Accelerating the pace and impact of digital transformation · Procurement functions can learn from digital leaders Alignment between front, middle and back office is critical Introduction

Accelerating the pace and impact of digital transformationHow the procurement organization views the digital agenda

A Harvard Business Review Analytic Services study in association with Genpact Research Institute

RESEARCH REPORT

2

Methodology and sample

The survey was conducted by Harvard Business Review Analytics Services in association with Genpact.

•682 respondents from HBR Advisory Council, HBR e-newsletter lists, and Genpact’s clients were surveyed

•Respondents screened based on the size of the organization (1,000 or more employees) and knowledge of their organization’s use of digital technologies

•51% of organizations with 2014 revenues of $5bn or more

•68% of respondents work in companies of 10,000 or more employees

•6% of respondents work in procurement/logistics

About the research

37%

25%38%

North America

Europe

Rest of world

High-tech

Financial services

Manufacturing

Energy/UtilitiesHealthcare/

Life Sciences

Consumer goods/Retail

Others

Marketing/Sales

Operations

Finance

ITHuman resources

General management

Others

Geography

Industry Function

11%

13%

12%

14%

10%

34%

7%6%

9%8% 9%

31%

15%

14%

9%Procurement

13%

35%

37%

15%Executive

management

Senior management

SeniorityMiddle

managementOthers

3

Introduction ................................................................................................................................................04The impact of digital ................................................................................................................................. 05

Meet the digital leaders .......................................................................................................................... 06Much higher digital impact expected in the future............................................................................... 08Good middle/back office critical to impact ........................................................................................... 10

The barriers to generating impact with digital .....................................................................................11Fast experiments, legacy systems and cross-silo collaboration challenge procurement .......................12Middle and back office fail to support customer expectations ............................................................ 14

Capabilities, leadership, skills and investment ...................................................................................15Digital abilities fragmented across functions ..........................................................................................18Skills required to harness digital: collaboration and agility are key .............................................................19Investment in digital will increase ......................................................................................................... 20

Conclusion: digital transformation beyond technology ....................................................................21

At a glance

4

Procurement functions can learn from digital leadersAlignment between front, middle and back office is critical

Introduction

While procurement teams focus on delivering value beyond cost savings to support business objectives and decision making, digital offer answers, but procurement functions have yet to see the full impact.

This report explores the key findings from the study, and how responses from procurement compare to those from other functions, industries, and groups.

1 2 3 4 5 6

Only 24% of procurement functions (vs 21% of all respondents) say their companies reap full value from digital. In the next two years, however, 71% of procurement respondents expect to deliver significant impact

Companies aren’t delivering digital-driven value to customers as they cannot optimize end-to-end user experiences beyond the web-enabled front end, especially with intractable legacy systems and processes. Only 16% of procurement functions say they do this well

While digital leaders grow and out compete, procurement says the biggest impact from digital is on optimizing the cost of serving customers (76%) but sees less impact on achieving a single view of the customer (34%)

Procurement teams cite key barriers as an inability to experiment quickly (50%) and work across silos (45%), change management (45%), and legacy systems (45%). They are, however, less troubled by technical skills (13%)

To deliver digital success, procurement functions want to build customer-focused problem-solving capabilities (66% rate it among the top-three most important digital skills), and change management skills (63%)

A Lean Digital approach combines customer-focused design-thinking methods with Lean principles, digital technologies, and domain expertise to deliver digital that works

5

21% of companies achieve significant impact today1; 64% expect to in 2 years

Few organizations have achieved digital success yet; many expect it

Significantly more digital impact is experienced by…

…companies with good back/middle office alignment to customer needs (53%), high-tech firms (46%), and those with a strong competitive position (42%). Procurement (24%) and IT functions (27%) and those with fewer legacy challenges (28%) are slightly ahead in achieving significant impact.

Much higher future impact expected by…

…all respondents (64%), those with good back/middle office (84%), in a strong competitive position (74%), and procurement (71%).

Senior management is slightly more bullish on future impact (73% vs 64% for all levels).

1 Respondents rating the extent to which their organization is currently achieving positive business outcomes as a result of its use of digital technologies as 8-10 (on a 1-10 scale, 1 – not at all, 10 – to a great extent)

Source: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives

SALIENT DATA ONLY

Impact

6

Procurement functions see their organizations struggling to achieve business outcomes from digital

Impact

Who is succeeding with digital? Meet the leadersPercentage of respondents rating the extent to which their organization is currently achieving positive business outcomes as a result of its use of digital technologies (1 to 10 scale, 1 - not at all, 10 - to a great extent)

* % of digital leaders within each group

1. Respondents who state that their organization’s middle/back office support customer experience expectations (rated 8-10 on a 1-10 scale, 1– not at all, 10 – to a great extent)

2. Far ahead defined as respondents who rate their organization’s market position as 5 (on 1-5 scale, 1-considerably behind, 5-considerably ahead); ‘behind peers’ rated 1 and 2

3. Respondents who state few/no legacy systems need to be completely replaced as a result of digital technologies in their organizationSource: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives

SALIENT DATA ONLY

56

21

Moderate (7-5)

Low (4-1)

High (10-8) 21

24

27

28

42

46

53 Companies whose middle/back o�ce supports customer expectations1

High-tech industry

Companies with a competitive position far ahead of their peers2

Companies that must replace few/no legacy systems3

IT function

Procurement function

= Leaders

= Followers

= Laggards

High (10-8)*

7

Impact

Procurement sees impact on loyalty and cost of serving customers in particular

IT functions lead in realizing digital impactPercentage of respondents from a function who agree (‘Strongly agree’, ‘Somewhat agree’) that digital has a positive impact on the following business outcomes today


FUNCTION VIEW

20 30 40 50 60 70 80

Internal e�ciencies

Customer loyalty

Revenue growth

A single view of customer

Optimizing the cost of serving customers

Marketing FinanceIT Procurement

8

Procurement expects highest results from digital among its functional peers

Organizations expect much higher digital impact in the futurePercentage of respondents rating the future impact (in two years from now) of digital technologies on achieving positive business outcomes (1 – not at all, 10 – to a great extent)

* % of digital leaders within each groupSource: Survey of 682 senior executives conducted by Harvard Business Review Analytic Services in association with Genpact, including 38 senior procurement executives

SALIENT DATA ONLY

5

64

30

High (10-8)

Moderate (7-5)

Low (4-1)

21% of respondents currently realizing significant business outcomes from digital technologies

84

77

71

69

66

55

73

74

Companies whose middle/back o ce supports customer expectations

High-tech industry

Companies with a competitive position far ahead of peers

Companies headquartered in North America

Finance function


Senior management

Companies that must replace few/no legacy systems

High (10-8)*

Impact

9

Today’s impact is primarily on efficiency and cost

Organizations expect future impact across the top and bottom linePercentage of respondents who agree (‘Strongly agree’, ‘Somewhat agree’) that digital has a positive impact on the following business outcomes today and expect to achieve an impact two years from now


69

65

50

50

80

70

70

67

30

85


Today

2 years from now

A single view of the customer

Revenue growth

Customer loyalty

Optimizing the cost of serving customers

Internal e�ciencies

Impact

10

With strong alignment between middle and back office functions, and customer expectations, organizations are improving customer-facing areas and reducing costs, which impact revenues

Aligning middle/back office to customer expectations is critical to impactPercentage of respondents stating that their organization significantly supports each of the following with digital technologies (8-10 on a scale of 1-10, 1 - not at all, 10 - to a great extent)


72

70

67

66

59

42

36

35

35

31

Improving non-customerfacing operations

Improving customer-facingtouchpoints and experiences

Launching new business models

Improving decisions

Launching newproducts and services

Middle/back o ce supports front o ce well

Middle/back o ce does not support front o ce well

Impact

11

Barriers to impact: experiments, change, and organizational silos

1 Digital leaders defined as respondents who state that their organization is achieving significant positive business outcomes as a result of its use of digital technologies (rated 8-10 on a 1-10 scale, 1 – not at all, 10 – to a great extent); digital laggards rated 1-4


The biggest hurdles are the inability to experiment quickly (50% procurement vs. 48% all respondents); change management (45% vs. 41%); legacy systems (45% vs. 39%), and organizational silos (45% vs. 38%).

The least-challenging barriers include: technical skills (13% procurement vs. 19%), lack of talent (18% vs. 30%), cyber-security (24% vs. 27%), and budgets (32% vs. 28%).

Digital leaders1 are less affected by barriers than laggards1. Biggest differences are the lack of vision (12% vs. 48% for laggards) and inability to experiment quickly (29% vs. 60%).

Only 17% of companies feel that their middle and back office supports the front office well in meeting customer expectations. Procurement sees a similar failure to align the organization.

Barriers

12

Procurement says the inability to experiment quickly is the biggest barrier to digital success

Legacy systems and cross-silo collaboration challenge procurementPercentage of respondents rating the extent to which each of the following is a barrier to their organization’s use of digital technologies as “high” (rated 8-10 on a 1-10 scale, 1 - not at all, 10 - to a great extent)


3320

6029

20

42

50

45

32

18

45

39

45

37

32

24

52

4812

3321

23

13

50

23

44

2112

18

32 39

5629

Leaders1 Laggards1

Inability to experiment quickly

Change management

Risk-averse culture

Inability to work across silos

Inadequate collaboration between IT and business

Lack of corporate vision for digital

Lack of talent/skills required

Insu�cient budget

Cyber security

Insu�cient technical skills

Legacy systems and processes

Procurement

Barriers

13

Procurement executives say that technical skills are not a significant barrier

Perception of barriers varies by functionPercentage of respondents rating the extent to which each of the following is a barrier to their organization’s use of digital technologies as “high” (rated 8-10 on a 1-10 scale, 1 - not at all, 10 - to a great extent)


FUNCTION VIEW

10 20 30 40 50 60

Inability to experiment quickly

Change management

Risk-averse culture

Inability to work across silos

Inadequate collaboration between IT and business

Lack of corporate vision for digital

Lack of talent/skills required

Insu�cient budget

Cyber security

Insu�cient technical skills

Legacy systems and processes

Marketing FinanceIT Procurement

Barriers

14

End-to-end alignment of functions and systems is still elusive for most functions

Middle and back office fail to support the frontPercentage of respondents stating that their organization’s middle/back office functions and systems support customer experience expectation well (rated 8-10 on a 1-10 scale, 1 - not at all, 10 - to a great extent)


SALIENT DATA ONLY

42

38

19

18

8

5

17

16

Digital laggards

Companies with a competitive position behind their peers


Finance function

Marketing function

Companies with a competitive position far ahead of their peers

Digital leaders

Overall

Barriers

15

IT teams considered unable to consistently act on insights from data.

Transformation methods are inadequate for digital success


Only half the respondents, including procurement executives, say their company has an enterprise-wide digital strategy.

Only one-third of organizations, including procurement, think that their design and implementation approach is effective at overcoming the challenges of legacy systems and processes. Those organizations that excel include companies with well-aligned back, middle and front office (78%), and digital leaders (77%).

Leadership for digital is fragmented. Technology-focused roles are not always responsible for digital: CIO leads for 52% of respondents; CDO 16%.

62% of procurement functions say that they can tightly align digital interventions to business outcomes, a critical capability to stay focused on activities that make a difference.

Capabilities

16

LeadersLaggards

Uses metrics to pinpoint the interdependencies between process steps across the organization

Has a clear, enterprise-wide digital strategy

Has partners with a deep understanding of the business who can help design and implement digital technology solutions

Relies on digital natives to support e�orts

Has e�ective design and implementation approaches to overcome challenges of legacy systems and processes

39

26

32

24

50

6215

6015

7020

6528

7719

Procurement

Strong partnerships are a key enabler for digital transformation

Digital leaders ahead on strategy and executionPercentage of respondents who agree (strongly agree, somewhat agree) with the following statements about how their company manages and uses digital technologies to transform the enterprise


Capabilities

17

52

39

22

16

16

16

6

42

39

24

18

16

8

8

5

Chief Marketing Ocer

Chief Operating Ocer

Business Unit Leaders

Chief Executive Ocer

Chief Information Ocer/Chief Technology Ocer

Chief Digital Ocer

Head of R&D

Chief Data Ocer2

OverallProcurement

CIOs and CEOs create the enterprise vision for digital. CDO, CMO, and COO are in charge in a minority of companies

Fragmented responsibility for vision and strategyPercentage of respondents stating which roles are responsible for creating the vision for digital technologies in their organization


DIRECTIONAL

Capabilities

18

DIRECTIONAL

Procurement strong at aligning digital to business outcomes

Digital abilities fragmented across functional groupsPercentage of respondents in functions other than IT stating…

*Percentage across all respondents in functions other than IT that state that the IT function in their organization possesses the identified capabilities


49

42

47

62

33

66

48

46

48

53

57

34

64

33

28

56

23

40

63

Tightly aligning digital intervention to business outcomes

Using structured approaches (e.g. design thinking) to identify opportunities

for customer value

Using structured improvement methods (e.g. Lean) when aligning middle and back office functions to

support customer experience expectations

Consistently acting on insights from data

IT*Supplychain Marketing Finance Procurement

IT possesses the following capabilities

Their functional area possessesthe following capabilities

Capabilities

19

Transformation methods and analytical skills overlooked by all respondents

Ability to adapt and collaborate is keyPercentage of respondents who rated the top-three most important skills for employees in their organization to have to harness digital effectively


Ability to adapt to change

Ability to communicate and collaborate

Customer-focused problem solving

Technical knowledge and capabilities

Ability to lead

Understanding of analytical methods

Knowledge of transformation methods such as Lean

31

18

27

8

10

4

20

22

21

11

9

10

6

18

23

13

19

10

11

62

(1st) (2nd) (3rd)Rank

45

11

18

11

5

11

5

24

24

8

11

16

8

13

24

24

13

16

3

13

(1st) (2nd) (3rd)Rank

Overall Procurement

Capabilities

20

Procurement set to have a significant focus on digital

Investment in digital will increasePercentage of respondents who who expect an increase (increase slightly, increase significantly) in digital investments in their organization over the next two years


95

94

93

92

92

90

83

81

72

87

Finance

Operations

Digital laggards

IT function

General management

Digital leaders

Human resources

Sales and marketing

Procurement

Overall

Capabilities

21

Digital transformation beyond technologyOrganizations have been embracing digital for several years, but only 21% are harnessing these technologies successfully. When compared to their functional peers, procurement sees significant results in its organization’s use of digital for customer loyalty, optimizing the cost of servicing customers, and enabling a single customer view, but recognizes challenges with internal efficiency.

Big digital ambitions but barriers to overcome

The study shows that companies – including their procurement teams – have high expectations from digital to strengthen competitive capabilities end to end. But all respondents face barriers, including the need to align back and middle-office functions to customer expectations.

Procurement respondents often highlight these obstacles more than IT, finance and marketing. They cite an inability to experiment quickly, cross-silo collaboration, legacy systems, and change management as particular concerns.

When examining the capabilities required to deliver transformation, procurement is confident in its ability to align digital interventions to business outcomes. It does, however, flag skills in adapting to change, customer-focused problem solving, and communications and collaboration as capabilities the organization should harness.

Following the digital leader

As more procurement teams adopt digital technologies to deliver value to the business, they should look to the traits of digital leaders to introduce new capabilities, overcome barriers, and accelerate the pace and impact of digital transformation.

Embracing the characteristics of digital leaders

Conclusion

22

23

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100174_RR_AcceleratingThePaceAndImpact-Procurement_US

Genpact Research InstituteThe Genpact Research Institute is a specialized think tank harnessing the collective intelligence of Genpact – as the leading business process service provider worldwide - its ecosystem of clients and partners, and thousands of process operations experts. Its mission is to advance the “art of the possible” in our clients’ journey of business transformation and adoption of advanced

operating models.

www.genpact.com/research-institute

About Genpact

Genpact (NYSE: G) is a global professional services firm focused on delivering digital transformation for our clients, putting digital and data to work to create competitive advantage. We do this by integrating lean principles, design thinking, analytics, and digital technologies with domain and industry expertise to deliver disruptive business outcomes – an approach called Lean DigitalSM. We deliver value to our clients through digital-led, domain-enabled solutions that drive innovation, and digital-enabled intelligent operations that design, transform, and run clients’ operations. For two decades we have been generating impact for clients including the Fortune Global 500, employing 77,000+ people in 20+ countries, with key offices in New York City, Palo Alto, London, and Delhi.

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Documents

Accelerating the pace and impact of digital transformation · Procurement functions can learn from digital leaders Alignment between front, middle and back office is critical Introduction