Publisher’s Note: We recently published my twelfth annual CPO-themed report, CPO Rising 2017: Tools of the Trade. Today’s article is part of an ongoing series focused on the report’s key findings. You can get the report here (registration required).
There is no profession where a true master tradesman intentionally lays aside the core tools and equipment of their craft – skill, creativity, and dedication cannot replace them. While budget and resource constraints as well as per- ceived complexity often hinder investment in supply management technology, it has been clear for some time that some Chief Procurement Officers (“CPOs”) simply do not consider these solutions to be essential to what they are trying to accomplish. These CPOs are predominantly from an older generation and, while mistaken, come to their views honestly with careers that began well before the solutions first launched twenty years ago.
Nonetheless, just as today’s competitive market pressure and unprecedented innovation demand the constant reevaluation of supply markets, so too must these leaders rethink their technology strategies. Those CPOs that continue to resist automation and the other changes needed to enhance agility are manufacturing their department’s obsolescence. The time has come for many of these “old masters” to stop acting like apprentices and adopt a 21st Century approach to their business.
The Tools of the Trade
Let’s take a step back now. When it comes to technology adoption (the CPO’s tools), it is important to consider the organizational mindset for action and investment (i.e. risk) because procurement organizations, as a whole, and CPOs, in particular, frequently find themselves in the challenging position of having to improve their performance without an ability to increase their current stable of resources. The ability to scale processes and expertise across a growing spend portfolio is valuable, if not critical, to the procurement teams seeking to expand their influence and impact. Technology, when it is well-deployed and used proficiently, offers a multiplier effect on a procurement team’s efforts and remains a key factor in optimizing operations and performance.
With the rise of the “dot.coms” and the wave of technological innovation it created, CPOs and procurement teams began adopting digital tools to aid in the execution of key processes, like sourcing, procurement, contract management, and spend analysis. Whilst a boon for the enterprises with the maturity and resources to take advantage of the early platforms, the hard truth is that many groups could not tap into the real power of these solutions. The market stalled only to be rejuvenated a few years later by the innovation of cloud technology and an aggressive drive to improve solution usability.
Adoption Levels
Over the last five years, supply management tools have become more user-friendly, accessible, and easily integrated with the enterprise’s technology infrastructure. As a result, their level of usage is increasing, albeit slowly. In turn, users are driving more volume and ultimately more value from them. Digital, automated tools have enabled fewer hands to transact greater volumes of tactical work, which has allowed CPOs and teams to shift their focus to the strategic parts of the business, like relationship-building and long-term planning. They have also helped practitioners and leaders to extract more value out of their processes by capturing and managing procurement data and converting it into intelligence; and then leveraging that intelligence to make faster, more informed decisions across the source-to-settle process.
The successful users of procurement solutions prove year-in and year-out the value that technology can play in helping scale a procurement operation and maximize its impact and performance. Yet, twenty years after the first procurement automation solutions were brought to market, a fully-automated procurement department remains the exception and not the rule. Across the full breadth of supply management solutions, the current adoption levels are highest for eProcurement (62%) and eSourcing (53%). Other digital, automated solutions, like spend analysis, contract authoring, and supplier management tools, are even less adopted, with adoption percentages in the high 30s all the way down to 21%.
There is clearly an opportunity for more organizations to adopt these and the other solutions seen applications in the survey and into the 80% or 90% range for some. It is worth noting, though, that historically, procurement leaders have been unable to fully convert their technology investment plans into action. Although there are significant opportunities available for procurement organizations to adopt some or all of these tools in the near future, the pace of adoption should continue to be incremental rather than meteoric.
Final Thoughts
That the average procurement department still struggles to adopt and drive business value from its technology investments is less than ideal; but the challenges that organizations face in adopting enterprise technology are complex and not unique to procurement departments. Most other business functions struggle to automate their operations. That fact, however, does not excuse any procurement individual and organization from aggressively trying to change that. Ultimately, this all means that the CPO’s technology strategy is more important than ever and it should be both well-constructed and, given the level of innovation in the market, regularly reviewed and refined.
This is just a snippet from my latest benchmark research report, and it’s chock full of great insights. Want to learn more? Get the CPO Rising 2017 report.
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