Why Procurement Needs a More Agile Mindset
- Source to Pay
When it comes to delivering successful digital transformation, procurement needs to change its mindset. Apologies if that sounds a little provocative, but it is an opinion based on 20 years of experience that straddles both the procurement function and software implementation projects. A lot has changed in those two decades, on both sides.
In the old days, software development projects were based on an approach that goes back even further to the sixties and seventies, when they had a much narrower scope than today: the so-called “waterfall” approach.
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The waterfall approach typically starts with a scoping workshop to find out what the customer wants, which produces a long shopping list, with a huge price tag attached. Then, often very early in the project, the solution vendor discovers that what the customer said they wanted wasn’t really what was needed.
“But we had signed a contract with a strict scope of works, so we had to make the best of it.”
The further the project continued down the wrong path, the more difficult it was (even for a strong project manager) to go to the customer and say, “We need to turn back.” The response, typically, is “We have gone too far to turn back”, i.e. so much has already been invested in the project that failure is not an option.
The result often being that the customer gets an expensive product that does not meet the key requirements and has low user adoption. Of course, this is a worst-case scenario, but if it is less than what was originally agreed and envisaged then there can be bad feelings on both sides.
That was perhaps not so tragic 20 years ago but in the meantime, the world has become more complex and business moves at a much faster pace. Companies need an approach that is more flexible. One that enables them to get quick wins, or at worst, “fail fast” before too much has been invested. This approach to software delivery is known quite simply as “agile”.
Digital Transformation in Procurement
After many years’ experience with these sorts of issues we decided to adopt the agile approach to delivering procurement applications such as SRM, Supplier Scorecard and RFQ. With agile, instead of drawing up a grand blueprint that will solve everything at the conclusion of a year-long project, the idea is first to define best practice and get something up and running quickly, even if it only delivers 70% or even 50% of what is required. The solution supplier then adapts and optimizes this initial solution according to the customer’s wishes. These additional features and requirements are prioritized and then delivered, to use the agile jargon, in a series of “sprints”.
The point is, however, that these features are only added to the minimum best practice-based solutions if they are clearly of benefit to the customer, and expressly requested by the customer.
JAGGAER adopted this approach three or four years ago, focusing on direct procurement customers in the DACH region (though the methodology is applicable for all processes and all spend, in any region). At first, it met with some resistance because we did not fully take into account the procurement culture of fixed contracts and responsibilities. Sometimes, therefore, we found ourselves starting a project using the waterfall method but, having alerted the customer to potential pitfalls involved in this approach, the customer agreed to “go agile” in the second phase.
Today, attitudes are changing within procurement, for a couple of reasons. One is that we now have some successful projects behind us, which makes it easier to convince procurement professionals that agile is right for them. And second, there is more pressure on procurement departments from senior management to make more rapid progress with digital transformation. Agile does not mean you get everything at once, but you do get solutions faster through an iterative process, and there is far less risk. And of critical importance: early involvement of stakeholders and users means greater emphasis on ease of use, which ensures much higher rates of adoption and satisfaction among end-users.
Budget is always close to the heart of procurement professionals but here too, a more flexible mindset is needed. A major problem with the traditional waterfall approach to delivering solutions is that when things go wrong the customer feels locked in and throws more good money after bad to try and correct the situation.
That means: you are not only traveling down the wrong track, you are also riding a dead horse! By contrast, with the agile approach the vendor of course estimates the time needed to complete the project, but the customer checks progress at the end of each sprint (typically a sprint might last at most a month). This provides an early opportunity to decide whether the project should be continued (“win fast”). If not, the cost of “failing fast” is small.
Agile means low risk and greater user satisfaction. What’s not to like?