Digital Transformation: Driving the Move from Cost-Based to Value-Based IT Procurement

Finance leaders must now consider procurement innovation as they plan the digital transformation of their businesses

Financial leaders increasingly understand that their organisations expect them to play a more strategic role – and they welcome it. Now, however, they face a litmus test of their ability to become partners to their businesses. They must be at the forefront of the digital transformation of their enterprises, and at the same time they must rethink what this means for the way they perform their roles.Procurement innovation will be key. Recent research conducted jointly by Forbes and KPMG confirmed that CEOs are looking for greater big-picture thinking from their financial leaders – and crucially, it identified technology as the “make-or-break test” in this context. Almost two-thirds (63%) of CEOs surveyed at high-performing organisations said they thought technology would have the greatest effect on the future role of their financial leaders.

Procurement innovation will be key. Recent research conducted jointly by Forbes and KPMG confirmed that CEOs are looking for greater big-picture thinking from their financial leaders – and crucially, it identified technology as the “make-or-break test” in this context. Almost two-thirds (63%) of CEOs surveyed at high-performing organisations said they thought technology would have the greatest effect on the future role of their financial leaders.

Combining Strategic Insight and Procurement Innovation

That effect will be two-fold. First, financial leaders are going to have to do a better job – courtesy of digital technology – of turning financial information into strategic insight that will drive smarter decision-making. Second, they will be required to rethink the whole model of IT procurement. This will be a shift that feels much more fundamentally challenging for many financial leaders.

To understand this point, we need to recognise how digital transformation will change everything for so many businesses in the years to come. “Digitisation is a step change even greater than the internet,” EY argued in its recent paper The Digitisation of Everything. “The winners will act now and build a strategic advantage that leaves their counterparts wondering what happened.”

Any financial leader who applies conventional procurement metrics to the technology needed to deliver something so transformative is likely to be found wanting. The cheapest may be the best for a procurement exercise in sourcing stationery, say, but not for a suite of technologies on which the future growth and success of the enterprise will depend.

Instead, financial leaders will have to move from cost-based procurement to an approach that considers value delivery. This procurement innovation will be vital in the digital transformation process.

Doing More with Less

This is not to suggest that money should be no object for financial leaders considering digital investment strategies. One major attraction of these evolving technologies is the extent to which they can be accessed through the “as-a-service” model, which does not require vastly expensive IT renewal programmes.

Indeed, one way to think about the move towards a more value-based procurement strategy is to shift from a capital expenditure mindset towards a focus on operating expenditure. Digital transformation will require the acquisition of new business capabilities – services to be used on an ongoing basis – rather than a one-off investment in new hardware or software. In turn, that will require financial leaders and other procurement specialists to build new collaborative relationships with suppliers, rather than engaging in periodic and confrontational exercises that drive a hard bargain.

New Yardsticks

It will also be important to measure the overall value these relationships deliver on an ongoing basis. A recent Capgemini study, for example, found 78% of procurement managers were currently focusing on improving the quality of their data on spending. No wonder. Those financial leaders that are unable to secure the value they hope for from digital transformation will find themselves held accountable for the failure of their organisations to keep pace with rival enterprises.

The bottom line is that while digital transformation changes the game, once again, for enterprises competing with one another in the marketplace, it also underlines the vital need for a shift in the role of financial leaders. Those who aren’t yet strategic decision-makers capable of looking beyond the figures to a value-oriented procurement model had better make the leap quick.

Takeaways:

• Digital transformation is now critically important for commercial success and business survival.
• Finance leaders must play their part in digital transformation by shifting from a cost-based procurement model to one based on value.
• Those finance leaders who fail to embrace procurement innovation will undermine the success of their businesses’ digital transformation programmes.

Avoid the pitfalls of your business-critical journey to digital. Download: “A Business Guide to Digital Transformation – What Does it Really Look Like?”