Why procurement transformation is a C-suite issue
The world of digital procurement is a fast-moving and evolving landscape. The opportunities now available to improve the way your organisation purchases goods and services have never been so good, with multiple sourcing and payment solutions on the market. But is your C-suite on board with the desire to change?
It is clear that companies who have the most success in making changes to their business culture, or working practices are those who obtain buy-in from the top down.
Cultural change begins at exec level
Last year, the Institute of Corporate Productivity (i4cp) published some research into what it takes for a company to significantly transform its culture. In a study of over seven thousand organisations, almost 90% of successful companies had commitment from the CEO for the necessary time and resources and almost the same number saw the CEO modelling the change themselves.
In our last blog we shared how spending can help companies economise and recommended that an investment focusing on tail spend has the potential to make significant savings.
But the truth is that procurement cannot work alone in adopting new spending practices or investing in technology to assist it. Purchasing involves a chain reaction throughout an organisation and change simply won’t work in silos. In order for any new process to be successful, it needs to be driven by the senior leadership team.
How to get change management right
There is no shortage of guides on how to implement successful change - CIPS offer some useful tips for starters. But it’s always insightful to look at examples of how businesses have effectively transformed in real life. Looking at what we can learn from three hugely successful business change case studies gives us a good set of strategies to keep in mind.
Make a compelling case for change from the start
In 1998, Netflix was a mail order DVD service. But over the last ten years, the way people consume content has dramatically changed. Netflix chose to focus their efforts on providing a streaming service and in 2013, CEO Reed Hastings released an 11 page memo to all employees and investors making his case for a new commitment to becoming a producer of award-winning original content. Since clearly setting out the new purpose, Netflix revenue has roughly tripled, and its profits multiplied 32-fold.
Use technology to stay competitive
Between 1932 and 1998 Lego had never posted a loss. But by 2004 they were close to bankruptcy. CEO Jørgen Vig Knudstorp, realised his brand needed to modernise to compete in the toy market so rather than putting their sole focus into physical products, Lego moved towards bridging the practical and virtual worlds with an expansion into AR experiences. Lego’s revival has gone down in history and by 2015 the company overtook Ferrari as the world’s most powerful brand.
Drive change from the top with data-driven decisions
Back in 2016, delivery giant UPS rolled out a groundbreaking analytics programme: ORION. With a focus on fleet optimisation, ORION plans the shortest, fastest, most efficient route for each and every driver using an advanced algorithm which continually learns from past journeys. The first step was for R&D teams to convince top management of the business case for the technology. Once on board, the programme was rolled out to over 55,000 drivers and resulted in enormous savings - and some startling insights. One major issue ORION brought to light which was then implemented across the entire organisation was a ban on left turns. Going against the traffic was found to be a waste of time and fuel so left turns were scrapped. By the end of 2016, UPS had saved $3-400 million worth of costs, not to mention carbon emissions.
Where things can go wrong
So once an area of potential transformation like tail spend has been identified, it can be a challenging process to ensure success. Procurement teams keen to drive changes can have all the motivation in the world, but will still struggle to see impactful results without wider buy-in. As the procurement process touches all departments, it’s hard to implement change within the team alone.
The issue is that purchasing teams may not have the necessary authority to enforce change upon other departments - and if a new process is based on goodwill alone, there’s a risk you'll end up going back to old ways.
Equally, if a change is implemented within procurement alone, the chances are you can’t see it’s full potential unless it's adopted across the board. Take Lean methodology as an example. It’s an excellent way to streamline processes, saving time and waste. Yet it relies upon full implementation from end to end to be effective.
Similarly, with new technology, automation or RPA - these changes promise substantial results but must be adopted across the board.
Yet as we saw with UPS, the combination of clear management team leadership and the insights from new technologies is a powerful combination. It provides the clarity to make the right decisions, with the clout to make them happen. To achieve the true benefits of technology investment, the C-suite need to be culture champions.