4 Key Actions to Transform Your Procurement Organization
Before diving into the key actions you can follow to transform your procurement organization, let’s consider a recent scenario I heard from a client. This will give you a better picture of the kinds of problems the key actions provided further in this article can help you tackle.
Identifying the Challenges
A CPO at a Fortune 500 financial institution was recently challenged by her CEO to reduce escalating spend for new technologies and related services and to begin supporting dozens of key digital transformation (DX) initiatives throughout the enterprise. A recent tally of contingent labor providers showed that:
- the enterprise was actively contracting with over 300 vendors to provide an unquantifiable number of contingent labor resources providing technical services.
- the count had nearly doubled over the past five years.
- the number of applications hosted in the cloud could not be tracked due to poorly coded procurement systems and processes.
Nearly five years ago, at
great expense, a large technology procurement organization had been chartered
specifically to address technology spend. Over 200 procurement professionals
were currently engaged in squeezing margins from suppliers in every technology
So, what happened? There are a few questions that the CPO had to ask:
- Why were none of these resources supporting dozens of DX projects?
- Had they lost their focus?
- How was this possible? After all, the annualized savings generated and reported by this organization had nearly doubled since it was created.
Addressing the Challenges
Transforming a procurement organization firmly entrenched in administrative and tactical processes requires a multi-faceted approach. Many organizations have spent years operating under a specific set of guidelines and processes driven to achieve a specific set of results focused on savings and adherence to process. Organizations which have been able to successfully transform their operations focus on four key actions:
Key Action 1: Conducting a Critical Self-Assessment and Benchmark
One common attribute of
leaders who are successful in making meaningful changes that help better
support business initiatives is a willingness to conduct critical assessment of
their organization, processes and capabilities, not only from the perspective
of their own organization, but how it is perceived by their internal business
A critical element of IDC’s research agenda includes conversations with sourcing and procurement leaders in an effort to identify key challenges and provide meaningful guidance to help them improve processes, fine-tune organizational alignment, and in general, better support business initiatives.
Key Action 2: Reviewing Outdated Processes
In decades past, perhaps the only way to gain useful insight into the technical aspects of a vendor product offering was to issue a written request for information (“RFI”). Similarly, requests for proposals and requests for quotes (RFPs, RFQs) were the only credible means for obtaining pricing data from vendors. New media and marketing channels have changed how, where and when customers obtain information that is used in the decision-making process. Digital sources such as on-line social networks, analyst portals and research, videos, webcasts, news feeds, blogsites, and podcasts are heavily used through the purchase cycle (e.g. exploration, evaluation and purchase). Although the need to maintain a competitive environment will always exist, vendor sourcing and procurement executives are cautioned not to be overly prescriptive in the use of RFPs
Key Action 3: Measuring Value, Not Savings
Based on IDC’s 2018 Future of Technology Survey, according to LOB and IT executives, the single most effective change to the technology sourcing practice is finding a balance between lowest price (savings) and long-term relationship management. Nevertheless, according to procurement executives, finding a balance between savings and long-term relationship management did not make the top of the list of potential improvements. Accordingly, procurement organizations and their internal clients are operating under a different set of goals. Clearly, a realignment is warranted. Without this realignment, diverging interests will continue to alienate procurement operations from strategic corporate initiatives.
Key Action 4: Outsourcing Administrative Tasks
According to a recent IDC survey, 62% of enterprises have outsourced or plan on outsourcing technology procurement within the next three years. Nevertheless, of the 16% that have already outsourced technology procurement the services outsourced are primarily administrative: managing purchase orders, invoices, providing access to digital procurement systems and negotiating small dollar non-strategic purchases for technology. In-depth interviews with executives from these enterprises reveals that outsourcing such administrative tasks has given sourcing professionals the latitude to engage their internal clients on more strategic initiatives.
I hope these four steps help you towards controlling your costs and enhancing value in your procurement organization.
For more on these four key actions and insights to help you transform your procurement organization into a strategic sourcing partner, view this IDC web conference on-demand.
Aaron Polikaitis is Vice President of Vendor Sourcing and Management research with IDC’s IT Executive Program (IEP). Learn more about what IDC’s IT Executive Program can do to help you lead your business by visiting idc.com/itexecutive.