold vision. This is why it is so critical to build the business case only after you have envisioned the art of the possible and developed a bottom-up plan. Starting with the business plan leads to inside-the-box thinking.
Some of the most innovative procurement organizations have thought about funding in increments similar to startups — Seed, Series A, Series B and Series C financing. Establishing clear milestones and staged funding enacts a healthy pressure that does not often exist in large enterprises, but strongly exists in startup environments. Adhering to this funding methodology with discipline and rigor ensures focused execution and milestone-based progress and forces the distillation of broad, visionary concepts into bite-sized chunks.
4. Build the core team.
Digital transformation is a journey that necessitates balance between speed and sustainability. The core team needs to have native competencies that are materially different than traditional procurement organizations; procurement organizations of the future will not succeed without having deep spend analytics and reporting capability — neither will they succeed without sourcing professionals who are instantiated in technical competence.
Leading CPOs agree that culture on the core team is infectious; those who are energized by digitization attract like-minded ambitious talent. The procurement teams best equipped to lead through transformation will be equipped with new substantive capabilities, a high performing culture and the working models to go on quick sprints, balanced with long-term endurance.
5. Develop a partner ecosystem.
The final step of the virtuous cycle is to build the appropriate ecosystem of partners. It’s impossible for the organization to do everything in a digital transformation; it’s most important to prioritize and decide from the outset which capabilities to invest in/build, which sets of expertise to buy/partner on and which foundational elements to acquire.
When building the ecosystem, it is prudent to also be mindful of constructing an inclusive supply chain. Most organizations have strong missions to exercise impact in local communities. Ecosystem construction with the right intent can help increase supplier diversity and develop a supply chain that is representative of your organization’s customer base.
Digital transformation holds material promise to develop next-generation procurement organizations. Most importantly, transformation requires bold leadership and vision. By pushing the boundaries on what is possible, developing a detailed bottom-up plan, engaging on a business case without constraint-driven thinking, constructing the right core team and building an intentional ecosystem of key partners, procurement will be one of the most impactful functions for digital native businesses of the future.
This article was originally published on Forbes and written by Romeen Sheth, President at Metasys Technologies. Forbes Human Resources Council is an invitation-only organization for HR executives across all industries.