Curated 2 – Digital transformation of Procurement : a good abuse of language?

Thierry Jaffry - April 21, 2017

Information to readers : we select carefully our curated blogs on specific criteria. Our goal is to share articles we have found inspiring and that will give you disruptive visions of procurement. You will find the original article on digital transformation at the bottom of the blog

Today we have chosen extracts from an article written by Bertrand Maltaverne, a key thought leader in the procurement community.

According to him « digital transformation » has become an overused buzzword. He explains us the true meaning of digitization, digitalization and procurement transformation.

 

Digital transformation of Procurement:
a good abuse of language?

by Bertrand Maltaverne

 

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: 84% of procurement organizations believe that digital transformation will fundamentally change the way their services are delivered over the next three to five years. Yet only 32% have developed a strategy for getting there.” 2017 Key Issues Study, The Hackett Group.

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:

 

–    Digitization is the conversion from analog to digital. Atoms become bits (e.g. digitization of data). You cannot digitize people.

–    Digitalization is the process of using digital technology and the impact it has (e.g. digitalization of a process).

–    Digital transformation is a digital-first approach that encompasses all aspects of business, regardless of whether it concerns a digital business or not. It leads to the creation of entirely new markets, customers, and businesses (people, capabilities, processes, operating models,…).

 

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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.

 

What about the digital transformation of Procurement?

 

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:

–    Scanning of invoices is a typical example of digitization.

–    The use of an eProcurement tool is an example of digitalization.

 

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.

Secondly, there is a lot to take and learn from the principles and philosophy of digital transformation. The differences in the definitions of digitalization and digital transformation imply a massive change of perspective. Digitalization is mostly about incremental improvement to current ways of doing things. Digital transformation entails a new and fresh look to what is now possible. It is more about creativity than reengineering. Many procurement organizations are often reluctant to take such a move and to obliterate existing and established processes to think digital-first.

 

Thirdly, digital transformation is a prerequisite (or enabler) to develop other critical capabilities like the ones highlighted by The Hackett Group:

–    Obtain more value in the purchase-to-pay process

–    Improve Procurement’s business agility

 

It is because it would enable Procurement organizations to address the following imperatives (taken from another report from the Hackett Group):

–    Reallocation of resources from transactional focus to value adding,

–    Leverage analytics-based decision making,

–    Re-skill the Procurement function.

 

I hope you enjoyed this article as I did. Here is the original and full article written by Bertrand Maltaverne :
Digital transformation of Procurement: a good abuse of language?

 

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About the author

Thierry Jaffry has an extensive expertise in S2P projects working successively with Ivalua and Flucticiel software solutions and integrators. He is the man behind Simetryk.


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