Digital transformation of Procurement: a good abuse of language?
The expression “digital transformation“ is becoming an overused buzzword. It is because many use it without a proper understanding of what it actually means. This explains why many organizations are puzzled with regards to how to become digital.
… then we could consider that most organizations are already there*.
*: if we except thehuge adoption issue of some Procurement technologies.
Electronic tools have been around for a while now. Some are even ubiquitous. So, it would mean that digital transformation is an old story and that most (if not all) organizations are already digital.
But, according to a recent report by The Hackett Group, the situation in Procurement is different:
As I explained in details in a previous article (see at the bottom of this page for a link to that article), I believe that many CPOs and Procurement teams are unable to articulate a vision or a strategy because of a misunderstanding of the various words used in the context of “being digital.”
I am talking about digitization, digitalization, and digital transformation. These words are often used in place of each other. The fact that many consider these words as interchangeable reveals the confusion around what digital transformation entails. Hence, the trouble to build a clear vision and an executable strategy. Hence, the reference to “buzzword” in the title of this article.
Let’s get to the “definition” of these words:
These definitions highlight how these concepts are nested. Digitizing information makes the data easy to access, copy, share, transfer, and process. Using the data is more efficient than when it was analog. The next step is the digitalization of a business process by using technology to improve or transform it with the aim to generate more revenue and / or to reduce costs.
Digital transformation is the broadest of the three terms. Also, there is a significant difference with digitalization. Digitalization is often an incremental improvement or an adaptation of an existing and non-digital process that increases efficiency. Digital transformation is designing new ways of doing things that generate new sources of value. It is more related to effectiveness. Also, it encompasses all of the enterprise, not just a specific process or function.
Most of the time, when people talk about the “digital transformation of Procurement,” they speak of digitization or digitalization.
For example, in the P2P process:
Also, if we strictly apply the definitions I proposed above, then the expression “digital transformation of Procurement” is erroneous. It is because digital transformation is an enterprise-wide approach and cannot be just about Procurement.
Despite that, Procurement professionals would make a terrible mistake to ignore what digital transformation means for their practice.
Firstly, Procurement has a particular role to play to support the digital transformation of organizations because it implies new types suppliers with particular digital capabilities and offerings. It is no surprise then that the Hackett Group listed it as one of the four key development areas for CPOs in 2017.
An example that comes to my mind is SKF. SKF is a producer of an “old” technology: ball bearings.
Because of all the progress in sensors, data, and connectivity, they built a digital offering that brings value to them and to their customers who can enrich their offers (ball bearings are in almost every mechanical assemblies). It is the real purpose of a digital transformation:
As the example of SKF demonstrates it, digital transformation is not just for IT companies or the tertiary sector. Many other examples of digital businesses blurring the digital and physical worlds exist. They demonstrate that “if you went to bed last night as an industrial company, you are going to wake up in the morning as a software and analytics company” as Mark Raskino & Graham Waller from Gartner write in their book.
