Digital Business; Transforming Procurement; Shifting to Purchasing Services

Andy Mulholland

Vice President and Principal Analyst, Constellation Research
Constellation Research

Andy Mulholland is Vice President and Principal Analyst focusing on cloud business models. Formerly the Global Chief Technology Officer for the Capgemini Group from 2001 to 2011, Mulholland successfully led the organization through a period of mass disruption. Mulholland brings this experience to Constellation’s clients seeking to understand how Digital Business models will be built and deployed in conjunction with existing IT systems. Coverage Areas Consumerization of IT & The New C-Suite: BYOD, Internet of Things, IoT, technology and business use Previous experience: Mulholland co authored four major books that chronicled the change and its impact on Enterprises starting in 2006 with the well-recognised book ‘Mashup Corporations’ with Chris Thomas of Intel. This was followed in…...

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If Digital Business is a transformation of the ‘sell’ side of an Enterprise then it stands to reason that a similar transformation must take place in the ‘buy’ side. After all, your Enterprises buy is another Enterprise’s sell. Yet there is relative little focus on Procurement amongst the great deal of content on Enterprise transformation in terms of  addressing markets and products. There are two distinctive sides to the transformation of Procurement; the alignment of procuring ‘Services’ to match the selling of ‘Services; and the ability to simply buy better with Digital techniques to save money.

Simple logic suggests that the lessons learnt in successful Digital Business procurement techniques should feed a Digital Business sales strategy, and vice versa. Learning to excel at one should lead to excelling at both!

How has procurement become the Cinderella of Digital Business? The probable cause is the structure of the traditional business model around the separation of various Enterprise activities to better focus on functionality excellence. ERP in many ways served to preserve this by offering the necessary data flow between departments to provide an Enterprise wide cohesion. As stage one of any procurement transformation is almost going to be based on the existing department it makes sense to start with using Digital Business capabilities to cut the cost of the overall Enterprise procurement budget. The winner of Constellation Research Connected Enterprise annual award for Technology Optimization and Innovation made the scope for this kind of transformational improvement of procurement very clear.

William Cooper, Associate VP and Chief Procurement Officer, University of California managed to reduce the annual procurement spend by $128million in one year by a real Digital Business transformation of the Universities procurement function and activities.

The achievement was made all the more remarkable by this being achieved in the first year after agreement to proceed with a strategic procurement transformation. The expected ongoing target from year two onward moves this up to an annual $200million of savings. The University of California transformation had a clear well constructed vision, driving a strong organizational and operational transformation program, with equally clearly focused metrics. The full details will be available as a Constellation case study shortly. The focus was rightly on the business model transformation necessary to bring this about, not on the adoption of a single element, or technology product/service. The case study therefore focuses on the operational elements of the transformation, which for this blog are reduced to the following key elements;

Collaboration; transforming ten physically separate campus procurement teams into a single virtual centralized operation organized around virtual teams for particular procurement specialties comprised from those with the most experience to support best practice…everywhere, even if working in different physical locations.

Online Digital Procurement; reduced the cost, time and other factors involved in running individual procurement exercises/bids, which in turn allowed Procurement to address more purchasing requirements. The actual the number of items subjected to continuous competitive procurement rose dramatically from $2bn to $5bn introducing not only cost improvements, but in many cases service level improvements to users as well.

Auctioning; real time competitive online auctioning including the introduction of Reverse Auctioning introduced a game change in time and cost of competitive bidding. The capability to ask Suppliers to bid against your enterprise’s terms and conditions offers important changes in terms of the time, knowledge, and skill required in assessing competitive bids and different commercial terms. This is becoming a key aspect for the ongoing procurement of Services, as detailed in the next paragraphs.

Services; the single most important ongoing change for any procurement department to understand what exactly this will mean to operating managed procurement in an Enterprise that is moving to become a Digital Business on the sales and marketing side.

The procurement of Services is fast becoming a very necessary new skill for an Enterprise to acquire in adopting Digital Business for its go to market operations. What would be the outcome if you could find out how many contracts your Digital Business users have ‘agreed’ online …… without reading the terms and conditions?

There are a variety of Industry estimates on this, if you include personal use of Apps then the number is usually said to be 15 to 20; restricting the count to genuine business process usage suggests around 5 to 10 at a conservative estimate. Whichever one of these estimates is true represents a currently unknown business risk in terms of security, wrongful use, commercial terms, or any other possibility. The need for a Risk Register’ for an Enterprise to recorded, and address, the extent of it’s exposure was defined in a previous blog. The IT department is right to be very worried about the extent of ‘Shadow IT’, but at the same time it has to accept who buys, what, why and on whose budget is a huge game change factor in Digital Business.

Digital Business requires operational managers to consciously make choices using their ongoing operational budgets (OpEx) to acquire capabilities as ‘Services’. The contrast to a yearly centrally administered Enterprise budget (CapEx) supported by Procurement is a genuine Game Change. The traditional IT and Procurement process simply is not going to work on grounds of time, cost, skills in new aspects that have to be mastered, let alone its unsuitability for OpEx versus CapEx business models.

Perhaps this is the moment to refer again to the University of California Procurement transformation that started this blog. Here the first three building blocks listed provided the basis for establishing a new set of methods that are suited to procuring “Services’. Perhaps also rereading a previous blog that introduced the need in Digital Business for Mastering new Financial Controls may also help as well. Fast online procurement by reverse auctioning allows your Enterprise to set its own terms, and if the handfuls of large players don’t want to accept them, then there are an ever-increasing number of competitors in the second tier that probably will. Taking this approach means you know exactly what terms apply to any contract!

But, what if its not IT, or even technology as we understand the term, at all? Most Building Management projects wouldn’t be described as being part of IT, but are equally shifting to ‘services’. As an example the University of California added $3billion to what it described as its ‘addressable procurement’ spend by rethinking all items. In the case of building projects it was not only about buying material better, but to adopt shift ‘services’ such as the power tools required being supplied as a ‘Service’. Extend this line of thinking to include the impact of the Internet of Things on Building Management Outsourcing. Consider who owns the sensors and the data versus who processes and supplies the management of key capabilities ‘as a service’ and the longer-term procurement management of ‘services’ in a Digital Business starts to emerge.

If the pundits are right, and it already looks that way, then the transformation of Procurement and its operations to match/align with Enterprise Digital Business goals, and the market opportunities, is as much a strategic initiative as the transformation of the go to market operations that today receive all of the focus.

Analytics To Guide Our Careers

Terri Griffith

Professor/Author/Speaker
Simon Fraser University

Terri Griffith holds the Keith Beedie Chair in Innovation and Entrepreneurship at Simon Fraser University’s Beedie School of Business. She spent two decades in the Silicon Valley and, in 2012 was honored as a Woman of Influence by the Silicon Valley Business Journal. Terri helps her students and their organizations accelerate performance and prepare for the futures of work. Through her speaking, writing, teaching, and research, she brings evidence-based leadership and innovation to high-tech, education, and global agribusiness organizations. She inspires and coaches groups on negotiating change and uniquely mixing existing and new capabilities. Her most recent work uses a “bottom-up” approach to automation, including artificial intelligence. Her award-winning book, The Plugged-In Manager:…...

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Here is the slide deck from a talk I gave last week (click on the Notes icon within Slideshare for additional links for many of the slides). Predicitive analytics (e.g., analyses that suggest next steps — like Amazon suggesting other books based on your past purchases) offer huge benefits to how we think about the future of work, if we can get to the data. 

Up Soon: How Might Google Help Us Plan Our Day?

• Automation Makes Us Dumb, from Nicholas Carr in the Wall Street Journal — thank you, Lucas Mayer for the reference during our discussion of Birst.
• Why Managers Still Matter, from Nicolai J. Foss and Peter G. Klein in the MIT Sloan Managment Review, includes a reference to my colleague in the other hemisphere, Tim Kastelle.

Replay: Can Brands Keep Their Promise?

Director of Customer Programs, Constellation Research
Constellation Research

Carole oversees the Constellation Executive Network, an executive community for innovative senior leaders who value strategic guidance from trusted advisors who understand the power of disruptive technologies. Carole brings over 15 years of marketing, strategic account management, and operations experience, specializing in high technology and professional services. She holds a BA from Santa Clara University and a MBA from Thunderbird, School of Global Management.     ...

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If you missed the conversation between Dr. Natalie Petouhoff and Dr. Janice Presser about whether brands can keep their promise, you can catch the replay now. From popular brands, ranging from Taco Bell to Starbucks and Virgin Airlines, both experts offer their inisghts on what is needed for brands to stay authentic and offer memorable customer experiences that keep customers coming back for more. 

Feel free to tweet either of them to join the conversation and share what brands "get it" and "do it right" that come to your mind. @drnatalie @drjanice

What you’ll learn: 

1. Why it’s important for brands to keep their promise
2. How organizational change is affecting the ability to deliver true transformation digital customer experiences
3. How technology must be integrated with people and process to deliver what customers expect

Also, Dr. Janice is extending a special offer to anyone how checks out the replay to try her Teamability experience. Spoiler alert: The offer is provided at the end of the webcast.

Improving the position of the CISO

Steve Wilson

Former Vice President and Principal Analyst
Constellation Research

Steve Wilson is former VP and Principal Analyst at Constellation Research, leading the business theme Digital Safety and Privacy. His coverage includes digital identity, data protection, data privacy, cryptography, and trust. His advisory services to CIOs, CISOs, CPOs and IT architects include identity product strategy, security practice benchmarking, Privacy by Design (PbD), privacy engineering and Privacy [or Data Protection] Impact Assessments (PIA, DPIA). Coverage Areas: -  Identity management, frameworks & governance-  Digital identity technologies-  Privacy by Design -  Big Data; “Big Privacy”-  Identity & privacy innovation Previous experience: Wilson has worked in ICT innovation, research, development and analysis for over 25 years. With double…...

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The Future of the Security Industry and Career Advice for Chief Information Security Officers

Over the years, we security professionals have tried all sorts of things to make better connections with other parts of the business. We have broadened our qualifications, developed new Return on Security Investment tools, preached that security is a "business enabler", and strived to talk about solutions and not boring old technologies. But we've had mixed success.

Once when I worked as a principal consultant for a large security services provider, a new sales VP came in to the company with a fresh approach. She was convinced that the customer conversation had to switch from technical security to something more meaningful to the wider business: Risk Management. For several months after that I joined call after call with our sales teams, all to no avail. We weren't improving our lead conversions; in fact with banks we seemed to be going backwards. And then it dawned on me: there isn't much anyone can tell bankers about risk they don't already know.

Joining the worlds of security and business is easier said than done. So what is the best way for security line managers to engage with their peers? How can they truly contribute to new business instead of being limited to protecting old business? In a new investigation I've done at Constellation Research I've been looking at how classical security analysis skills and tools can be leveraged for strategic information management.

Remember that the classical frame for managing security is "Confidentiality-Integrity-Availability" or C-I-A. This is how we conventionally look at defending enterprise information assets; threats to security are seen in terms of how critical data may be exposed to unauthorised access, or lost, damaged or stolen, or otherwise made inaccessible to legitimate users. The stock-in-trade for the Chief Information Security Officer (CISO) is the enterprise information asset register and the continuous exercise of Threat & Risk Assessment around those assets.

I suggest that this way of looking at assets can be extended, shifting from a defensive mindset to a strategic, forward outlook. When the CISO has developed a birds-eye view of their organisation's information assets, they are ideally positioned to map the value of the assets more completely. What is it that makes information valuable exactly? It depends on the business - and security professionals are very good at looking at context. So for example, in financial services or technology, companies can compete on the basis of their original research, so it's the lead time to discovery that sets them apart. On the other hand, in healthcare and retail, the completeness of customer records is a critical differentiator for it allows better quality relationships to be created. And when dealing with sensitive personal information, as in the travel and hospitality industry, the consent and permissions attached to data records determine how they may be leveraged for new business. These are the sorts of things that make different data valuable in different contexts.

CISOs are trained to look at data through different prisms and to assess data in different dimensions. I've found that CISOs are therefore ideally qualified to bring a fresh approach to building the value of enterprise information assets. They can take a more pro-active role in information management, and carve out a new strategic place for themselves in the C-suite.

My new report, "Strategic Opportunities for the CISO", is available now.