Digital transformation starts with a defined digital strategy, a road map, and a clear understanding of what measurable success looks like. However, according to a recent SAP Ariba survey conducted at the SAP Ariba Las Vegas User Conference, 7 out of 10 organizations do not have a clear digital transformation strategy or roadmap, nor do they have alignment with their internal stakeholders. Further, 76% respondents indicated that they have a low to medium understanding of the value and benefits of digital transformation in source to settle.
While success can be measured across different dimensions—including efficiency and effectiveness improvements, stakeholder satisfaction, technology adoption, etc.—this blog describes only the quantitative components of success.
According to the SAP Ariba Benchmark Survey, an annual measure that analyzed more than $400B in spend data across more than 3,500 categories for companies connected to the Ariba® Network, top performers demonstrated success by:
- Managing and influencing a large proportion of spend with a focus on quality of spend managed
- Delivering value through cost-reduction programs and looking beyond savings to deliver broader value
- Embracing and enabling digital procurement through electronic connectivity
- Unlocking productivity efficiency to enable always-on business operations
- Placing emphasis on risk management beyond news tracking
- Delivering bottom-line savings and closing loopholes through compliance management
Spend managed and influenced: Top performers manage 82% of their total addressable spend, compared to 68% for average performers. In addition, top performers influence a greater depth and quality of spend by continuing to play a strategic role as a key business partner within the organization. Increasing spend managed and influenced takes time and starts with early engagement and collaboration with internal stakeholders on procurement-related activities.
Cost savings and looking beyond sourcing savings: Top performers are able to achieve 9.7% savings (as percentage of addressable spend), compared to 6.1% for average performers, equivalent to a $36M difference per $B in spend. Top performers are also tracking broader procurement effectiveness measures to demonstrate value to stakeholders to include metrics like maverick spend (as a proxy for compliance management), quality of invoice process (measured by invoices without exceptions), and spend covered by formal sourcing strategies. Identifying cost savings opportunities begins with an understanding of the organization’s current spend profile by logical category groupings and developing a sourcing strategy.
Electronic connectivity: Top performers automate 62% of third-party invoices invoices, compared to 37% for average performers. This highlights continued success by organizations in digitizing and automating their source-to-pay processes. A critical component of increasing electronic connectivity and digital automation begins with evaluating the different buying and paying channels and determining the optimal channel for each spend category.
High productivity output: Top performers are able to unlock productivity efficiency gains by processing more transactions per FTE. Top performers process 10,000 purchase orders per FTE, compared to 7,300 purchase orders per FTE for the average performer. They are able to do this by offering their stakeholders user-friendly self-service options that allow them to scale quickly as the organization grows.
Emphasis on risk management: The average organization manages 68% of their spend. This indicates that almost 1/3 of an average organization’s spend is unmanaged. With this large proportion of unmanaged spend, there is a high probability that risk management is not performed, which leads to unintended consequences. The recent availability of risk management and monitoring technology now enables organizations to monitor all of their spend systemically.
Shutting down maverick buying through compliance management: Top performers are able to ensure that negotiated savings reach the bottom line by closing the loopholes through compliance management. Our study indicates that an increase of 5% in compliance contributes an additional $4.4M in savings per $B in spend. One of the easiest ways to increase user compliance is to drive spend toward user-friendly contracts and catalogs in a procurement system.
The bottom line
A digital procurement transformation with clear line-of-sight into measurable successful outcomes will ensure that the value and benefits from the transformation are well understood and achieved. Benchmarking your current performance to create a baseline for comparison is often a first critical step in the process. Top performers continually benchmark and measure their success because they know that all transformations begin with an understanding of what the end state looks like.
To learn more about the characteristics of top performers, listen to the complete podcast here. If you have questions about the SAP Ariba Benchmark Program, contact us at email@example.com. And if you’d like to participate in the program, sign up through the SAP Value Lifecycle Manager.