• Emmanuelle Hose, group vice president and general manager EMEA at Rimini Street


• 24.03.2022 01:45 pm
#innovation

While uncertainty remains fairly constant in business today there is growing need for companies to find new ways to innovate and drive competitive advantage. It is challenging as it requires investment and resources to deliver results, but there is urgency to move from protecting the bottom-line to finding opportunities for revenue growth.

As business leaders consider where the opportunities lie, the procurement team can play an invaluable supporting role helping to prioritise and accelerate the business case for digital transformation.

Innovation is the priority

It is no surprise that procurement is increasingly being asked to focus on projects that can deliver innovation and a strong return-on-investment to the business. According to a recent survey from Supply Management Insider, in association with Rimini Street, 30% of procurement professionals are now measured on the impact they have on strategic innovation programme performance [A fresh approach to IT procurement’s role in delivering innovation].

Organisations are also continuing to focus their attentions on modernising the business. Half (50%) of procurement professionals say their firm is prioritising digital transformation, adding that procurement will play a vital role in such projects. 

Digital transformation has now overtaken the traditional priority of cost savings for the procurement team, with only 45% citing cost savings as the main priority. Again, these findings reflect the growing prominence of innovation and the role procurement has in prioritising and supporting strategic projects that can help increase revenue and profits, improve customer experience and satisfaction or establish a competitive advantage.

Procurement as an Enabler for Innovation

Enterprise resource planning (ERP) applications have come under a lot of scrutiny in recent years, as IT, finance and procurement decision makers evaluate where best to focus their transformation strategies. Many firms have built up their existing business applications over many years with multiple versions and different contracts. From the procurement perspective, there is a strong argument for streamlining and optimising this ERP environment, both to make current business processes more efficient and ensure the right foundations are in place as organisations look to drive innovation.  

Optimisation also helps to address another key concern for procurement professionals. The same survey found there is significant dissatisfaction with the way vendors provide support. 43% of procurement professionals list rigid terms and conditions in ERP contracts as a problem, leaving their firm unable to adapt arrangements to their own specific needs. Next on the list of complaints is pressure to lock companies into multi-year contracts and the inflexibility around pricing - both were cited by 38% of respondents.

Additionally, the high cost of support and maintenance required to run ERP systems is cited as a big challenge by just over half (51%) of procurement staff, with a further 32% unhappy about the large amount it absorbs from the overall IT budget.

The cost of enterprise software support is viewed as a major issue with 63% noting that they were unhappy with current support fees. More than a third (35%) go as far as saying costs are excessive, while 28% feel they are paying too much. 

Clearly, this presents a significant opportunity for procurement to play a strategic role in developing a business case that will deliver greater efficiencies, but more importantly help the business to identify where it needs to focus innovation.

Aligning procurement and IT

Unfortunately, though, there is a problem. The survey highlighted a lack of engagement between procurement and IT professionals, which is absolutely crucial to the successful delivery of transformation initiatives. IT and procurement should have common goals. Where procurement sees opportunities for optimisation of existing ERP environments through consolidation, this approach also enables IT to embark on a more gradual transformation of enterprise applications. This smart path to transformation minimises the potential for unnecessary disruption that might be caused by more wholesale ‘rip and replace’ strategies.

Communication is a key area that could improve the situation. While 41% of procurement professionals say they have a strong connection with IT, 58% admit the relationship is poor or could be improved. One example of where that communication could deliver benefit is around third party support: only 27% of procurement staff feel well placed to discuss third-party software support with IT, but 45% of procurement professionals say this could free up budget to support innovation.

Furthermore, a fifth (20%) of procurement professionals are not aware of the cost of ERP vendor support. This is more evidence of the chasm between procurement and IT, and more worryingly suggests procurement are not always involved in negotiations.

Practical measures

So, what can procurement teams do to overcome these challenges, allowing them to support investment in more strategic projects for digital transformation and innovation? Opening the lines of communication with IT is a sensible starting point, and one that 46% of teams have already adopted. Other steps are adding IT skills to the procurement team, hiring consultants to bridge gaps and creating shared KPIs. 

Organisations want to invest for innovation and fund transformation projects. To help achieve this goal, IT needs to view procurement as a strategic partner. Only then will procurement be able to foster discussions around new ways of working like third-party support, which can free up the funds for innovative projects.