When it comes to assessing progress toward digital transformation of the procurement function, a lot of companies appear far less advanced than they think they are.
That’s the conclusion of a recent survey of supply-chain and procurement leaders by Forrester Consulting. It finds 65 percent of respondents believing themselves to be in an “advanced” stage of digital maturity in procurement, while less than 12 percent have actually reached that level, in Forrester’s view.
Forrester’s “digital maturity index” for procurement divides progress into three phases: immature, where the company in question remains largely focused on cost; intermediate, where it has acquired the right technology but hasn’t done anything particularly unique with it, and advanced, where it is employing digital tools to differentiate itself from competitors.
In that last stage, a company “has driven operational efficiencies and is growing revenue, accelerating time to market, improving innovation and giving itself an edge,” according to Alex Saric, chief marketing officer of Ivalua, which sponsored the Forrester study. Ivalua markets a software platform for procurement management.
“Advanced” is clearly the desired place to be, but for many procurement organizations, numerous obstacles are preventing them from getting there. For one thing, Forrester says, they often make poor technology choices, selecting the wrong vendor for the job. In fact, 82 percent of companies surveyed either have switched or are considering switching technology providers. Reasons include difficulties in supplier onboarding (30 percent) and poor user adoption of the new tools (27 percent).
Supplier onboarding remains a serious issue. Any workable technology solution must enable the rapid addition of new suppliers, yet just 17 percent of respondents said they’re able to achieve that goal in less than a month, and 59 percent are taking between one and three months per supplier.
Other obstacles to advanced maturity include inadequate budgetary and executive support of digital initiatives, and poor integration across source-to-pay systems.
In assessing digital maturity in procurement, Forrester examined multiple elements, including level of cross-functional support, culture, metrics, team dynamics, organizational models and proper balance of control between central and local business units. Chief among the criteria was having the right people and skills in place to do the job — to be “continually improving, and finding new ways to improve,” Saric says.
Lastly, Forrester looked at how companies were measuring their efforts, addressing key data issues and ensuring accurate reporting.
Saric says respondents tended to be honest in answering specific questions, such as the degree to which their procure-to-pay process was digitized. But when it came to eliciting a broader assessment of a company’s digital maturity, the gap between self-image and reality was shockingly wide.
So while 65 percent of respondents placed themselves in the “advanced” category, Forrester found just under 12 percent to be worthy of that designation. Similarly, the 31 percent who declared themselves “intermediate” was in fact closer to 28 percent, and the mere 4 percent who admitted to being “beginners” was actually a whopping 60 percent.
“These results show that procurement professionals are greatly overestimating their own maturity,” the study says. “They are not driving the competitive advantage they think they are; indeed, their competitors may actually be accelerating away.”
The choice of the wrong technology sets many companies off on the wrong foot from the start. Saric says most of Ivalua’s customers have dumped another system. The reason often stems from choices based on immediate needs — a key sign of digital immaturity. In seeking to solve individual problems, companies aren’t preparing for full digitization of the source-to-pay process. As a result, “they inevitably hit roadblocks.”
In its report, Forrester sketches a roadmap for improvement. Strategic priorities, it says, should include accelerating time to market, driving increased awareness about corporate and social responsibility, and improving margins for end products by reducing material costs.
Tactical priorities should include making full use of available data, fostering better collaboration with colleagues to improve spend management, and obtaining more innovation from suppliers.
As the study puts it, “True digitization is a long way off for most.” Forrester is itself looking to spur progress with the launch of an online self-assessment tool, says Saric. The goal is to provide companies with specific recommendations on moving to the next level of digital maturity — and perhaps lead to a more clear-eyed view by executives as to where they really are on that journey.
“They can dismiss the results,” says Saric, “but regardless of whether the Forrester assessment is right, you can’t have 65 percent of organizations claiming to have a competitive advantage. It’s statistically impossible.”
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