The Oxford English Dictionary (OED) traces the first uses of the terms ‘digitization’ and ‘digitalization’ in conjunction with computers to the mid-1950s. In the OED, digitization refers to “the action or process of digitizing; the conversion of analogue data (esp. in later use images, video, and text) into digital form.” Digitalization, by contrast, refers to “the adoption or increase in use of digital or computer technology by an organization, industry, country, etc.”
Early references to Digitalisation for procurement which has been a hot topic in the wider business world for a number of years first appeared around 2014/5. I first became aware of the broader topic from various SAP Ariba reports from around that time but gained further traction in the 2016 Deloitte CPO survey, and also in the below
In a 2016 PWC article
A 2017 Accenture report
A 2017 Hackett research report
In a 2019 CIPS Survey, the researchers identified that "the industrial revolutions can be characterized by four distinct phases of maturity and emphasis. These are mechanization (Industry 1.0), electrical (Industry 2.0), computerization (Industry 3.0) and now phase 4 is digitalisation (Industry 4.0). " and that organisations are now starting to move beyond Industry 3.0 (an era of computer and the Internet) toward a more fully digitalised environment, referred to as Industry 4.0
So we have identified the background of where and when digital procurement has come from and to a degree what it means, next we need to consider how Procurement is doing
According to a BCG report despite the promise of digital, many procurement functions still live in the analogue past, performing tasks manually, making decisions without a comprehensive understanding of data, and lacking visibility into the sources of supply.
Therefore they are missing out on digital’s key benefits: incremental cost savings of 5% to 10%, productivity increases of 30% to 50%, and substantial improvements in innovation, quality, speed, and risk management. The same BCG report identifies that value is generated in three interrelated ways
Insights and Informed Decisions.
Big data and advanced analytics—increasingly important weaponry in procurement arsenals—help create transparency across massive amounts of data, enhancing insights, decision making, and ultimately, performance.
Robotic process automation (RPA), one of the most widely used automation technologies, automates and accelerates the completion of transactional tasks while enhancing accuracy and contract compliance. Artificial intelligence (AI), a more advanced technology, can augment high-value cognitive activities, improving speed, and productivity.
What automating processes does is release people who previously were taken up by repetitive tasks to people who can interact effectively with individuals with different areas of expertise, communicate about complex issues, recognize large-scale patterns, solve multilayered problems, and come up with new ideas.
Combinations of digital technologies make it possible to conduct procurement work in real time with other functions, business units, and regions in the organization, as well as with external partners. For example, these technologies provide a better window into demand across the supply chain, allowing companies to avoid excessive inventories and inventory holding costs. They also are a real help to product development because they allow organisations to incorporate suppliers’ ideas into new products at a time when shorter product cycles demand ever-faster innovation. It is therefore a key for building supplier relationships.
So how does procurement aim to leverage these three areas of value?
Much has been written about the changing needs for procurement skills in the various CPO reports mentioned earlier as well as the current Deloitte CPO report and various industry bodies such as CIPS, and ISM but in summary in order to take advantage of the value that digitisation can deliver then the current and future levels of procurement functional maturity needs to synch up.
The below image from the BCG report shows what this could look like.
But in order to achieve the value of Digital, we need to look broader to the functional and organisational capabilities of organisations
So, we have all heard of IQ (Intelligence Quotient), which is an attempt to measure intelligence via a series of standardised tests, and then there is , EI (Emotional intelligence), the capacity to be aware of, control, and express one's emotions, and to handle interpersonal relationships judiciously and empathetically, which can be applied to EQ The level of a person's emotional intelligence, the logical next thing to measure will be DiQ (Digital Intelligence Quotient); a collection of social, emotional and cognitive abilities that help someone deal with the demands of living a digital life.
A simple definition of Digital intelligence is “the ability to acquire and apply new knowledge and skills related to digital technologies” It is more than the ability to use digital tools, but rather the ability to know why, what, how and when of digital technology to improve effectiveness and outcomes. Digital Intelligence is fundamentally about our relationship with technology, just as Emotional Intelligence is about our relationship with others. Building our DiQ will be central to achieving the skills changes needed to get the most advantage of the digital transformation that will be, is, or has happened, indeed it may be the key to realising the promised value if you have already started on the journey
There are a number of really good articles and research reports that identify these skills, a great report from Mckinsey called raising your Digital Quotient suggests that success can be attributed to 4 main factors
· Think carefully about the digital strategy available to them
· Success depends on the ability to invest in relevant digital capabilities that are well aligned with strategy
· A strong and adaptive culture can help make up for a lack of technical capability
· Align their organizational structures, talent development, funding mechanisms, and key performance indicators with the digital strategy they’ve chosen
The report goes into more detail about all of these, buts it’s a really interesting read, and suggests that the journey to digital maturity requires a whole-hearted commitment from an organisations leadership and a sustained investment in people, capabilities, technology, and cultural change.
PWC conduct a regular survey on Digital IQ and their 2018 suggest that it is mindset, rather than time or resources, that is proving the stumbling block to success, some key takeaways from this report include
· 91% of top financial performers have an executive in charge of employee experience.
· 54% of top financial performers say their leadership is digitally savvy and helps the workforce think in a new way, compared with 41% of others.
· 64% of top financial performers say their business faces a serious threat from disruption, compared with 27% of others.
· 28% of top financial performers say they lack a strategic focus on training, compared with 47% of others.
They go onto suggest that four categories of aspiration for digital businesses –
· Efficiency seekers, - Focused on doing business smarter and faster, and use technology to achieve that
· Modernisers - want to create new capabilities, not just get the best out of their existing set up, and as such, they have invested in recruiting a more digitally-savvy workforce and encourage innovation at all levels
· Redefiners, - This group can see that disrupting from within, changing and redefining business models, should drive success.
· Industry explorers - Not content with improving or disrupting their own businesses, they want to go further, find new lands to conquer in a disruptive environment.
The report concludes that organsiations that are merely pretending to face a digital reality still have time to address their ways, meet their aspirational goals and maximise the potential to drive business
Looking at these two reports it is clear that there is a need to ensure our organisations’ (and our function - procurement) Digital IQ is ready to meet the challenge, so how to get ready? Well to start with here are my thoughts
Link business, digital and procurement strategies together
Having a high Digital IQ is about making digital investments that deliver sustainable value. The only digital investments you should make are those that fit well with your organization strategically, something may be state of the art but if it doesn’t help achieve a business objective then it's not a priority. According to a Forrester report, “Digital transformation goes much further, fundamentally reshaping the way you create value for your customers and drive revenue growth.”
Road mapping and planning
Facilitate the discussion between IT, Business and Procurement together to achieve a goal of identifying gaps so that you can prioritize action in your digital strategy that will complement the business strategy.
Build digital relationships
Build relationships where disruption is happening, it’s a great way to identify what may happen, and also to identify new ways that you can internally disrupt
Build internal relationships
This is an organisational wide initiative so we must bring our internal leadership along with us. A Gartner report stated that “Digital transformation will fail without a willing, informed, equipped and engaged workforce”. We need to engage internally to understand the broader organisation and employee needs from Digital which will therefore raise our IQ.
Focus on the experience
Consider customer and employee interactions, how do you deliver digital initiatives and impact culture through adoption and contribute to continual learning and development. A different Forrester report also suggested that Digital fundamentally changes your relationship with your customers. You can't address this change with a bolt-on digital strategy that adds an app here or a site there. To remain competitive, you must re-engineer how your business creates value for your customers in the digital age. The same is true for procurement, we need to see how we create value for our customers AND our suppliers and ultimately the organsiations end customers.
Your roadmap identified gaps, both for current and also for future requirements. Make sure you budget for these
Justin Trudeau at Davos said
"The pace of change has never been this fast, yet it will never be this slow again"
Technology continues to speed up and we must devote more resources to increasing our Digital IQs or they will soon fall further behind leaving procurement at a disadvantage in the market and maybe even extinct….