Procurement professionals made it pretty clear in The Hackett Group's 2015 Key Issues Study just what their priorities are, but achievement isn't likely to come without overcoming some obstacles. Nearly three-quarters of respondents ranked elevating procurement's role to that of a trusted advisor as a critical or major goal in 2015. But getting there, along with increasing agility, will require closing some capability gaps. Big data may help do that.
Successfully dealing with these hurdles is important because companies are intent on growing the top and bottom line while expanding their global presence, mainly in developing markets. As expected, revenue and margin growth are dominant financial objectives.
Compare this to last year’s study results, where innovation was revealed as the cornerstone of business growth strategies for a majority of companies in every industry. Our 2015 study findings reinforce this trend, but offer more detailed insight into different innovation-based strategies. Among companies participating in our study, 26 percent are truly innovation-led, using disruptive innovation as a wedge to break into new markets. Another 26 percent of companies are primarily seeking to expand within their current markets, in many cases by sustaining innovation of existing product or service offerings. The third-most prevalent strategy is defensive in nature, focusing on improving return on current assets and prior investments. In essence, these companies are on the defense against the threat of disruptive innovation from competitors. This profile of dominant strategies has all the hallmarks of a highly volatile and dynamic business landscape.
Changes Are on the Horizon
The ultimate measure of procurement’s performance is its ability to support the company’s overall business strategy. Supporting the enterprise agenda will require some procurement organizations to make far more than incremental changes. But, with procurement’s operating budgets expected to grow by just 2.7 percent, only a select few of the highest-priority initiatives can be funded.
Against this backdrop, our 2015 Key Issues Study reveals a change in procurement’s priorities from last year, when expanding the scope of its spend influence was paramount. In 2015, this and other traditional goals like reducing purchase costs are still important.
However, as the role of procurement continues to evolve, a new set of objectives is coming into focus, namely, the need to elevate procurement’s role to more of a trusted advisor and improving its business agility. In fact, 72 percent percent of study respondents ranked elevating procurement’s role to that of a trusted advisor as a critical or major priority in 2015.
However, the study results also revealed that many procurement teams are not equipped to contribute to the achievement of these goals. Becoming a trusted advisor and increasing agility fall into the “critical development” zone, i.e., both are rated as highly important but with a low ability to address. On a brighter note, procurement groups have a high ability to address more conventional priorities like reducing/avoiding purchase costs and increasing stakeholder satisfaction levels.
In 2015, procurement organizations expect to continue investing in building core capabilities in strategic sourcing, category management and supplier relationship management. This is consistent with our study results from prior years. Fortunately, earlier investments in these areas are beginning to pay off – in many cases, these capabilities are reaching a relatively high level of maturity. But there is still work to do and capability gaps still exist, namely in talent management and data analysis/reporting. To achieve the 2015 priorities, these capabilities will require more attention. Closing the talent capability gap will require new investments in training and development
Talent management is one of the key challenges facing organizations today at all levels. To enhance its value proposition, procurement must maintain appropriate staffing levels and skill sets at a pace that is consistent with its rapidly evolving mission and goals.
Procurement organizations are aware of their shortcomings and will be addressing them in 2015. Projects related to talent make up three of the top five planned transformation activities. Training and development will be the subject of major initiatives by a majority of respondents. An example of development programs is stretch assignments. According to Hackett research, this is the most effective development tool for testing high-potential staff in a low-risk way to see if they have the ability to learn new skills. In recent years, these programs were scaled back to reduce costs. Now, with procurement facing a serious leadership gap, they have been widely reinstated. Coaching and mentoring programs are also used by many, with positive results.
Other projects are aimed at making the task of refining job profiles and competencies more effective and better at defining career paths. These initiatives reflect a desire to revamp the way procurement develops workforce skills, enables employee performance and grooms future leaders.
Building Analytics and Reporting Capabilities
As the role of procurement evolves from transactional facilitator to trusted business advisor, mastery of the next generation of analytics – a.k.a. “big data” – will be a key enabler. Big data has been a game changer when it comes to customer analytics, offering an unprecedented ability to quickly model massive volumes of structured and unstructured data from multiple sources. For procurement organizations, taking advantage of the value of advanced analytics necessitates creating new technology roles, aligning agendas, and elevating the overall level of institutionalized technology knowledge.
Most companies have implemented basic reporting and data-access capabilities such as scorecards and self-service. However, achievement of the next level of analytical and reporting capabilities, such as multidimensional analysis, remains limited at present.
The most sophisticated techniques, including predictive modeling, risk analysis and data mining, are being used by only a small minority of organizations.
The full potential of sophisticated analytical tools and methods can only be achieved when put into the hands of staff who have the appropriate skills and training to use them. Moreover, as organizations develop more sophisticated applications for analytics tools and methods, skills need to mature accordingly. To understand what capabilities are required, it is important to define the objectives and governance structure of the analytics program.
In 2008, “business agility” was a favored corporate buzzword. Once the recession set in, agility took a back seat to resilience. Procurement’s attention was diverted to maintaining basic business continuity (i.e., “keeping the lights on”), to the detriment of responding quickly to the changing demands of the business.
With the green shoots of economic recovery starting to show, the focus is once again on agility. This time around, we believe, agility will prove to be a lasting, fundamental attribute of the way world-class organizations do business as opposed to just another passing business fad. Responding quickly to change requires a close connection with the business to understand and know where to look for the leading indicators of changing requirements early. To achieve agility, procurement has to develop the tools and skills required to harness data and provide business insights in real time.
About the authors: Patrick Connaughton, Senior Research Director, leads development of The Hackett Group’s intellectual property in the areas of strategic sourcing and procurement. Christopher S. Sawchuk is Principal & Global Procurement Advisory Practice Leader.
The Hackett Group
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