Why Agile Procurement is Essential for CPOs in 2020
JAGGAER sat down with Andrew Bartolini, Founder and Chief Research Officer at research advisory firm Ardent Partners, to discuss his view of the CPO’s future. His insights are numerous, and can all be heard in his full podcast episode, but among them is his main focus in 2020, the opportunity presented by agile procurement.
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Where We’re at Today
Bartolini’s view of modern procurement is one of an industry at a crossroads. First, demands remain high. According to Ardent Partners’ 2019 CPO Rising Report, nine out of ten CPOs face pressure to deliver more on savings. But for top CPOs, this demand is becoming harder and harder to meet. While digitalization has dramatically increased procurement performance over the last decade, the function is beginning to approach a plateau. “We’re starting to see diminishing returns in the numbers, specifically with spend under management and organizations pushing to get to that next level of influencing control,” he says, explaining that the methods CPOs have, in many cases, reached the end of the line as far as their impact goes. Instead, it’s time to look for a new direction. “What got us here won’t get us there,” Bartolini quips.
He acknowledges that such a transition won’t be easy and cites one of the largest challenges in modern procurement as readying a team for the next level of advancement. “The obstacles are moving away from what has worked in the past and being so married to what was successful then,” he says, reiterating that it can be hard to initiate the change. However, he finds hope in how procurement has adjusted in the recent past. “We’ve seen dramatic shifts in the way that procurement organizations are organizing themselves and how they’re willing to bring technology back into the conversation.” This flexibility and willingness to embrace technology will be essential in the coming years, Bartolini says.
The Opportunity in Front of Us
The benefit of an industry at a crossroads is that there is opportunity ahead, and with a few proper adjustments, CPOs can lead their teams into another era of advancement. Looking at the current state of business as a whole, Bartolini says, “Businesses are more reliant on their suppliers for the direct success of their products, services and sales, and in their customer relationships.” This dependence on top-class supplier management presents an open door for procurement to further embed themselves at the company’s core and increase relevance for their departments. The road to success is about “finding the innovation that exists in the supply chain and bringing that back through the organization,” Bartolini says.
The other gleaming opportunity, he says, is centered on taking technology to the next level by relying on it to inform processes and policies, rather than the traditional method of form fitting digital solutions to existing functions. “The opportunity is for organizations to use technology to reimagine what it is that they’re doing today… not just simply take what we’re doing today, lift and shift, and now it’s ‘automated’.” This approach is about moving beyond just digitalization and into digital transformation, as JAGGAER outlined in the 2019 report, Digital Transformation: How Close Are We? While turning existing workflows digital offers benefits in time savings and data input accuracy, revolutionizing those workflows unlocks the true power of digital systems.
The opportunity is for organizations to use technology to reimagine what it is that they’re doing today.
A key factor in the open future of the CPO is how the view of procurement has changed from a tactical function to an essential arm of the business. “If you go back 10 years, 15 years, there were a lot of executives who didn’t buy off on procurement as a strategic operation,” Bartolini says. Now, though, procurement offers strategic value thanks to the volume of information they are able to generate about company financials. “Executives finally understand the big data opportunity,” he states. “There’s this extraordinary amount of data that we’re processing through our sourcing and procurement systems, or our contract systems.” Unlocking that data and putting it into action is the next phase of procurement and introducing additional technologies like AI or machine learning can speed up the process.
Why Agility is Key
The speed of business is accelerating. “There’s any number of metrics that you can use, like the number of companies that churn in and out of the Fortune 500 every decade,” he says. A 2018 study by Innosight backs this assertion, predicting that the average tenure of companies on the Fortune 500 list will be just 12 years by 2027. “Companies are no longer making decisions at the beginning, middle and end of a business cycle,” explains Bartolini, “and for procurement to maintain its relevancy and continue to be a strategic business function, it has to follow suit.” Being able to adjust quickly to new information, adjustments by competition, and large industry changes are all deeply connected to procurement teams. Pulling relevant data quickly, communicating with other parts of the business, and having the visibility and control to change supply chains and purchasing policies quickly will have dramatic impacts on the bottom line. Agile procurement is the solution, according to Bartolini.
But many CPOs are changing their methods to keep up. This is thanks in no small part, says Bartolini, to a change in the nature of work overall, not just in procurement teams: job turnover. “The median tenure for a CPO is now less than four years,” he says, again citing the Ardent Partners CPO Rising Report. The result he sees is that CPOs have the freedom to “approach things more aggressively and maybe take more estimated risks.” When leadership expects to move on quickly, they don’t look for projects that will see results gradually over decades, but those that will show an impact immediately. This quick-impact thinking is key to establishing an agile organization.
At the end of the day, companies need to embrace agility and large-scale data if they want to remain competitive and relevant, according to Bartolini, and they need to do it now. “The risk in not taking action today is that you’re going to be left behind.”
Listen to Andrew Bartolini’s full podcast episode for more on CPO agility, building a successful procurement team, staffing, and more.