ROI of Digital transformation: What to expect in procurement?

Digitalization in procurement is inevitable, yet its uptake is rather slow. We assume that the absence of immediate gratification from digital transformation programs is one of the reasons why companies, particularly the CFOs approach it with some caution.

However, well-known procurement thought leader and Juniper Network director, Tomas Wiemer is of the opinion that digitalization of procurement creates intangible value that may not be measured in dollars and to maximize that value creation, procurement leaders must start with knowing the ‘why of their transformation initiative.

Key Takeaways

Each person may contribute in some way to the change management. Everyone should accurately represent their size, whether it be tiny, medium, or enormous.

The best approach to take advantage of the sustainability, the Eco Green program, the diversity, the building and remote employees, and the incentive hiring trends as the world changes is to embark on that course.

Adjust the course of the journey for digital transformation and you don’t take too much of a loss in the process.

It’s inevitable to fail along the way. Allow yourself to make mistakes and lose money but do it in a safe setting where you can learn from your mistakes, and you’ll organically progress.

 

Transcript

Hélène:

So welcome to the procurement game changers, the podcast for leaders that make a difference.

Today, we’ll be talking about digital transformation and to discuss that topic, I am very happy to receive Tomas Wiemer.

Tomas is the Global Indirect Procurement and Digital Transformation Director at Juniper Networks. Juniper Networks is leading the revolution in networking, making it one of the most exciting technology companies in the Silicon Valley today.

Tomas has more than 25 years of experience and expertise that spans the execution of business transformation initiatives, negotiation, and operations management. Welcome to the show, Tomas.

Tomas:

Welcome. Thank you.

Hélène:

Tomas, could you tell us what led you to procurement?

Tomas:

So, I started in procurement after starting a career in business development and strategic planning. So when I started in procurement, it was early 2000.

And the idea, back in those years, is we had a lot of mergers and acquisitions happening in the chemical industry.

So in those years, I was in the chemical industry. And really what the organizations were looking for is to create a new dynamic when those companies were created through the procurement organizations and supplier management.

And what they were really looking for were business savvy talents, I guess, who had leadership skills and moved procurement out of the standard quality management execution approach into a more business savvy supplier management approach. So that was really how it started.

 

What is digital Transformation for procurement?

Hélène:

All right. So we talk a lot about digital transformation and its impact on procurement. And actually, when I talk to procurement leaders, they often have a budget for digital tools rather than support to transform their processes and practices.

So the thing is, digital transformation is about changing the ways of working first and digital tools second.

So, Thomas, can you give us your vision on what is digital transformation for procurement?

Tomas:

Yeah, so it’s <laugh>, this is a very interesting question, right? Because you’re right, most often it starts with a tool to be selected one after the other, and then eventually build a user experience that goes with it and then hopefully get an ROI out of it.

When you do this several times, you discover that it’s probably the wrong approach, right?

So, the problem that we have in the industry, when I say industry, it is the procurement industry in general, is that there’s not too much experience yet happening.

That means that nobody’s really taking the time to really evaluate what is really that you’re looking for. What is the why? Why do you need that? What is you’re trying to accomplish? And then let the budget constraints run free and not put yourself immediately in the budget constraints.

Of course, if you have a very, very, very tiny budget, then I guess you don’t have a digital transformation anyhow, but and we will come back, I guess, [on] that later.

There is a minimum of budget for that. But you should really start with the thinking about what is it that you try to accomplish? What is it that the organization today is not really tackling properly from the supplier end ?

And what is the talent that you want to have and where you’re going. And then from there on you build your plan and your budgets. But very often we start completely reverse, which is the biggest mistake.

Hélène:

Yeah. So let’s start with the wrong end. And I say there are so many start-ups, you know, within the digital space, the digital procurement space. How can you explain all those options to a CEO? So where do you start?

Tomas:

So the comfort very often comes with a logo, right? [it] means that you have a consulting company who brings a logo and the comfort comes also in, from technology companies who have proven their level of satisfaction.

Most often they’re big software houses and it’s really a multimillion-dollar ticket at that point. The startups, [it] is a completely different scenario.

You can try and test with relatively low budget. But they’re young companies, they’re not mature and you need to work with them. So there’s a requirement of having a project structure that follows very closely that startup and accept[ing] the fact that you’re building the business case, right?

You, the account that you’re bringing, they will sell it and it’s fine. You will benefit from it and the startups can give organizations a new way to do business. But it requires a lot of flexibility and a different mindset, for sure.

Hélène:

Yeah. Yeah. And obviously, as you were saying, a lot of startups are building, as they go, the tool.

So it’s the pros and cons of having something that is maybe more customized with what you need, but it means that you need to involve your teams more at the beginning. So you get something that is workable at the end.

Tomas:

Yes, that’s correct. So, when you build that budget you have the software cost, you have the integration cost, and then you have the change management cost, right.

And very often those three do not, not necessarily get analyzed from the beginning and the startup management will always on the sales set at the beginning, try to get your business. And they will really try to do all the extra steps.

The problem is that once you start and launch, they run out of steam and then you need to move the next account. And that’s when the frustration starts. So, the reality is that you need to stay engaged and you cannot count on the supplier that they do all the work for you. Right.

They will simply not. Or then you go into a consulting SOW, which is in a different business model. And probably it’s a good thing to plan for an SOW on the consulting side at the same time.

ROI from Digital transformation

Hélène:

Yeah, that’s interesting. So, what about the return on investment and what can company really expect from the digital transformation?

Tomas:

Yeah. So those are two school of thoughts, right? You have, the first school of thought is the hard dollar payback, right. Which is probably true for organizations who are not that mature yet.

And have a lot of unmanaged spend, unmanaged suppliers and a level of complexity that has never really been addressed either because of the history of the company, or because they went through multiple mergers, like acquisitions and things have not been aligned.

So this is almost what I call the low-hanging fruits. And then you have the other type of companies who are much more mature over the last 10, 15 years. They have already a P2P. They went through multiple restructuring and that ROI gets more based on the user experience.

Now, how do you measure user experience and user satisfaction, simplicity, and speed of execution gets much harder. At that point of the year, the transformation agent, so to speak, needs to spend time and educate the finance organization in the upper management, in order to rebalance both of them.

You need the money for sure. Otherwise, why invest? At the same time, the benefits of the digital transformation brings you on new avenues, which is kind of the big thing nowadays, right?

The diversity, the sustainability, the Eco Green Initiative, the values on how you want to do business, et cetera. It brings you on that path. And there is a, what I call, a dimension of belief that needs to be part of it. You have to believe in what you do.

Hélène:

Yes. So one thing that I’ve noticed in particular in our very niche category, which is consulting, is that what digital may bring to the table is finally the ability to have an overview of what’s happening in the category because it’s scattered in the company.

So it’s not real hard dollar value, as you say, but for procurement, this is so valuable to finally know who is spending, on what type of project. And it goes to your point that there might be some unexpected value in the digital transformation that cannot be measured in dollars per se.

Tomas:

So you’re touching on a very interesting point, right? The interesting point is that traditionally procurement systems have developed it through the purchase order accounts payable. So whatever the invoice says, that’s what you get as an information.

The digitalization now touches on pretty much on everything else than what you see in an invoice. Like what is the value of SOW, right? And the consulting. What is the return of investment of the time spent? So those are not always materialistic outputs that you can see through the normal traditional P2P.

So I think the procurement organization is now extremely challenged. And I think actually the innovation will come through the startups in the sense of, you see, we speak so much about AI and artificial intelligence, but the AI becomes only intelligence when you start to bring in multiple sources of information.

And then somehow you can cross them. But if you have only the traditional supplier onboarding P2P and contract management, frankly speaking, you don’t really create a digitalization.

It’s the premise of a digitalization, but it’s a necessary step, but you haven’t reached the digitalization yet. So the challenge for our industry, in short, is that, and we are not completely there in reality, there’s a lot of deep writing on it, but we are not really there.

The data crossing each other in term of information is a hard step to overcome, especially as we are today in a cyber security information, security, privacy, and many laws happening in many countries is also a barrier for those information transfer from one to the other. Yeah.

So that’s the 20, 25 journey if you want. And, and not to go too far, but that’s when I’m a strong believer that that’s when the platforms will come.

So you will probably see if I, if I would take a my crystal ball, I would say by [20]25, [20]28, we will not speak any more about individual software for procurement. You join the platform and it’s just there.

You don’t need a purchase order. You don’t. It’s like the Venmo in the US for credit cards where you don’t need an invoice, you don’t need this and that you just get paid, right? Yes. And you don’t need to supply on boarding.

The suppliers are already on the platform. You don’t need every time, negotiate your terms and conditions. They’re standard for everybody. If you join the platform, that’s what you accept. And maybe certain things you can address. That’s where it’s coming. We are not there at all yet.

So everything pretty much what we do sounds bit depressing, but [it] is more to prepare for the next wave to come. But if you don’t do it, you’re really, really behind

Hélène:

So let’s talk about resistance. You know, what are the main resistances? How do you have become them in that preparation of the next wave?

Tomas:

The change management in general is a budget that gets early cut because nobody really understands it. Where’s the money coming back? People should adapt. They should understand.

The reality is that everybody likes what they do. People are comfortable. It’s really a little bit of psychology coaching in a certain way. But the management has a big role to play, right. And then you can have a different type of situations.

Either you do all that for headcount reductions. If that’s the case, then just say it, you’re better off to just say it and say what you’re trying to achieve. Everybody makes their own decisions. Those who stay, those who leave, that’s it.

Or you’re saying, no, we are not doing this for headcount reduction. We are doing this for an enhancement of capabilities. If you’re on enhancement of capabilities, there will be a dead time in a certain way where you build out those capabilities.

The team members don’t see the output yet, and that can take 6 to 9 months to 12 months. So it’s a lot of hand holding and explanations and spending time that it will be fine at the end. But yes, your world will be rocked that’s for sure. Right.

And it’s not for everybody at the end game. Right. there’s a lot to learn. I think that’s the biggest thing. When you belong to an organization that is going through this, you need to be willing to learn on your own, right. Make yourself available to learn.

And that’s probably at least 10, 15 hours a month. Right. And what do you do for yourself? Right. And most people, yeah, they just don’t do it. Right.

Hélène:

True. And I think that goes back to what you were saying. You need to be a believer at some point that it’s bringing value and maybe the toughest challenge for the project leaders in a digital transformation is to get other leaders to believe because it’s kind of spreading through that.

You can only get on board and really embrace digital transformation if you believe in the benefits for yourself and for your organization.

Tomas:

Which brings to an interesting point is that it’s becoming a profession almost, right. In the sense that if you do it once, you don’t do so well.

It’s like anything in life. If you do it three or five times, now [you start to develop a second sense of what can work and what cannot work. It’s not a recognized profession yet in reality, actually, it’s the opposite.

It’s the fuse of the system. Very often the statistics unfortunately show that its little bit improving, but over the last year still is that the transformation agent is the one that loses very often first his or her job, simply because it’s an easy fuse, right? He or she is not able to explain.

They didn’t understand our culture, went too fast, went too slow and all that things have improved lately, but it becomes a profession.

It’s important to keep the fundamental of the profession. If you’re in sales, it’s in sales, it’s customer service, customer service, procurement, procurement where you apply what you know in a new direction.

And for those who want to go into that career ladder, I really recommend to take some classes, school certifications because the academia behind it puts things back in perspective versus just go by feelings, right? Certain things are normal and other things you just don’t know.

I think it’s a new career ladder that will develop quite quickly and companies will pay for that. That’s for sure. Right.

Hélène:

You know, let’s talk about a bit about, you know, how to hire and keep young professionals. So I’ve heard that that was very difficult these days to get the right people, but to keep them as well in procurement careers. So do you think that going digital could help attract and retain talents?

Tomas:

The simple answer is yes. And I think that’s one of the main reasons [I] personally spent a lot of time on that of course, is to bring the value to the company, but the value to the company comes also through the talent. Right.

I believe that for those who have, well, let’s say 10, 15, even 20 years of experience, and when they look for new opportunities, you need to give in a work environment that is not too complicated, not, too hard.

And so the old days when somebody sends you a flat file that you need to go on, spend hours and building the tableaus and or the excels and the pivots, when you’re done with it, you’re exhausted. You don’t even have the energy anymore into looking at what you have even built.

Right. And I think the talent is looking for organizations that are dynamic. Yeah. Many people apply to companies where they can continue to grow, but grow from the knowledge perspective.

I mean, you have, it is not so much in the procurement world, but it’s coming also in the IT world, people join certain companies because they work on this type of software so they can get certified, they can build a brand for themselves, and then they move on.

The digitalization has a benefit for both ends. The first and it’s for the company, because for those who want to rotate, companies stay stable.

But it’s a great way to attract the right people also ensuring that you are dynamic, you are modern and [in] the job career that people are joining, the organization at least is trying to create a comfort level that goes with all type of setups nowadays, right?

Post COVID, is it a hybrid mode? Is it a remote based, is it office based? And we don’t really know yet how organizations companies will set themselves up. Right.

So there’s a lot of choices and yeah, it’s important to be cost competitive, but also create this work environment, in this case, the digital work environment where it’s not so hard to start and perform right. That’s the key thing, I think.

Risks during digital transformation

Hélène:

Yeah. So now let’s talk about risks. You know, how do you manage risks during a digital transformation?

Tomas:

The risk is to collapse, right? The biggest risk is to collapse that when you start to dismantle and the organization is not ready yet, and then you start to rebuild and in the middle, everybody gives up.

I have seen probably 10 years ago situations where the top management suddenly got scared and just wrote it off, stop everything.

So just was too much, too much, too fast at that time. Today it’s less, right. But I think that’s the biggest risk.

The other big risk is that it’s a big distraction to the organization, right? So you spend a lot of meetings, lot of things, and at the same time, you have to execute and deliver. So how to execute and deliver while a big portion of that organization is focusing on the transformation.

You need to find the right balance. Now, the next risk is that people get a little bit jealous, right? For example, he or she gets moved into the transformation. And I am stuck in the execution because I’m good in execution.

I’m good in negotiation, but I’m not really part of the new wave. So you have to manage this type of sentiments where both groups are needed. And if you can, depending on the size of the organization, the best is to do some kind of rotation among people.

So everybody stays engaged, but yeah, depends on how big the organization is. Nowadays it’s rare that you do that in one country. So you do it in different countries, different time zones, how large the organization is.

So all those aspects need to be taken into account when that movement starts to happen. And it’s a journey that will last from the risk perspective, I think, it takes, easy, 15 to 18 months. And then it goes down, but you need to survive those 18 months

Hélène:

And you have to be consistent during…

Tomas:

You have consistent and deliver, because at the end of the day, the CFO wants a money, right?

Hélène:

So, direct or indirect, do you think that digital transformation for procurement applies more to direct, indirect, same. What’s your opinion on that?

Tomas:

I think it’s different. The common factor is learn how to integrate data from the outside into the inside. Many companies have started to work in data links where you can bring information in and you bring them out.

The direct side is moving more and more into geopolitical risks, commodity risk management, planning, lead time. So the gap between direct sourcing, especially if you’re in manufacturing, I guess. I guess the direct means mostly manufacturing to make really simple.

The gap between planning, inventory, lead time, it’s getting closer and closer. So if I would redesign something tomorrow, I will do an end to end from that end, right. And probably walk away from the traditional procurement KPIs.

On the indirect side, you’re really joined by the hip with compliance and legal. It’s finance, legal, compliance that gives the drive.

And the most difficult that most companies still suffer is not just to have access to the information and get ready to go decision proposal, so to speak by the computer, to the strategic source data.

But [it] is a user experience, right. How can it make easy to point that almost the normal requester of the company doesn’t even know that the procurement exists, right? That would be the ideal dream situation.

You just need it. And somehow you get it right. In the morning, you switch on the electricity, you have light, you go to a seat, there is a chair waiting for you. You need a screen, you click, you have it, right.

And it’s not so easy because those who are not part of the procurement world, don’t always realize all the standards that procurement is executing on behalf of legal and compliance and audit and finance while procurement is not really making any rule.

Right. I mean, they can influence the rules, but they don’t own the rules. So that’s the downside, and again, back to platforms. That’s my big hope in the years to come, that the platform will just wash all that out. Right.

Hélène:

So now it’s time our takeaway. What is the one thing that our listeners should remember from this conversation?

Tomas:

Yeah. I think everybody can do a piece in the transformation management. Everybody should reflect either you are a small company, medium or large.

I think that the world is changing and the best way to capture all the sustainability, the Eco Green initiative, the diversity, the building and remote employees and motivation hiring is to engage on that path. So don’t be afraid.

And the takeaway that I would like to say is probably one point is that: failing is part of the journey. Allow yourself to fail, allow yourself to miss an investment, but in a controlled environment and lessons-learned environment, and the growth will come naturally. That’s the biggest takeaway.

Hélène:

No, no, it’s, it’s a little bit like, you know, I think there’s a quote from Nelson Mandela saying that I never fail.

I just learned that’s the idea if you’re in control environment, and even when you fail, you take it early enough. So you can just, you know, adjust the course of the journey and you don’t take too much of a loss in the process. Well, thank you, Tomas. Thank you. That was very interesting.

Tomas:

Yeah. Sure. Thank you for having me.

Hélène:

So now it’s your turn to tell us about your experience and your challenges in the comment section on the digital transformation front.

Don’t forget to subscribe if you want to be notified when a new episode is out.

Thank you for listening. Thank you again, Tomas for your time. And I hope you enjoyed this episode.

If that’s the case, don’t forget to give us a thumb up! Happy sourcing to you all, bye.

PS:- To hear our previous PGC podcast episode, CLICK HERE.

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Helene Laffitte

Hélène Laffitte is the CEO of Consulting Quest, a Global Performance-Driven Consulting Platform. With a blend of experience in Procurement and Consulting, Hélène is passionate about helping Companies create more value through Consulting. To find out more, visit the blog or contact her directly.

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