How leading digital procurement organizations outperform their peers

27 October 2021 3 min. read
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“Digital World Class” procurement organizations that fully embrace digital transformation achieve better efficiency, effectiveness, and customer experience results, according to research from The Hackett Group. The strategy and benchmarking consultancy drew on analysis of results from recent benchmarks, performance studies, and consulting engagements at hundreds of global companies.

According to Hackett, Digital World Class (DWC) procurement organizations are those that achieve top-quartile performance in operational excellence and business value across a range of weighted metrics in their procurement benchmarks.

“Now, with the growing impact of digital transformation, The Hackett Group is raising the bar further with its shift to a Digital World Class measurement standard. Our new research details how highly technology-enabled organizations are achieving new levels of peak performance,” said Erik Dorr, VP of research.

DWC procurement organizations operate at 25% lower cost than typical procurement organizations (peers), despite spending 20% more on technology. For a $10-billion dollar company this represents procurement cost savings of $6.9 million dollars. DWC procurement organizations also employ 33% fewer full-time equivalent employees (FTEs) than peers per billion dollars of revenue.

How leading digital procurement organizations outperform their peers

According to Hackett, DWC procurement organizations are also able to deliver greater business value in the form of higher quality services in supplier relationship management and product innovation, among other areas. Compared to their peers, they also realize 2.5 times higher procurement ROI.

“The results are impressive. But the bottom line is straightforward. Our research provides empirical evidence of the impact that digital transformation is having,” said Dorr.  “For years, companies have been making incremental improvements, optimizing processes, cutting costs, and reducing transactional labor to reach world-class performance. But new technologies allow many companies to fast-forward to Digital World Class levels of operational excellence and business value.”

DWC organizations, critically, are shifting their operating models from a labor-centric one to a hybrid model that leverages advanced technologies and highly skilled labor. They have approximately 70% more staff in strategic roles such as product design and development than their peers and 15% more in supplier partnering. DWC organizations consequently make greater investments in providing their highly skilled labor with tools in advanced analytics, visualization and other technologies. Their greater number of strategic workers require an advanced analytical acumen as well as skills in process mining, intelligent automation techniques, emotional intelligence, and relationship management.

Hackett says that companies with at least one DWC business services function, including procurement, realize a financial performance premium across key performance metrics such as net margin, Ebitda margin, return on equity, and shareholder return. Though that advantage can't be explained solely by DWC business services, such companies tend to have greater innovation, operational, and commercial capabilities.

Lastly, DWC procurement organizations tend to have an advantage in customer perceptions as well. They are 85% more likely to be viewed by stakeholders as taking a proactive approach to supply risk mitigation and 19% more likely to be considered a valued business partner.