Disruption Opinion

Days of Future Past: The Accuracy of Year-End Procurement “Predictions”

Written by Gordon Donovan

The past: A new and uncertain world. A word of endless possibilities & infinite outcomes…. The future is never truly set

By Gordon Donovan and Philip Ideson

It is the season to be inundated with “predictions” for the future of everything – with procurement being no different!

Every time new predictions are made, we stop and wonder – what is different?  Are we evolving, or are the predictions the same as last year, and the year before, just with different buzz words attached.  So, with that in mind, we thought it may be interesting to review what has been said in the past and see how well these predictions turned out (and also to see where they repeated).

The purpose is to identify what prevented these changes from happening if they did not materialize, and what allowed them to if they did. From this we can learn what needs to exist to allow todays and tomorrows “what’s next” reports to be delivered. We will compare them with the 2016 Deloitte CPO report.

Our starting premise is that lots of things that are written about the future sometimes are a little fanciful, (yes we are talking about you Marty McFly – where’s our hoverboard?) and potentially it’s the same old stuff that gets turned out and then repeated a few years down the line. So we are going back 15 years to review 5 prognosticators reports about the future, summarize what is in the reports, and decide how much came true. If they didn’t come true, why not and what may be different this time.

The reports are;

  • 2002 – ATK Profile of procurement
  • 2007 – Aberdeen Group – The CPO’s Strategic Agenda
  • 2011 – Ariba – Vision 2020
  • 2011 – Denali Group – What’s next for procurement
  • 2013 – Future Buy 2025. KPMG
  • 2013 – EBS Business School – 10 Future paths for procurement
  • 2014 – Deloitte CPO Survey
  • 2014 – KPMG Pulse findings
  • 2015 – Oxford Economics – The Future of procurement

Reviewing these reports, “predictions” can be grouped into 4 distinct themes

  • Technology will set you free!
  • Procurement KPI’s
  • The changing skill sets and the impact on talent management
  • Whither Procurement? …… Outsourcing is on the agenda

 

Technology

Back in 2002, AT Kearney, identified that “e- supply management” (internet enabled procurement) would revolutionize the way companies sourced and purchased product and services. When we look at their E supply management toolset, it’s not too far away from the typical source to pay tools that we see today. Although having “e” in front of everything, brings back some memories!

 

atk

 

Most organizations have e-rfx tools, and some will use E auctions, and these have been with us for a while (we do still see proper old fashioned manual tender boxes, however). We do think that the expected take up of these took longer than the 2005 that was predicted by the report.

The report foresaw three possible paths,

  • Steady incremental or evolutionary growth,
  • A big bang crash as the ROI is not delivered, or
  • Rapid adoption and plug and play capability (SAAS). (this is largely being achieved although the timescales were later than what was predicted).

The report also predicted that the tools will be start to give predicative insights, and leverage cross organizational usage to drive insights, and that rapid deployment suited harmonizing best practice will abound.

The 2007 Aberdeen report, had a recommendation that technology must be used for spend analysis, and procurement process automation to drive spend under management, and also to decrease operating costs (and therefore increase the ROI).

This report also stated that the top pressure is misaligned systems that see procurement operate in a vacuum and not linking into budgeting and financial performance management.

In 2010, Ariba (Pre SAP) published its vision for 2020 procurement. Its technology predictions were market prices become transparent due to e sourcing, massive on line communities and global trading networks. We will have predictive analytics that will be able to project supplier defects and pricing models. Whilst its not 2020 yet, we look forward to the predictive analytics…

In 2014, the Deloitte CPO report, stated that a new approach to procurement technology is required, based on a portfolio of solutions to allow for complexity to be managed. It also stated that CPO’S are keen to invest but are restrained by the challenges of integration especially the ERP landscape. Most technology seems to be concentrated around procure to pay rather than the value added areas indicated by earlier reports. The 2014 report identified that spend analysis is the most likely to receive investment, and that the barriers to effective analytics was quality of data.

There are synergies here amongst the reports, in the drive for better quality data, and that the investment was largely concentrated at automating tasks potentially because the ROI is clearer and more direct. However this has meant that some of the areas have been neglected such as spend and predicative analytics.

In 2016, the Deloitte report restated that Spend Analysis is most likely to receive investment; in fact the top 3 areas also included contract management and SRM in both reports, suggesting that we haven’t received the value we expected (or conducted the investment). In 2016, the report stated that 22% haven’t started their digital journey and 60% don’t have a clear strategy.

So what has caused this delay from 2002 to 2016?

Looking back through these reports, the barriers that were identified (ROI, ERP integration) are still there. There is more of a choice of procurement specific software, which in turn causes the issues in the ERP integration.

Just Save Baby (or show me the money….)

Let’s go back 10 years to the Aberdeen group CPO strategic agenda. Whilst admittedly this report isn’t a forecast of things to come, it’s worth identifying that, according to the research, 75% of respondents stated that the most important metric for procurement was cost savings. (Interestingly the second was operational costs).

The report recommends correlating all other procurement KPI’s back to operating costs or cost savings or don’t measure them at all.

Wow – let’s let that sink in awhile.

In 2014 the Deloitte CPO report stated that 69% of CPO’s reported that cost reduction was a key priority (down from 79% the previous year).

In terms of levers to be deployed over the next 12 months, the 2014 identified consolidating spend, and increasing competition as the two most used levers. 25% identified reducing supply chain costs, 24% reducing total lifecycle costs.

However, the future buy report (2013) suggests that procurement will morph into a “trusted partner” and “supply chain innovator” from the current role of “cost savings enabler” and the Denali (2011) report states that over the next 3-5 years can add more value in strategic areas such as new markets, M&A, reciprocity arrangements, and revenue.

All of the reports discuss the evolution of procurement into areas such as new product innovation (Deloitte 2014), managing risk & analyzing intelligence (Ariba 2011) as well as managing the relationships to drive improvements. In fact the Ariba report states that the savings focus will change to a profitability KPI by 2020.

When we look at the last report from Deloitte in 2016, we can see that cost reduction has increased in importance back up to 74%. The most deployed tools over the next 12 months would be spend consolidation, and restricting supplier relationships.

In 10 years, has anything really changed about what we are measured on and what we are expected to deliver? Why is that? Maybe the answer is in the next area?

Skill Set Changes

Ariba (2011) report identified that skill sets will change over the next 10 years. Key skills will be networking, consulting skills, and relationship building both internally and externally will be required. The key deliverables for procurement in 2020 will be to;

  • Develop strategies for the business with the business end customers in mind;
  • Track and capture innovation already happening in our supply base and drive innovation to where we need it;
  • Relate with and integrate to critical suppliers
  • Drive, and manage change within our organization.

In order to deliver this the role will be about maintaining a constant and current understanding of the marketplace and planning for how it will develop. This will therefore drive a focus on building relationships to garner that information, as well as the analytical skills to understand what it means.

The Ariba (2011) report states that the reliance on sourcing skills will not be relevant in 2020, and that the need will be for financial assessment, relationship and team collaboration skills.

Denali (2011) suggests that this will impact talent retention strategies, and incorporate succession planning, and turnover into the models, and using formal knowledge management systems to cater for this knowledge gap.  They also suggest more creativity and relationship building skills will be required to drive these changes.

The future buy report (2013) envisages a shift in skill sets to help procurement transformation and requires a trust pyramid to be built with the business. This suggests that capability development is linked to the transformational agenda of the organisation.

futurebuy

In 2014, the Deloitte report stated that they were looking to outsource the capabilities that they could not find in house.

There have been many reports, not reviewed here, around the changing skills sets and the focus on the leadership (influencing, strategy, relationship/partnering, listening etc. it would appear that the development for the individual has not been happening as the 2016 Deloitte report stated that 62% of leaders were unhappy with their teams skill set but that nearly 30% spent less than 1% on training their team yet 32% wanted to retain their existing team as is. This development gap may also go some way to explaining the next area

Procurement is dead… Long live procurement

  • The procurement function – as you know it – will no longer exist in 2020
  • Procurements Operating Model is changing
  • Dismantle the function

Three quotes from the reports we have reviewed. The EBS report (2013) suggested dismantling the function and deploying from the business.  The Ariba vision 2020 agrees that traditional procurement activity will be delivered by the business and a “new” procurement will emerge, focus on supplier facing activities.  Denali report states that the organization becomes customer centric with smaller centralized execution teams.

In 2014 the Deloitte report indicated that 16% were looking to outsource category management, or strategic sourcing, and 30% looking to outsource the operational buying.

KPMG (2014) suggested that the operating model is set to change over the next 24 months with a greater emphasis on the hybrid and outsourcing solutions.

kpmg

Whereas the Oxford economics view is a little polarized!

oxford

To compare with the Deloitte 2016 report 12% were looking to outsource category management or strategic sourcing, and 26% to outsource transactions.

So we have a declining trend for outsourcing according to the latest Deloitte report, but the futurists suggesting that procurement is set to transform itself and indeed disappear.

What does that mean?  Well, in terms of procurement outsourcing, the model has shifted significantly over the past 5 years. The outsourcing of tactical and transactional work is still continuing, and I expect it to grow further as organizations continue to recognize the need to focus resources on more impactful activities.  It is in the outsourcing of strategic activities – sourcing and category management, where the market is changing, and adoption has not yet reached the heights that the analysts initially projected.  Outsourced engagements suffered when clients passed the responsibility for stakeholder relationship management to their clients, and built their business models entirely around the achievement of cost savings.  Newer models promote agility and augmentaton – of people, supply market intelligence, tools and processes.

So is procurement really at the tipping point, and about to change or reinvent itself, and if so, why in 15 years are we still having the same issues, and what is different this time.

Conclusion

We have reviewed a subset of the available reports, there will be many more, each with a slightly different view.

Is procurement at the point of transformational change? We believe so, we believe that it’s the convergence of these 4 interrelated topics that have begun to have their time that is driving this change.

Not so much to an outsourced model to third parties, but following the leads of many other departments and becoming self-service for many of the traditional sourcing and procurement needs. Technology has evolved to the point where self-service can be driven and the act of “sourcing” can be delivered by the organization itself, requiring the strategy and supplier facing relationship to be delivered by a dedicated team.

We particularly like this image from CEB.

ceb

Traditionally procurement resides in the bottom two areas, delivering year on year savings, and Cost Avoidance. Clearly the activities that deliver these outcomes will need to continue to be delivered. The question for procurement teams are can we embed the day to day requirements of “traditional” procurement functions  within the business in a self-service capacity and work with the business in re-engineering, and risk reduction, and with the suppliers to innovate and bring revenue enablement.

Is this the future that we are seeking and if it is will the predictions that are coming allow us to deliver it?

About the author

Gordon Donovan

Gordon Donovan has extensive experience on both the practitioner and consultant sides of procurement. His background in learning and development is not mired in the procurement perspectives of days gone by. He is passionate about using new techniques, technologies, and content channels to embed sustained progress in a way that makes progress an ingrained part of each learner’s every day activities.

Gordon is a integral member of the Palambridge leadership team.