Procurement’s Opportunity During a Time of Disruption
Today, technology – specifically software, artificial intelligence and automation – is infiltrating organizations at a rapid pace. Gartner Research predicts that by 2020, more than 75% of businesses will be digital businesses.
“Auto executives say they need to avoid a nightmare tech scenario that’s becoming a common refrain at industry gatherings. They don’t want to become the next “handset makers” – commodity suppliers of hardware, helplessly watching all the profits flow to software makers. Industries from Hollywood to publishing to retail are similarly trying to transform themselves into tech businesses as they confront disruptions from Silicon Valley.” – Can Detroit Become A Software Business? The Wall Street Journal, October 18, 2018
What does this mean for Procurement?
Procurement must move with the speed of the disruption or else its value and impact to the organization will diminish. The ability of Procurement to deliver sound commercial insights and to influence stakeholders will be determined by Procurement’s level of technology literacy, its understanding of how technology transforms business operations, and its ability to source agilely.
Four areas in which Procurement must evolve quickly:
1. Stakeholder Management
As advanced technology becomes more pervasive throughout organizations, Procurement professionals will work with larger, more dynamic cross-functional teams requiring a dynamic skillset to function effectively as an advisor to the business, as well as the organization’s commercial liaison to the technology suppliers. Procurement must work proficiently with stakeholders to:
• Demonstrate knowledge of the technology tools and services being purchased
• Facilitate Proof of Concepts (PoC) to ensure the technology fits the requirements
• Educate stakeholders about the effects of technology on processes
2. Supplier Management
Proactive supplier and risk management will be critical. As technologies become key tools within some business units, business units must rely on the importance of customer service teams and ensure the hosting company is held to its SLAs. Procurement will have increasing responsibility to illuminate the importance of supplier customer service and product support packages and to negotiate the best commercial approach for the business units (BUs).
3. Budgetary & Cost Implications
Historically, IT has been a centralized department with a separate budget and resources. Today, technology spend is more frequently coming from the BUs’ budgets. Spending power is moving quickly to the BUs and subsequently requires their managers to deeply understand the cost implications. As a commercial advisor, Procurement must assume responsibility for this education. With increased reliance on software, operating expenses (OpEx) and third-party service labor (IE. IT consultants) costs will grow exponentially. With the right tools, a Procurement team can create a large impact by negotiating strong service agreements, mitigating IT service cost increases, and leading OpEx reduction programs.
Understanding Intellectual Property (IP) is of fundamental significance, and as the liaison between the business and legal, Procurement is responsible for leading the conversation. First, it must be made clear in the agreement who owns the IP. Often the licensor (supplier) has all right, title, and interest and all IP rights to the services and work product. However, the customer shall retain all rights to its own IP. Specifically, the licensor (supplier) should deliver to the customer solutions definition documents, solutions process framework document, and Administrator Guides, and it’s critical that Procurement facilitates this conversation and works in tandem with BU through the contracting phase.
Procurement’s Opportunity to Excel
Often, we hear a common theme in that Procurement is a burden and not an asset to stakeholders, and subsequently it is brought in too late on strategic initiatives to make a full impact. However, disruption opens the door to a huge opportunity for Procurement Teams to insert themselves as an essential part of the organization. As organizations push to become more agile and focused on time-to-market, stakeholders who do not feel comfortable in the technology space will feel upper management’s pressure to purchase and integrate complex technology in new strategic initiatives. Procurement can excel by knowing technology markets, offerings, and commercial models and by helping organizations withstand the shock from these disruptive forces.