The Hackett Group’s New Digital World Class™ Standards Raise the Bar on Procurement Performance
By fully embracing digital transformation, procurement organizations can achieve superior levels of efficiency, effectiveness, and customer experience, including 25% lower cost, 2.5x greater procurement ROI, and more, according to new Digital World Class™ procurement research from The Hackett Group, Inc. (NASDAQ: HCKT).
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“Digital World Class Procurement: Reaching New Heights in Peak Performance”
“For decades The Hackett Group’s benchmarks have been the gold standard by which most global companies measure world-class performance in procurement and other business services. 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 The Hackett Group Vice President, Research Erik Dorr.
“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. And they can get much of this benefit by overlaying digital technology on their existing systems, rather than embarking on large-scale infrastructure changes.”
A public version of the research, “Digital World Class Procurement: Reaching New Heights in Peak Performance” is available free, with registration, at http://go.poweredbyhackett.com/procdigwc2106sm. It contains more than 30 metrics detailing the performance of Digital World Class procurement organizations. But here is a summary of key research findings:
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Greater Efficiency – Digital World Class procurement organizations demonstrate their operational excellence in the form of greater efficiency. They now operate at 25% lower cost than typical procurement organizations (i.e., peers) and 6% lower cost than traditional world-class procurement organizations, despite having greater spend on technology. For a $10 billion company, this represents procurement cost savings of $6.9 million and $1.3 million, respectively. Over the past decade, the cost gap between world class and peers has widened slightly, and in 2021, it has grown even wider. Digital World Class procurement organizations also employ 33% fewer full-time equivalent (FTEs) than peers per billion dollars of revenue. The gap is even greater for operations and compliance management FTEs (57%), enabling them to deliver those processes at 55% lower cost.
Enhanced Effectiveness – The Digital World Class advantage is not just about cost. These elite procurement organizations are also able to deliver greater business value in the form of higher-quality services – better stakeholder engagement, supplier relationship management, and product innovation. Compared to peers, they have 2.5x higher procurement ROI and 25% more spend influenced or managed by procurement. They have 70% more FTEs in strategic roles like product development support, and 15% more FTEs in supplier partnering. Technology plays a key role in achieving these results, with Digital World Class procurement organizations spending 20% more than peers on technology as a percentage of spend. They also invest in emerging technologies such as smart automation, advanced analytics, and collaboration tools to reduce labor costs.
Improved Customer Experience – The greater business value that Digital World Class organizations provide also extends to stakeholder experience – they have a performance edge over peers when it comes to customer perceptions. 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. In addition, they are nearly 7x more likely to be viewed as having effective business knowledge skills.
Six Areas of Excellence – Technology enablement is at the heart of the Digital World Class performance advantage. However, to fully unlock the potential of technology, leading procurement organizations also focus on five other critical levers: data and analytics; technology architecture; operating model evolution; end-to-end process design and ownership; and talent. The research provides details about Digital World Class performance in procurement in each of these areas. For example, in data and analytics, the pandemic has led to new urgency in improving procurement’s data management practices, and Digital World Class procurement organizations have a significant head start. Digital World Class procurement organizations are also at the forefront of architecture modernization and cloud migration. Finally, to focus on talent, leading procurement organizations continue to invest in their workforce by increasing head count in more strategic areas. A highly skilled strategic workforce is at the core of Digital World Class companies as advanced technologies provide new tools to deliver better service for stakeholders and suppliers. These roles require advanced analytical acumen to drive insights, as well as emotional intelligence, relationship management, innovation and change orientation, and enhanced understanding of business operations and stakeholder needs.
Action Plan for Digital World Class – The Hackett Group’s research offers an outline of how companies can assess of their current performance, maturity, and capabilities, identify future capabilities to advance their digital agenda, and create a journey map to progress towards Digital World Class performance levels.
Digital World Class procurement organizations are those that achieve top quartile performance in operational excellence and business value across an array of weighted metrics in The Hackett Group’s comprehensive procurement benchmark. The Digital World Class analysis is also designed to quantify the performance improvement opportunity achievable by maximizing technology enablement of procurement work and optimizing the procurement technology landscape. The Hackett Group’s Digital World Class procurement research is based on an analysis of results from recent benchmarks, performance studies, and advisory and transformation engagements at hundreds of global companies.
