Editor’s Note: Today’s article includes a large excerpt from Ardent’s annual “State of Procurement” research report, CPO Rising 2019: Value Expansion. This report is based upon the responses from more than 300 CPOs and is the culmination of a year’s worth of research, conversations, and insights. We consider it a “must-read’ for procurement professionals, and it is available now by clicking here.
Chief Procurement Officers (CPOs) and procurement organizations have seen a gradual yet accelerating shift towards becoming more data-driven, more intelligent (i.e., more informed by data analysis and empirical evidence and less by “gut feeling”), and as a result, more agile. The procurement teams that adeptly connect their tools, resources, and expertise to support the evolving needs of the business will succeed above all others. It is Ardent’s view that agility will define the next wave of procurement success. And in 2019, a good number are on their way with more than a quarter of respondents in this year’s survey rating themselves as highly agile (27%), while 64% believe that they are somewhat agile. Just nine percent (9%) do not believe their procurement departments are agile at all.
The need to develop systemic agility within the procurement function does not mean that activities like spend analysis, sourcing, and procure-to-pay become any less important. To the contrary, executing efficiently and effectively are critical to procurement’s success now and in the future, particularly as CPOs continue to gain additional responsibilities and attempt to place more spend under management. Agility should not be pursued at the expense of core capabilities; all areas must be sharp and competitive. Leading enterprises and functions can multi-task and layer in new elements upon their strong foundations – that is what makes them leading – procurement departments must do the same. They must also become more intelligent by leveraging their data.
The Data-Driven CPO
A surge in data produced across the business world, due in large part to the spread of technology and enterprise software, the ubiquity of mobile devices, the rise of the Cloud, and the distribution of connected devices, is driving this shift. Business data is growing exponentially; and every year it becomes more challenging for procurement teams to wrangle it, let alone to properly analyze it and derive meaningful insights from it. There are, however, exceptions to the norm in the form of those procurement teams that not only manage Big Data well, but also leverage it to draw valuable business intelligence (BI) that improves performance.
Based upon survey data and a series of CPO interviews from 2019, Ardent Partners has found that progressive, high-performing CPOs utilize the following:
- A trust-centric operating model with pre-delegated authority: Leading CPOs hire smart, trusted people and empower them to make informed decisions without mandating manager approval. They value agility, efficiency, and independence, and they trust their staff to exercise good judgement and discretion – specifically with regard to sourcing and purchasing decisions.
- Big Data and predictive analytics: Resourceful and innovative CPOs have adopted a data-driven approach to making sourcing, buying, and risk management decisions. They have adopted “Moneyball”-type analyses as well as automated, more predictive purchasing tools. Although not all of these methods have been completely borne out, some of them have and continue to deliver enhanced value to their users.
- Augmented intelligence/cognitive computing: Many organizations today, including procurement organizations, use some form of augmented intelligence to automate their processes and systems in a more intelligent manner and reduce human interfacing. While artificial intelligence (“AI”) is still some years away, augmented intelligence (aka AI-light) is here; and it is taking over tactical, scalable, and repeatable work and enabling business users to focus on more strategic, value-adding efforts.
- Augmented talent/Future of Work: Procurement leaders are striving to create an “agile” operation that enables direct responses to changes in a volatile market and overall pivots in business and procurement strategy. In 2019 leading CPOs are more inclined to rely on augmented talent and tap into unique pools of non-permanent talent and execute on any technology-, process-, or talent-led strategy in a dynamic manner.
Despite indicators that the procurement industry’s overall performance is plateauing, Ardent Partners believes that the function’s best and largest opportunities are ahead of it. A majority of procurement departments have completed the move from a more tactical operation to that of a strategic business partner. But, with greater power comes greater responsibility and higher expectations. To be certain, the next decade will be more challenging for procurement than the preceding two. To thrive, CPOs will need to execute today’s best practices at a high level simply to maintain production. To transcend the current procurement operating paradigm, CPOs will need to combine new and innovative ideas and approaches with a high-functioning workforce in a post-digital transformation environment. Today’s best practices should not be discarded, they should be innovated and regularly reevaluated.
Final Thoughts
In the next decade, procurement’s opportunities will be far too expansive to allow for complacency and the continuation of business as usual. To properly pursue them, CPOs must start placing bigger bets, and work aggressively to relaunch their departments onto a new and higher performance trajectory.
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