Over the last several years, “digital transformation” has been the buzzword in every procurement department around the world. There has been plenty written about it and the trade publications are heavy with success stories, like Fujitsu, McDonalds, and the United Nations. But while these examples are encouraging, many still find it challenging, if not impossible, to pull off a true digital transformation. New research says around a third of CPOs think their digital transformation underdelivers against expectations. So, what’s the problem? Why is going digital so hard and what are the most common stumbling blocks?
First, let’s think about what those magic words—digital transformation—really mean in a procurement setting. The easiest way to think about a digital transformation for procurement teams is to think about how organizations buy and, more importantly, how the records of those purchases are stored. What used to be phone and fax orders with paper records is becoming more about online marketplaces, automation, and records stored in the cloud. The benefits of digitalization are many and varied, including better pricing, more accurate ordering, greater visibility, and control over procurement processes, improved collaboration with suppliers and internal stakeholders. But perhaps the biggest advantage of digitalization is it gives procurement teams the ability to add value to their organizations and help drive strategic decisions because the data obtained from a successful digitalization is an invaluable source of insight into any business.
Here are eight common reasons procurement digital transformations can fail:
1. Dirty data
Another industry catchphrase—and the bane of any digital transformation—is so-called dirty data, which is a fancy way of saying that the data is incorrect. Maybe it’s entered incorrectly—or inconsistently. Maybe it’s in the wrong format or mislabeled. Or maybe the numbers don’t square with the reality on the ground. Whichever way data gets dirty it has the potential of wreaking havoc at every step of a digital transformation. Implementation timetables can blow out as the team tries to find and fix the data. Insights gleaned from dirty data can lead companies down the wrong operational or strategic paths, leading them to make costly mistakes in their decision-making. And in the end, faith in the transformation dwindles if dirty data is infecting the whole process.
2. Lack of transparency
Sometimes data isn’t dirty, it’s just impossible to find. Transparency and traceability are certainly important in a supply chain, but too often the ecosystem is opaque—at least below Tier 1 suppliers. Opacity will make it difficult to unearth the data needed for a digital transformation and a consolidated procurement management approach.
3. Budget constraints
Like any change project, digital transformations are ultimately often at the mercy of two valuable resources: time and money. Underdeveloped plans, poor budgeting and overrun timetables have been the downfall of numerous digitalization projects.
4. Lack of buy-In from leadership
We’ve known for years that any organizational transformation starts from the top, and this is no less true of digital transformations. If an organization’s leadership isn’t fully supporting the project, then it’s unlikely to achieve its full digital potential. A lack of support can undermine efforts to digitally transform a company. Researchers have found that often when procurement is attempting any sort of change, there can be unspoken disagreement in the c-suite about the goal of the transformation. And if managers aren’t on the same page, it becomes hard for them to prioritize the work of their teams and agree on how to measure progress.
5. Poor definition of requirements
If the opportunities and problems of the digital transformation are not adequately defined and articulated, then it will be difficult for the company to build the organization around the digital transformation.
6. Focusing on process
Data may be the lifeblood of a digital transformation, but the goal of the project should be on creating a process that brings useful change to the people in the organization and allows them to do their jobs better. The needs of the business, rather than the data, dictate the process. And this can only happen if the transformation project pays close attention to what departments and individual staff need to do their jobs.
7. Problems scaling up from the pilot project
Most digital transformations will begin with a pilot program that tests the waters of digitalization with a small piece of the procurement pie. But even if this pilot is a success, sometimes there can be a divide between a successful pilot and the capabilities needed to scale it. If scaling hasn’t been addressed, companies will likely have to choose between long delays in implementation or fast and difficult deadlines to achieve what’s been promised—and either of these paths can become the death knell for a digital transformation.
8. Lack of talent and expertise
You need new people with new skills to implement a digital transformation. This means software engineers, product managers, data scientists and project managers. Such talent can be hard to find. Not having the right people, with the right expertise, in the right positions, will at the very least make a digital transformation more difficult and longer to achieve. There’s also a shortage of people who can lead digital transformations, and often organizations will underestimate the leadership and experience needed for the job, hiring an inexperienced leader. The wrong leader can create the perception of procurement being a roadblock rather than a crucial value-adding part of the organization.
Knowing the pitfalls is half the battle to avoiding them. The other half is setting yourself up for success. Next, we’ll look at how to win your digital transformation.