A New Calling for Procurement: Championing Digital Business Transformation

A NEW CALLINGCHAMPIONING DIGITALBUSINESS TRANSFORMATIONFOR PROCUREMENT WHITE PAPER2Nearly every industry is on a digital transformation journey. Consumer goods companies are using technology to improve stock visibility. Banks are setting up digital sales channels. And health care providers are digitizing medical records for data insights.The COVID-19 pandemic has only accelerated this trend, as organizations rapidly adopt digitalization for continued business amid restrictions and social distancing.However, starting or fast-tracking a digital transformation journey is not simple: it involves significant third-party expenses and is fraught with delivery risks. At a time when cash flows are weak and the margin for error is low, organizations would do well to turn to their procurement functions to support a smooth and cost-effective transformation. It is also the right time for procurement to reassess its value-add and adapt to the new normal that prioritizes digital transformation. MOVING BEYOND TRADITIONAL METHODSKick-starting a company’s digital transformation program means a strong dependency on third-party partners, such as strategy consultants, software and product providers, and implementers. However, many procurement teams are not properly equipped to enable such digital programs since they are more adept at traditional operations. This is because of their: • Historical emphasis on seeking low prices• Prescriptive sourcing approaches • Lack of domain knowledge• Delivery styles unaligned to agile methodologiesYet, curtailing the procurement team’s role in digital transformation and letting IT or any other department do its own strategic sourcing has its own drawbacks. These include: • Settling for a single-source vendor without full market review• Limited commercial tension resulting in uncompetitive costs • Underestimating benefits of real partnerships and effective vendor performance management• Less-than-optimal contracts leading to cost and scope creep WHITE PAPER3ADOPTING A DIFFERENT, DIGITAL APPROACHIt is evident that procurement needs a different kind of brief to be able to effectively deliver on digital transformation programs. While sourcing from vendors and managing supplier relationships for digital technologies, the function should not feel restricted by a single process. Organizations need a multi-speed procurement function that can properly respond to the demands of different types of digital programs. For this, they must start with a robust framework for classifying these programs and their key requirements. THREE TYPES OF TRANSFORMATION PROGRAMSAn organization’s choice of the program will depend upon the stage of its digital journey. This means procurement’s role in selecting partners will also vary accordingly. Type 1: Strategic programs These programs shape the digital transformation journey, either in its entirety or for specific parts. Examples of partners include lead system integrators and strategic consultants, who help define the road map or develop specific use cases, such as sandbox projects.Type 2: Functional digital programs These programs leverage mature as well as emerging technologies to deliver outcomes from Type 1 programs. In some cases, solutions are co-created with partners and cannot be tendered. In other cases, solutions are scoped out through partner workshops. Examples include implementing blockchain or AI-powered analytics. Suppliers can be product or software providers and implementation partners.Type 3: Mature digital technology programs These have well-defined and scoped requirements that are often an outcome of Type 1 or Type 2 programs. Examples include implementation of the Internet of Things (IoT) and robotic process automation (RPA). WHITE PAPER4WHAT IS NEEDED TO IMPLEMENT EACH PROGRAMThe requirements from procurement will vary across digital program types, but the key elements remain the same: ensuring flexibility and agility. In Type 1 programs, the focus should be on cultural and capability fit of the supplier partner. For this, the organization’s business or digital teams will play an important role in partner selection. Procurement teams will offer support in market-scoping, developing the supplier landscape and preparing for negotiations.Type 2 programs that are co-created with strategic partners should also be led by the business team, with support from procurement. Also, for Type 2 and Type 3 programs (with more well-defined outcomes), the focus should be on finding the right partner through tendering. This will allow bidders to showcase their unique approaches — through workshops and proofs of concept (POCs). Procurement should ideally lead the tender processes and negotiations. It should design the process to give suppliers flexibility in presenting a solution-oriented approach within the bounds of the organization’s technology architecture. Gathering requirements and defining constraints will be key and these must be included in the tend