Co

m
pl
Procurement Executive Insight

im
Management Issue

en
ta
ry
Re
sea
rc
h
Digital Transformation: Current Trends
and Topics for Procurement Professionals
Advances in end-to-end applications and talent
management help procurement move up the value curve

By Jimmy LeFever and Kurt Albertson

Executive Summary
A look at the progress being made by procurement organizations to unlock the value of digital transformation
confirms that the digital era has begun in earnest. Now, procurement must move from planning to action, or
miss out on the advantages (to cost, quality of service, talent, customer experience and more) that digital
transformation can deliver. For example, in the past few years, some have turned to end-to-end source-to-pay
technology, which promises to support both routine and more strategic procurement responsibilities. The benefits
these organizations expect from end-to-end applications include savings from combining technologies, better
accountability from vendors, and more spend under management.

The transition to digital business has major repercussions for business services
functions, procurement included. It must support a rapidly evolving set of demands
from the business, but also transform its own approach to technology, people and
processes across the whole source-to-pay continuum, from requisitioning to sourcing
to paying invoices, and every activity in between.

While recognizing the dramatic impact of technology on business over the last 30
years, the advent of the digital era will far surpass anything seen to date. Transactions
and business processes have been automated; content, products and services have
been digitized; and interactions have become virtualized. As a result, massive amounts
of digital information have been accumulated and are growing exponentially. The
ability to manage and mine this wealth of information and apply the resulting insights
to business decisions (both operational and strategic) has become a competitive
differentiator.

© 2018 The Hackett Group, Inc.; All Rights Reserved. | CR_6000220 Procurement Executive Insight I The Hackett Group I 1
 End-to-End Digital Suites Making Inroads Into Digital Transformation
Plans
Thanks to years of process improvement and technology investment, procurement
organizations are starting to be viewed more strategically by their internal stakeholders.
Much of this can be attributed to procurement’s success in increasing the amount of
spend influenced or managed through the use of strategic sourcing and purchase-to-
pay technology. Further, as organizations have matured, a substantial portion of them
have moved away from a focus on savings toward other areas like strategic value,
although the need to manage costs will never completely disappear.

The past few years have seen a rise in the adoption of end-to-end source-to-pay technology
with the capacity to support both routine and more strategic procurement responsibilities.
According to The Hackett Group’s 2018 Key Issues Study, procurement leaders expect a 4X
increase in adoption of suite technologies from their modest presence today. The benefits
these organizations expect from end-to-end applications include:
• Increased visibility of source-to-pay functions.
• Streamlined workflows and increased efficiency.
• Higher spend under management and reduced off-contract spending.
Digital enhancements • Savings from combining technologies, reducing or eliminating the need for systems
to source-to-pay integration.

technology are • Better accountability from vendors.

bringing new Digital Transformation: Much More Than a Technology Issue

opportunities to While most management attention has been given to the technology impact of
digital transformation, much less has been directed at its related people and process
raise the profile and components.

value contribution Digital enhancements to source-to-pay technology, for example, are bringing new
of procurement. opportunities to raise the profile and value contribution of procurement. But the new
technology requires procurement leaders to assess whether the current talent pool
possesses the expertise, experience and motivation required to effectively use the
technology being implemented. These include data science and advanced modeling
capabilities as well as general business-strategy acumen. Fig. 1 illustrates some of the
roles and skill sets that will be necessary as digital enablement matures.

Most of the roles identified in Fig. 1 on the following page are foreign to sourcing
and procurement organizations today. As such, hiring managers will need to reevaluate
their methods of attracting prospective talent or training existing staff. Using specialized
search firms is one approach. Recruiting from different parts of the organization may
turn up other high-potential candidates who have previous experience as stakeholders
of procurement. Familiar with business operations, technology or other essential areas,
they may be looking for ways to advance their careers. These hires also bring fresh
perspectives on how procurement can enhance its internal brand and improve the
internal customer experience.

It’s imperative that organizations properly plan for the talent-transition side of digital
enablement. Otherwise, the value derived from procurement technology will be
limited by the capabilities of its users. Ensuring that users are knowledgeable about
technology and can fully tap its potential is vital to the success of digital transformation
initiatives.

© 2018 The Hackett Group, Inc.; All Rights Reserved. | CR_6000220 Procurement Executive Insight I The Hackett Group I 2
 FIG. 1 Changing roles in procurement

Innovation scout

Senior innovator
Corporate social
responsibility
activist

Digital SME:
robotics, cognitive,
Communications blockchain
and social media lead

Advanced
Technology success
analytics and
manager, solution
big-data SME
Internal architect
business
partner
Purchasing/
Supply value
supply Smart
optimization
controller contract coders
manager
Supply
Purchasing ops risk specialist
and content Market Intelligence
Supply
specialist intelligence specialist
analytics
specialist
specialist

Late majority Early majority Early adopters Innovators

Source: The Hackett Group

Establishing a Customer-Centric Service Delivery Model

Process improvement has been at the heart of technology evolution since its
inception. A key objective is creating a more seamless and better experience for
procurement’s broad range of customers. The Hackett Group has seen a nearly 5X
increase in the number of procurement organizations that have made improving
The Hackett Group customer satisfaction a critical priority.1
has seen a nearly
Technology enables procurement services to better align and deliver on stakeholder
5X increase in objectives while improving the overall stakeholder experience. For example, several
years ago, organizations were reluctant to use open marketplaces due to limited
procurement
control and visibility associated with the platforms. However, recent improvements in
organizations open marketplace technology (like Amazon Business or Ebay Business Supply) have
convinced more organizations to allow customers to use these tools for nonrecurring,
that have made low-dollar purchases. The tools are highly intuitive and nearly eliminate the need
improving customer for procurement involvement in one-off orders of goods or services. For larger
nonrecurring purchases requiring a more formal approach, many organizations are
satisfaction a critical setting up tactical buying teams, which use supplier discovery and ERFx solutions to
reduce the cycle time of these purchases from weeks or even months to just days.
priority.
Measuring Digital Transformation Value Creation
As organizations transition from understanding the promise of digital to the realization
of its value, they should develop their capability to govern digital transformation
throughout its lifecycle. This includes scanning for opportunities, risk analysis, value
analysis, and business-case development based on holistic cost and benefits models.
This value modeling and analysis should serve as the basis for management of a
portfolio of digital initiatives and allocation of resources.

1
Key Issues Study, The Hackett Group, 2018

© 2018 The Hackett Group, Inc.; All Rights Reserved. | CR_6000220 Procurement Executive Insight I The Hackett Group I 3
 The way businesses approach digital transformation will vary significantly. However,
their value-creation objectives will likely be expressed in the same terms: improved
efficiency, greater effectiveness and a better user experience (Fig. 2).
• Efficiency: Traditionally, efficiency has been measured in units such as cost per
transaction. However, as procurement moves into the digital world, the total cost to
deliver services should be measured – for example, the cost of delivering analytics
services by specialists. This will allow procurement to optimize its service portfolio
and underlying delivery processes. As a result, procurement should embrace end-
to-end time-to-serve metrics. These new efficiency metrics reflect the evolution
from “inside-out” service design to an “outside-in” philosophy, i.e., service delivery
performance viewed from the perspective of the customer.
• Effectiveness: A similar shift can be seen in the evolution of efficiency metrics.
Well-crafted service level agreements (SLAs) are designed with customer-
service levels in mind; however, procurement usually ends up assessing the
degree of compliance with defined standards such as cost allocation, not value to
stakeholders and customers. In the digital age, effectiveness KPIs should directly
reflect value contribution from the perspective of the customer. Those may include
quality of decision support, the effect of procurement decisions on operational
metrics like time to market or inventory turnover, or ease of interpreting data thanks
to visualization techniques.
• Experience: The Hackett Group’s performance analysis has always included
customer experience as a component of its effectiveness measures (such as errors
or cycle time). The digital customer experience measurement involves looking at
the customer’s preferred delivery channel (e.g., mobile, interactive graphics, or
static email reports), and then calculating what share of procurement services
are delivered using each channel and their associated cost. Now, in addition to
measuring cost, procurement must also assess customer satisfaction, using
techniques like Net Promoter Score and 360-degree evaluation.

FIG. 2 Evolution of performance metrics in a digital organization

Traditional Digital

Process cost Efficiency Service cost

Cycle time Time to serve

Volume per FTE Volume per digital “worker”

Error rates Effectiveness Error-free

Process execution quality Customer service quality

SLA compliance Customer value contribution

Pct. customer-preferred
Channel utilization mix Experience channel utilized

Customer satisfaction percentage Net Promoter Score

Pct. utilization of “smart”

First-call resolution
digital assistants

Source: The Hackett Group

© 2018 The Hackett Group, Inc.; All Rights Reserved. | CR_6000220 Procurement Executive Insight I The Hackett Group I 4
 The Hackett Group (NASDAQ: HCKT) is
an intellectual property-based strategic
Conclusion consultancy and leading enterprise
Although digital transformation is inherently technology-focused, it doesn’t come benchmarking and best practices digital
without significant implications to the talent side of procurement. Forward- transformation firm to global companies,
looking organizations will be able to gain competitive advantage with emerging offering digital transformation including
technologies like AI and IoT if they execute their implementation effectively, robotic process automation and enterprise
carefully considering the implications of their decisions for people and processes. cloud application implementation. Services
These technologies stand to empower procurement while allowing it to transition include business transformation, enterprise
from a tactical to a strategic asset. analytics, working capital management
and global business services. The Hackett
Group also provides dedicated expertise
in business strategy, operations, finance,
About the Advisors human capital management, strategic
sourcing, procurement and information
Jimmy LeFever technology, including its award-winning
Senior Research Director, Procurement Advisory Oracle and SAP practices.

In addition to conducting research on topical subjects, Mr. LeFever The Hackett Group has completed more than
advises clients as they work to optimize their processes, organization 15,000 benchmarking studies with major
and technology (both on-premises and cloud-based). His subject corporations and government agencies,
matter expertise includes sourcing, contract management, including 97% of the Dow Jones Industrials,
procure-to-pay, order-to-cash, payments, and travel and expense 89% of the Fortune 100, 87% of the DAX
management. Before joining The Hackett Group, he was director 30 and 59% of the FTSE 100. These studies
of research and consulting at PayStream Advisors. drive its Best Practice Intelligence Center™
which includes the firm’s benchmarking
metrics, best practices repository and best
Kurt Albertson practice configuration guides and process
Principal, Procurement Advisory Program flows, which enable The Hackett Group’s
clients and partners to achieve world-class
In his current role, Mr. Albertson advises leaders of Global 1000 performance.
organizations on procurement and purchase-to-pay strategy, process,
technology and organizational issues, conducts research to promote
thought leadership, and leads client events promoting world-class
performances, best practices and peer-to-peer learning. He offers a
blend of consulting and industry experience, having served a wide
variety of clients across many industries.

Email: info@thehackettgroup.com
www.thehackettgroup.com

Atlanta +1 770 225 3600

London +44 20 7398 9100
Sydney +61 2 9299 8830

Atlanta, Chicago, Frankfurt, Hyderabad,

London, Miami, Montevideo, New York,
Paris, Philadelphia, Portland, San Francisco,
Seattle, Sydney, Vancouver

This publication has been prepared for general guidance on the matters addressed herein. It does not constitute professional advice.
You should not act upon the information contained in this publication without obtaining specific professional advice.

© 2018 The Hackett Group, Inc.; All Rights Reserved. | CR_6000220