The Hackett Group recently published their 2021 Key Issues study featuring a number of valuable insights for CPOs and procurement transformation leaders setting a path to recovery after the Covid-19 crisis. It's remarkable that 9 out of 10 topics covered this year are also very close to our agenda at Sievo. This blog post will summarize what we can expect in 2021 through the key trends.
Let’s first state the fundamental conditions for the next year: 80% of the respondents in the study by Hackett Group believe that the conditions set by the pandemic will not stabilize before the second half of the year (and 36% of them believe that won’t be the case even then). At the same time the aspects we know to have disrupted our work last year – managing risks, shift to virtual work, cost reduction, and digital acceleration – will not be going anywhere for now. There are also vast changes in the way procurement functions operate, being “the end of procurement as we know it”, as Accenture stated a while ago.
But what are the key priorities and the hurdles to overcome, and what can we actually do about it? What does it mean that the crisis is shaping the procurement agenda of 2021, that corporate sustainability goals reach the top 10 key issues for the first time ever, or that reducing spend is at the top of the list again?
First, let's examine what the 2021 procurement key issues are.
- Reducing cost
- Reducing supply risk to ensure supply continuity
- Acting as a strategic advisor to the business
- Accelerating procurement’s digital transformation
- Improving procurement agility
- Modernizing procurement application platforms
- Aligning skills and talent with changing business needs
- Improving analytical and reporting capabilities
- Enabling corporate sustainability goals
- Increasing spend influence
Now, nine highlights from this study need to be emphasized.
1. Reducing cost is back on top of the priorities list – and it’s no coincidence.
The turbulent times force companies to focus on the core in order to remain competitive. “Even companies that fared better during the pandemic must still brace for ongoing instability for some time”, the report says. With that being said, although reducing costs are important, they are only the very base line, like the bottom level of the Maslow’s hierarchy. On top of that comes the next layers, the “new cost savings”, like reducing supply risk and enabling sustainability goals.
2. Expectations of the procurement organization have shifted in a year.
To set the basis, in 2020, “becoming” a trusted business advisor was ranked as top three whereas in 2021 it is crucial to “act” as a strategic advisor. In 2020, “modernizing procurement applications” were seen to be important, whereas now it is crucial to “accelerate digital transformation”. It is no longer a nice-to-have for procurement to be a trusted business advisor or to have modern procurement applications, but they are rather a necessity that need to be there, just like coffee at the office or a keyboard next to your computer.
3. Expectations for digital adoption are at a new level.
Procurement is rapidly adopting cloud-based systems, with best-of-breed solutions expected to grow by 22% in the coming year, while already having a current adoption rate of 67%. The Hackett group also anticipates an increase in advanced analytics and data visualization tools that help in each of the other key issues.
Correspondingly, “improving analytical and reporting capabilities” dropped to #8 in 2021. This aspect has already been discussed for a while now and starts to already be at an established level. For example, 81% of respondents already have some sort of data visualization tools, and this is set to grow by 26% in the coming year. However, this aspect was stated as the issue that was the hardest to address, while three quarters of organizations already had a “current initiative underway to enhance and further develop data, insight, and analytics capabilities”.
4. Supply risk takes second place – not even having been on the list last year.
The silver medal of the list is delivered to reducing supply risk, which was not even on the list at the time of the last survey in the beginning of 2020. Sure, this is partly due to the volatile year of last year that businesses need to stay competitive by ensuring supply continuity, but it also shows a bigger trend of what procurement’s role is. “Procurement must use the proper digital tools to maximize visibility throughout the supply chain” regarding supply risk, the report says.
Similarly improving procurement agility climbed from #8 to #5. And while the term agility may vary in different organizations, things like preparing for and mitigating risk are highly applicable in any organization.
5. Sustainability goals reach the top 10 for the first time.
… and not even coming in in last place! This milestone is summarized well in the report, as it is “representing a broader shift toward a heightened importance of corporate social responsibility”. Just like modern data applications and being a trusted business advisor, sustainable procurement is no longer a nice-to-have, but rather a must-have, if one chooses to remain competitive but also step into the 21st century.
6. The main hurdles in the way remain the same: resistance to change and deficiency in skills.
Hackett Group outlines eight hurdles that are in the way of adopting these key priorities, and while there was quite a bit of change among the priorities in 2020 and 2021, the hurdles have remained relatively similar. At first place is organizational/stakeholder resistance to change. The second spot, deficiency in critical skills, also remains the same. These are closely linked, as in order to be able to drive organizational change, the appropriate competencies are required.
Interestingly, however, what got bronze in 2020, was now only in fifth place: data-related issues. Either data-related issues are already all solved (which I highly doubt) or then other things, namely organizational complexity and over commitment of initiatives, are now seen to be more relevant challenges in driving change through the organization.
7. Digital acceleration is the key answer to overcome the hurdles.
Now, we understand the key priorities and the hurdles, but it is also needed to understand how they can be overcome. In fact, the answer seems to be quite simple: digital acceleration. The technology leaders in the study – the organizations that have had greater success in implementing data and analytics and other technologies – performed “far better than their peers” in addressing enterprise and functional objectives. (This is starting to sound like an ad for such technologies, but these are simply the facts of the report :) ). This, according to the study, points to two things: the ability to improve service delivery capabilities as well to redirect and build new resources and capabilities that increase business contribution.
8. Major initiatives for 2021 include digital transformation and diversity & inclusion programs.
Therefore, when asked the executives about the major initiatives on the 2021 agenda, over half of the respondents answered enterprise digital transformation is one of them. Interestingly, a similar 50% also named the “development or expansion of diversity and inclusion program”. Only after that came cost optimization, virtualization of work from home, and data management improvement.
9. 10 accomplishments are laid out that need to be achieved by CPOs in 2021.
Regardless of what the hurdles, priorities, or organizational changes in the organization are, the value of CPOs ultimately boils down to the accomplishments that year. The report outlines 10 accomplishments that should have a check mark next to them on the to-do list a year from now. They have to do with improving stability, relationships, modernization, digital transformation, skill gaps, operating model, agility, risk management, data and insights, and influence. Easier said than done, maybe, but off to work we go!