What’s Procurement Got to Do With It (DX)?

There are two critical roles for this department to play in digital transformation for any business

When embarking on a digital transformation (DX) effort for any business, it is critical to engage your key stakeholders for organizational change.

I often find that digital leaders will stress the importance of working closely with your IT department (for technology) and your HR department (for talent).

But what about the rest of the organization?

Throughout “The Digital Transformation Roadmap,” I argue that real transformation requires the involvement of every business unit, and of every business function.

What about a decidedly non-sexy, non-customer-facing business function… like procurement?

What does procurement have to do with digital transformation?

It turns out, quite a lot.

My Trip Down the Procurement Rabbit Hole

I recently returned from Amsterdam where I delivered the opening keynote at the DPW 2023 conference.

DPW is the world’s biggest annual gathering of leaders in the field of procurement. Think of it as Burning Man (without the mud) for the executives who work at the intersection of supply chain, finance, operations, and sustainability.

For my keynote, I spoke to 1,500 live attendees and several thousand more online.

Later in the day, I got to lead a more intimate workshop on digital transformation with the Chief Procurement Officers of global brands in consumer goods (Coca-Cola, Danone, Kraft-Heinz, Mars, Campari), pharmaceuticals (Merck, Bayer, Sanofi), financial services (Discover, Raiffeisen Bank), industrials (Tata Steel), energy (BP), and big tech (Google).

Yes, that’s right. Even Google needs a procurement department.

As a decentralized, digital-native firm, Google lasted twenty years without one. But five years ago, a global procurement team was established, in order to help the company better scale its resources (think: server farms and real estate) to match its torrid pace of growth.

Procurement’s Two Digital Opportunities

I quickly discovered that, when it comes to digital transformation, CPO’s get it.

They know that new digital business models and customer expectations demand a much faster pace of innovation and change from their organizations.

The CPOs in my workshop spoke fluently about the risk of business model disruption to their firms, about low-margin entrants coming in from outside their industry, about balancing a b2b strategy and a direct-to-consumer strategy at the same time, and about harnessing IoT sensors and machine learning to yield better solutions to the customer problems their business was created to address.

They also know that CPOs have a key role to play in this digital transformation.

In our workshop, we focused on two key opportunities for procurement to be a part of DX:

• First, the procurement team must work to enable innovation across the business, rather than being an impediment to change.

• Second, procurement leaders need to boldly transform their own function, reinventing their role and disrupting their traditional ways of working.

Job 1: Be an Enabler, Not an Impediment

The job of becoming an enabler of change is critical for procurement, and for every other control function—finance, legal, risk, compliance, etc.

This job starts with recognizing that digital transformation is not about technology.

Digital technologies—which keep coming in bigger and faster waves—are the spur that pushes your business to change, or risk sinking quickly into irrelevance.

But the heart of digital transformation (and the hardest part) is changing the organization itself. Real DX requires empowering our own people—by designing organizations that are able to adapt quickly and at scale.

It is here that the procurement function is critical, sitting at the juncture of finance and operations. It can slow down or speed up experimentation and dynamism in the business. It can get in the way of change and act as a roadblock, or it can be an accelerant.

Google offers an instructive example. With its Silicon Valley roots, the company has held strong to a decentralized organization, even as it has grown to a huge scale. But decentralization (like any design) can have its drawbacks.

As Google’s CPO Jennifer Moceri explained to me – it becomes massively inefficient when a company like Google has 200,000 “procurement officers” making all their own purchasing decisions, with no efficiencies of scale, and no mechanisms for shared learning across the business.

By embracing procurement as a tool for dynamic growth, Moceri and her team are seeking to accelerate, not slow down, teams across Google.

Job 2: Procurement Team, Disrupt Thyself

The second job of procurement is to continuously rethink its own value and how to best deliver that value for the business.

Several CPOs repeated a complaint I have heard from other department heads: that they have the wrong talent in their teams.

“We want procurement to be strategic,” one told me, “but our staff are all tactical. They were hired because they are experienced as ‘buyers.’ That is not what we need!”

The executive raised a common fear that, if they do nothing but keep fiddling around the edges of their current team and current processes, in a few years’ time a vendor’s new A.I. may emerge that can do the same work better. The company might logically choose then to outsource the whole procurement function.

I encouraged them to address this kind of disruption head on.

Start by asking: “What if procurement disappeared from your organization tomorrow—what problems would there be?” (In other words, what problems are you solving for the business?)

Then, starting from a blank slate, imagine what you could do to tackle those problems best.

Your answer may well involve a very different approach, different talent, and different data & technology, than what you use today.

It is only when you are ready to blow up your own function in the business, that you will start to see where you need to evolve next for future growth.

What about YOUR function?

I realize that many of you may not work in procurement yourself.

But digital transformation must engage every level of the organization and every function. Yes, IT. Yes, HR. Yes, marketing. But also: finance, compliance, legal, procurement, and more.

Every part of the organization must drive digital innovation and change if transformation is going to succeed!

The stakes are high. Most legacy companies are not adapting and changing nearly fast enough to survive long term. The companies driving real change at scale are outliers.

For your company to succeed, it will need your help as well, no matter where you sit in the org chart.

More Reading

While at DPW, I had a fascinating conversation with Helen Atkinson, managing editor of Supply Chain Brain, in which we talked about all things DX and procurement.

You can read our full interview here.

---

For Your Amusement…

While bicycling around Amsterdam, my wife and I happened upon the studio of Dutch photographer Sander Veeneman.

On a block in the old city near the Prinsengracht canal, Sander has created a photography project where he invites modern subjects to step into the scenes of famous Dutch portrait paintings from the 17^th century, by Vermeer, Rembrandt, and others.

I chose to inhabit the famous portrait of Willem van Oranje, liberator and founder of Holland, as painted by Adriaen Thomasz Key. (On display at the Rijkmuseum.)

Find out more (or book a sitting if you’re heading to Amsterdam) at https://milkmaidproject.com/

---