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Aug 18, 2022

Is strategy taking off in the procurement transformation process?


When it comes to procurement transformation, strategy is often the underdog, i.e., a competitor thought to have little chance of winning a fight or contest in the complex digitization process. Cirtuo has worked closely with organizations taking the procurement transformation leap. As a result, we have noticed a general trend across the procurement industry of more organizations dedicating more time toward strategy development and implementation. In addition, in the increasingly digital world, procurement teams are under a lot of pressure to align themselves with other departments and catch up in digitization. Moreover, many organizations are transforming their procurement process to gain a competitive edge and benefit from the automation of the procurement function. However, this digital transformation is not always successful. According to McKinsey, BCG, KPMG, and Bain & Company, the risk of digital transformation projects failing falls between 70% and 95%. One of the main reasons for this failure is the lack of strategy. When it comes to digital transformation, strategy is often the underdog. With so much focus on technology and implementation, strategy development can be neglected. Organizations can increase their chances of success by developing a comprehensive digital transformation strategy.

Procurement transformation: digitization vs digitlization

Digitization, which means switching from analog to digital information within and external to the company, should lead to digitalization (digitized information works for you) and enable the digital transformation (the possibility of creating new business concepts). Many procurement organizations are investing in transforming their operational and tactical activities into digital formats across all areas: marketing, sales, development, production, and supplier management.

Procurement transformation

Examining the evolution from procurement’s perspective, while digitization and digitalization are currently being conducted, remains operational and tactical. Reaping the rewards of digital transformation will be possible only if strategic transformation follows their lead. Automatized source-to-pay and sourcing processes create limited value for the company. Procurement objectives, activities, and mindset are still tactical-operational and, in most companies, focus on cost reductions, sourcing, negotiations, and mitigating supply chain risks. Chief Procurement Officers still follow old-school schedules while properly mobilizing internal clients remains the primary challenge. Almost 35 years after Peter Kraljic’s insight, procurement education still fails to enable strategic transformation.  

What is the future of Procurement?

The future of Procurement is dependent on the function of acquiring new competencies. Such competencies command authentic leadership, sales rather than purchasing skills, and striking a balance between the big picture and details, i.e., understanding the business context on all levels. One of our most popular articles, Everybody Loses if Procurement Is a Fire Department, still seems to be up to the minute. Strategic Procurement always starts with identifying internal clients (procurement stakeholders) and their business requirements and expectations. In the new digital world of procurement, managers become entrepreneurs, and CPOs take their seat center stage within the organizations they serve. Ready for the brave new world?

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