accelerating the pace and impact of digital transformation · procurement functions can learn from...
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Accelerating the pace and impact of digital transformationHow the procurement organization views the digital agenda
A Harvard Business Review Analytic Services study in association with Genpact Research Institute
RESEARCH REPORT
2
Methodology and sample
The survey was conducted by Harvard Business Review Analytics Services in association with Genpact.
•682 respondents from HBR Advisory Council, HBR e-newsletter lists, and Genpact’s clients were surveyed
•Respondents screened based on the size of the organization (1,000 or more employees) and knowledge of their organization’s use of digital technologies
•51% of organizations with 2014 revenues of $5bn or more
•68% of respondents work in companies of 10,000 or more employees
•6% of respondents work in procurement/logistics
About the research
37%
25%38%
North America
Europe
Rest of world
High-tech
Financial services
Manufacturing
Energy/UtilitiesHealthcare/
Life Sciences
Consumer goods/Retail
Others
Marketing/Sales
Operations
Finance
ITHuman resources
General management
Others
Geography
Industry Function
11%
13%
12%
14%
10%
34%
7%6%
9%8% 9%
31%
15%
14%
9%Procurement
13%
35%
37%
15%Executive
management
Senior management
SeniorityMiddle
managementOthers
3
Introduction ................................................................................................................................................04The impact of digital ................................................................................................................................. 05
Meet the digital leaders .......................................................................................................................... 06Much higher digital impact expected in the future............................................................................... 08Good middle/back office critical to impact ........................................................................................... 10
The barriers to generating impact with digital .....................................................................................11Fast experiments, legacy systems and cross-silo collaboration challenge procurement .......................12Middle and back office fail to support customer expectations ............................................................ 14
Capabilities, leadership, skills and investment ...................................................................................15Digital abilities fragmented across functions ..........................................................................................18Skills required to harness digital: collaboration and agility are key .............................................................19Investment in digital will increase ......................................................................................................... 20
Conclusion: digital transformation beyond technology ....................................................................21
At a glance
4
Procurement functions can learn from digital leadersAlignment between front, middle and back office is critical
Introduction
While procurement teams focus on delivering value beyond cost savings to support business objectives and decision making, digital offer answers, but procurement functions have yet to see the full impact.
This report explores the key findings from the study, and how responses from procurement compare to those from other functions, industries, and groups.
1 2 3 4 5 6
Only 24% of procurement functions (vs 21% of all respondents) say their companies reap full value from digital. In the next two years, however, 71% of procurement respondents expect to deliver significant impact
Companies aren’t delivering digital-driven value to customers as they cannot optimize end-to-end user experiences beyond the web-enabled front end, especially with intractable legacy systems and processes. Only 16% of procurement functions say they do this well
While digital leaders grow and out compete, procurement says the biggest impact from digital is on optimizing the cost of serving customers (76%) but sees less impact on achieving a single view of the customer (34%)
Procurement teams cite key barriers as an inability to experiment quickly (50%) and work across silos (45%), change management (45%), and legacy systems (45%). They are, however, less troubled by technical skills (13%)
To deliver digital success, procurement functions want to build customer-focused problem-solving capabilities (66% rate it among the top-three most important digital skills), and change management skills (63%)
A Lean Digital approach combines customer-focused design-thinking methods with Lean principles, digital technologies, and domain expertise to deliver digital that works
5
21% of companies achieve significant impact today1; 64% expect to in 2 years
Few organizations have achieved digital success yet; many expect it
Significantly more digital impact is experienced by…
…companies with good back/middle office alignment to customer needs (53%), high-tech firms (46%), and those with a strong competitive position (42%). Procurement (24%) and IT functions (27%) and those with fewer legacy challenges (28%) are slightly ahead in achieving significant impact.
Much higher future impact expected by…
…all respondents (64%), those with good back/middle office (84%), in a strong competitive position (74%), and procurement (71%).
Senior management is slightly more bullish on future impact (73% vs 64% for all levels).
1 Respondents rating the extent to which their organization is currently achieving positive business outcomes as a result of its use of digital technologies as 8-10 (on a 1-10 scale, 1 – not at all, 10 – to a great extent)
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
SALIENT DATA ONLY
Impact
6
Procurement functions see their organizations struggling to achieve business outcomes from digital
Impact
Who is succeeding with digital? Meet the leadersPercentage of respondents rating the extent to which their organization is currently achieving positive business outcomes as a result of its use of digital technologies (1 to 10 scale, 1 - not at all, 10 - to a great extent)
* % of digital leaders within each group
1. Respondents who state that their organization’s middle/back office support customer experience expectations (rated 8-10 on a 1-10 scale, 1– not at all, 10 – to a great extent)
2. Far ahead defined as respondents who rate their organization’s market position as 5 (on 1-5 scale, 1-considerably behind, 5-considerably ahead); ‘behind peers’ rated 1 and 2
3. Respondents who state few/no legacy systems need to be completely replaced as a result of digital technologies in their organizationSource: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
SALIENT DATA ONLY
56
21
Moderate (7-5)
Low (4-1)
High (10-8) 21
24
27
28
42
46
53 Companies whose middle/back o�ce supports customer expectations1
High-tech industry
Companies with a competitive position far ahead of their peers2
Companies that must replace few/no legacy systems3
IT function
Procurement function
= Leaders
= Followers
= Laggards
High (10-8)*
7
Impact
Procurement sees impact on loyalty and cost of serving customers in particular
IT functions lead in realizing digital impactPercentage of respondents from a function who agree (‘Strongly agree’, ‘Somewhat agree’) that digital has a positive impact on the following business outcomes today
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
FUNCTION VIEW
20 30 40 50 60 70 80
Internal e�ciencies
Customer loyalty
Revenue growth
A single view of customer
Optimizing the cost of serving customers
Marketing FinanceIT Procurement
8
Procurement expects highest results from digital among its functional peers
Organizations expect much higher digital impact in the futurePercentage of respondents rating the future impact (in two years from now) of digital technologies on achieving positive business outcomes (1 – not at all, 10 – to a great extent)
* % of digital leaders within each groupSource: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
SALIENT DATA ONLY
5
64
30
High (10-8)
Moderate (7-5)
Low (4-1)
21% of respondents currently realizing significant business outcomes from digital technologies
84
77
71
69
66
55
73
74
Companies whose middle/back o ce supports customer expectations
High-tech industry
Companies with a competitive position far ahead of peers
Companies headquartered in North America
Finance function
Procurement function
Senior management
Companies that must replace few/no legacy systems
High (10-8)*
Impact
9
Today’s impact is primarily on efficiency and cost
Organizations expect future impact across the top and bottom linePercentage of respondents who agree (‘Strongly agree’, ‘Somewhat agree’) that digital has a positive impact on the following business outcomes today and expect to achieve an impact two years from now
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
69
65
50
50
80
70
70
67
30
85
Procurement function
Today
2 years from now
A single view of the customer
Revenue growth
Customer loyalty
Optimizing the cost of serving customers
Internal e�ciencies
Impact
10
With strong alignment between middle and back office functions, and customer expectations, organizations are improving customer-facing areas and reducing costs, which impact revenues
Aligning middle/back office to customer expectations is critical to impactPercentage of respondents stating that their organization significantly supports each of the following with digital technologies (8-10 on a scale of 1-10, 1 - not at all, 10 - to a great extent)
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
72
70
67
66
59
42
36
35
35
31
Improving non-customerfacing operations
Improving customer-facingtouchpoints and experiences
Launching new business models
Improving decisions
Launching newproducts and services
Middle/back o ce supports front o ce well
Middle/back o ce does not support front o ce well
Impact
11
Barriers to impact: experiments, change, and organizational silos
1 Digital leaders defined as respondents who state that their organization is achieving significant positive business outcomes as a result of its use of digital technologies (rated 8-10 on a 1-10 scale, 1 – not at all, 10 – to a great extent); digital laggards rated 1-4
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
The biggest hurdles are the inability to experiment quickly (50% procurement vs. 48% all respondents); change management (45% vs. 41%); legacy systems (45% vs. 39%), and organizational silos (45% vs. 38%).
The least-challenging barriers include: technical skills (13% procurement vs. 19%), lack of talent (18% vs. 30%), cyber-security (24% vs. 27%), and budgets (32% vs. 28%).
Digital leaders1 are less affected by barriers than laggards1. Biggest differences are the lack of vision (12% vs. 48% for laggards) and inability to experiment quickly (29% vs. 60%).
Only 17% of companies feel that their middle and back office supports the front office well in meeting customer expectations. Procurement sees a similar failure to align the organization.
Barriers
12
Procurement says the inability to experiment quickly is the biggest barrier to digital success
Legacy systems and cross-silo collaboration challenge procurementPercentage of respondents rating the extent to which each of the following is a barrier to their organization’s use of digital technologies as “high” (rated 8-10 on a 1-10 scale, 1 - not at all, 10 - to a great extent)
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
3320
6029
20
42
50
45
32
18
45
39
45
37
32
24
52
4812
3321
23
13
50
23
44
2112
18
32 39
5629
Leaders1 Laggards1
Inability to experiment quickly
Change management
Risk-averse culture
Inability to work across silos
Inadequate collaboration between IT and business
Lack of corporate vision for digital
Lack of talent/skills required
Insu�cient budget
Cyber security
Insu�cient technical skills
Legacy systems and processes
Procurement
Barriers
13
Procurement executives say that technical skills are not a significant barrier
Perception of barriers varies by functionPercentage of respondents rating the extent to which each of the following is a barrier to their organization’s use of digital technologies as “high” (rated 8-10 on a 1-10 scale, 1 - not at all, 10 - to a great extent)
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
FUNCTION VIEW
10 20 30 40 50 60
Inability to experiment quickly
Change management
Risk-averse culture
Inability to work across silos
Inadequate collaboration between IT and business
Lack of corporate vision for digital
Lack of talent/skills required
Insu�cient budget
Cyber security
Insu�cient technical skills
Legacy systems and processes
Marketing FinanceIT Procurement
Barriers
14
End-to-end alignment of functions and systems is still elusive for most functions
Middle and back office fail to support the frontPercentage of respondents stating that their organization’s middle/back office functions and systems support customer experience expectation well (rated 8-10 on a 1-10 scale, 1 - not at all, 10 - to a great extent)
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
SALIENT DATA ONLY
42
38
19
18
8
5
17
16
Digital laggards
Companies with a competitive position behind their peers
Procurement function
Finance function
Marketing function
Companies with a competitive position far ahead of their peers
Digital leaders
Overall
Barriers
15
IT teams considered unable to consistently act on insights from data.
Transformation methods are inadequate for digital success
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
Only half the respondents, including procurement executives, say their company has an enterprise-wide digital strategy.
Only one-third of organizations, including procurement, think that their design and implementation approach is effective at overcoming the challenges of legacy systems and processes. Those organizations that excel include companies with well-aligned back, middle and front office (78%), and digital leaders (77%).
Leadership for digital is fragmented. Technology-focused roles are not always responsible for digital: CIO leads for 52% of respondents; CDO 16%.
62% of procurement functions say that they can tightly align digital interventions to business outcomes, a critical capability to stay focused on activities that make a difference.
Capabilities
16
LeadersLaggards
Uses metrics to pinpoint the interdependencies between process steps across the organization
Has a clear, enterprise-wide digital strategy
Has partners with a deep understanding of the business who can help design and implement digital technology solutions
Relies on digital natives to support e�orts
Has e�ective design and implementation approaches to overcome challenges of legacy systems and processes
39
26
32
24
50
6215
6015
7020
6528
7719
Procurement
Strong partnerships are a key enabler for digital transformation
Digital leaders ahead on strategy and executionPercentage of respondents who agree (strongly agree, somewhat agree) with the following statements about how their company manages and uses digital technologies to transform the enterprise
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
Capabilities
17
52
39
22
16
16
16
6
42
39
24
18
16
8
8
5
Chief Marketing Ocer
Chief Operating Ocer
Business Unit Leaders
Chief Executive Ocer
Chief Information Ocer/Chief Technology Ocer
Chief Digital Ocer
Head of R&D
Chief Data Ocer2
OverallProcurement
CIOs and CEOs create the enterprise vision for digital. CDO, CMO, and COO are in charge in a minority of companies
Fragmented responsibility for vision and strategyPercentage of respondents stating which roles are responsible for creating the vision for digital technologies in their organization
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
DIRECTIONAL
Capabilities
18
DIRECTIONAL
Procurement strong at aligning digital to business outcomes
Digital abilities fragmented across functional groupsPercentage of respondents in functions other than IT stating…
*Percentage across all respondents in functions other than IT that state that the IT function in their organization possesses the identified capabilities
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
49
42
47
62
33
66
48
46
48
53
57
34
64
33
28
56
23
40
63
Tightly aligning digital intervention to business outcomes
Using structured approaches (e.g. design thinking) to identify opportunities
for customer value
Using structured improvement methods (e.g. Lean) when aligning middle and back office functions to
support customer experience expectations
Consistently acting on insights from data
IT*Supplychain Marketing Finance Procurement
IT possesses the following capabilities
Their functional area possessesthe following capabilities
Capabilities
19
Transformation methods and analytical skills overlooked by all respondents
Ability to adapt and collaborate is keyPercentage of respondents who rated the top-three most important skills for employees in their organization to have to harness digital effectively
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
Ability to adapt to change
Ability to communicate and collaborate
Customer-focused problem solving
Technical knowledge and capabilities
Ability to lead
Understanding of analytical methods
Knowledge of transformation methods such as Lean
31
18
27
8
10
4
20
22
21
11
9
10
6
18
23
13
19
10
11
62
(1st) (2nd) (3rd)Rank
45
11
18
11
5
11
5
24
24
8
11
16
8
13
24
24
13
16
3
13
(1st) (2nd) (3rd)Rank
Overall Procurement
Capabilities
20
Procurement set to have a significant focus on digital
Investment in digital will increasePercentage of respondents who who expect an increase (increase slightly, increase significantly) in digital investments in their organization over the next two years
Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives
95
94
93
92
92
90
83
81
72
87
Finance
Operations
Digital laggards
IT function
General management
Digital leaders
Human resources
Sales and marketing
Procurement
Overall
Capabilities
21
Digital transformation beyond technologyOrganizations have been embracing digital for several years, but only 21% are harnessing these technologies successfully. When compared to their functional peers, procurement sees significant results in its organization’s use of digital for customer loyalty, optimizing the cost of servicing customers, and enabling a single customer view, but recognizes challenges with internal efficiency.
Big digital ambitions but barriers to overcome
The study shows that companies – including their procurement teams – have high expectations from digital to strengthen competitive capabilities end to end. But all respondents face barriers, including the need to align back and middle-office functions to customer expectations.
Procurement respondents often highlight these obstacles more than IT, finance and marketing. They cite an inability to experiment quickly, cross-silo collaboration, legacy systems, and change management as particular concerns.
When examining the capabilities required to deliver transformation, procurement is confident in its ability to align digital interventions to business outcomes. It does, however, flag skills in adapting to change, customer-focused problem solving, and communications and collaboration as capabilities the organization should harness.
Following the digital leader
As more procurement teams adopt digital technologies to deliver value to the business, they should look to the traits of digital leaders to introduce new capabilities, overcome barriers, and accelerate the pace and impact of digital transformation.
Embracing the characteristics of digital leaders
Conclusion
22
23
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