When making the case for digital transformation within your source to pay organization, too many organizations focus on the tactical pains that users experience. A well built business plan will outline the existing issues in quantifiable metrics, and align the proposed solution to these problems, highlighting the benefits the organization will see in measurable terms. To build a successful business case for your digital transformation initiative, make sure to follow the following 5 steps:
- Get a mandate!
- Define the problem in measurable terms
- Align the solution with the problem in measurable terms
- Build a costed, measurable, holistic digital transformation strategy
- Present your case
Following on from our blog post – [5 Signs Your Source to Pay Organization Needs to Undergo a Digital Transformation] – the next step in your journey is to make the business case for digital transformation within your procurement organization.
Businesses across the globe are utilizing digital technologies ranging from software, AI and workflow streamlining, to robotic and mechanical automation, to transform their businesses in a number of ways – improving productivity, profitability, security, regulatory compliance and cycle times, as well as mitigating risks and improving the visibility of performance related data.
Within Source-To-Pay (S2P), digital transformation focuses on one or more of the following business functions:
- Strategic Sourcing
- Supplier Relationship Management
- Contract Lifecycle Management
- Requisition Creation & Approval
- Purchase Order Management
- Invoice Receipt and Processing
- Payment Management
- Systems Integration
- Data Analytics and Key Performance Indicators
There are huge gains to be achieved in addressing the key issues in these areas through digital transformation, but taking the correct approach is vital to avoiding pitfalls. According to Gartner, “91% of organizations are engaged in some form of digital initiative”, yet they also report that only “40% have reached scale for their digital initiatives”. [Digitalization Strategy for Business Transformation | Gartner]
Common reasons cited for digital transformation initiatives stalling:
- Lack of shared vision across the organization
- Unclear or misguided objectives for implementation
- Insufficient motivation for supplier participation
- Replicating existing processes rather than true transformation
In this post, we’ll guide you in making a case for the digital transformation that avoids these pitfalls.
Get a mandate for your digital transformation!
Communication is key. High-level stakeholders within an organization are more amenable to ideas they’ve been actively involved in. Surprises are rarely welcomed! So, communicate your ideas to them early and ensure they understand what is being proposed and what’s in it for them. Explain the approach and ask for any and all input they are willing to contribute. Part of your overall strategy should be to keep them informed and to seek their feedback as you progress. You should have their support to be successful, so communicate early and often.
Define the problem in measurable terms
To make a good business case for change, first clearly define your current problems in a measurable way.
Quantitative Analysis – Let the data do the talking
Assess the current state of each business process using clearly defined metrics. Data makes the strongest argument, so analyze your data carefully in a quantifiable way in order to illustrate the problem areas. You must be able to answer questions like; “what is this costing us” and “what are the benefits of this change.”
Gather data about your processes. Some common examples of key metrics include:
- Sourcing
- % spend managed
- % of categories managed
- Cycle time for RFx types
- Average savings %
- Contracts
- % spend on contract
- Contract creation cycle time
- % contracts actively reviewed
- Average payment terms
- Supplier Management
- Overall Supplier onboarding cycle time
- % suppliers verified against global prohibited lists
- % suppliers with Bank account validation
- % suppliers with no 3rd party risk verifications
- Average time between supplier revalidation
- Procurement
- Cycle Time from requisition to PO
- % spend on PO
- % maverick spend
- Price/Purchase variance (PPV)
- Invoice
- What format are your invoices received in – paper vs PDF or other digital formats?
- How are these invoices delivered to you – snail mail, email, fax etc.?
- % invoices processed touchless
- Avg manual steps in invoicing process
- Avg time per manual invoicing step
- Paid on time %
- Captured discount %
This all helps to paint an objective picture that can inform the correct approach and make your case for change.
Qualitative Analysis – Let the people do the talking
Talking to those involved in each business area provides key insights and fills gaps that raw data alone doesn’t show, answering the “why” and the “how” questions relating to your data. Use the data gathered to drive discussions with your teams to glean further information.
The following questions can help uncover details into where process inefficiencies can be found, and the root causes:
- How much time is spent on a best-case scenario
- How much time is spent on the worst-case scenario
- What % of transactions are best case, worst case, or in between
- What are the key differentiators between the best- and worst-case scenario
- What data is required for the best-case scenario
- Are there manual touch points between function (sourcing, contracting, procurement, AP)
- Do these departments have visibility to critical data across functions?
- How many people must touch a transaction
- What are the reasons for payment hold?
- Do they have the tools necessary to make strategic decisions efficiently?
- Do they have the time to make strategic decisions efficiently?
Prioritize your opportunities
Your qualitative and quantitative analysis may uncover several areas for optimization across your source-to-pay function. It is important to prioritize the opportunities based on value to the organization, as well as by the expected effort. In many cases, starting with lower value opportunities that are easily addressed can build value, support, and momentum for future optimization. If there is support and available resources to tackle a high value, high complexity opportunity, it might make sense to make it the top priority.
In any case, it is critical that each opportunity is evaluated and prioritized. This results in an improvement roadmap for your organization.
Align the solution with the problem in measurable terms
Understanding the depth and scale of your areas for opportunity, it’s equally important to quantify what addressing them will look like in realistic, measurable terms. This will guide your strategy on whether to acquire new S2P solution(s) or invest in your existing technology. Within in S2P, digital solutions excel at addressing such issues as data capture, data transmission, data visibility, workflow automation, exception handling, risk mitigation, compliance tracking and systems integration. The extent to which these issues can be addressed by a digital solution will depend on numerous factors:
- The capabilities of the digital solution itself
- Your solution providers’ capabilities
- The state and quality of your internal and external data
- The shared vision of your organization
- The amenability of key stakeholders to change
- A holistic transformation strategy that takes account of all of these
Assess Digital Solutions
Digital solutions can now be assessed on how well their capabilities stack up against your problems. This is a key step. There is no “one size fits all” system out there. Some solutions will score better in certain S2P business functions than others. You need to find the solution that is a best fit for your business and your problems. So, carrying out careful research is time well spent. You should, once again, come up with a scoring system based on both ROI provided by each solution as well as alignment with the vision and goals of the organization.
- Look at independent reviews and rankings from respected industry bodies, by business function
- Carefully price the solution in line with your data, spend, user count and transaction volumes
- Consider reporting/analytics and integration as part of your solution
- Consider implementation and training costs and time frame
- Consider hidden costs – internal resource commitment, supplier communication, internal change management, data cleanup, integration, rationalization of current processes etc.
- Assess how long the solution will have to be in place before seeing a return on investment
- Get measurable figures on what the ROI will look like
Validate Digital Solutions
Once you’ve done this research, compile a shortlist, listing strengths and weaknesses. Then, go a step further and ask for customer referrals. Ask probing questions:
- What were the key issues you faced?
- How was the solution received among the business stakeholders?
- What were your success metrics and how did the solution perform?
- What internal changes did you have to make to fit your business with the solution?
- How long did it take for full rollout?
- How long before you saw a return on investment?
These are just some examples but asking good questions of people who have been through the process will give you key insights not available from online reviews and rankings alone.
Selecting the best fit solution for your organization’s digital transformation
At the end of this process, a clear front-runner should emerge. In the unlikely event that there are multiple solutions with a difference between them that’s too close to call, then seek further customer testimonials or reach out to high-level stakeholders for their feedback to help you reach a decision. Try to avoid having suppliers bid against one another if possible. They may not be willing to do this and a supplier forced to lower their price too much may be less forgiving when you need them to go the extra mile.
With a solution selected, you’re ready to outline a strategy for digital transformation.
Build a costed, measurable, holistic transformation strategy for digital transformation
Armed with your data, your user and stakeholder feedback and your solution scoring metrics, the next step is to outline a strategy for implementation.
Define your success criteria
By the end of your implementation, you should be able to clearly measure the success of the project. So, define your success criteria clearly, make sure they are reasonable in line with the solution capabilities and the other factors considered during your solution assessment.
Define a change communication strategy
Sticking with the theme of “communicate early and often”, ensure your overall strategy includes communication with the stakeholders both within the business and external. Not just senior management and department heads but all those either involved in the implementation itself or affected by the changes being implemented. Stakeholders should understand what’s coming, when, how they will be impacted and what will be expected of them.
Define the costs of the implementation
Provide a detailed, realistic, cost breakdown including:
- The cost of the solution and related services from the supplier – implementation, consultancy, training etc.
- Internal costs e.g. suppliers engaged for systems integration work or external project managers, internal commitment from stakeholders who would otherwise be generating revenue
- Contingency – for budget purposes, you should include an acceptable contingency amount arising from e.g. unplanned work, risk mitigation
Define an implementation plan
Whether you opt for “big bang” or a phased implementation, you should have a high-level project plan outlined which includes milestones and stage reviews with a project board. Make sure this aligns with the implementation methodology employed by the solution supplier as much as possible.
Present your digital transformation business case
Spend time preparing a presentation to the board. You should now have all the information required to walk them through the entire digital transformation journey:
- Why – measurable problems that can be addressed in measurable ways
- What – measurable S2P process improvements with measurable ROI
- How – a carefully scoped, carefully costed digital solution, complete with success metrics and a holistic implementation strategy
- When – this should be the only matter for discussion at this point
Conclusion
When an organization’s people, processes, and technology are not optimized and aligned, the result will often be a long list of manual processes and tasks that users must complete on a regular basis. This activity is a clear signal that the company could benefit from a digital transformation. However, these inefficiencies by them self do not make a compelling business case.
To build a compelling business case, there must first be internal alignment from management that there may be issues that warrant investigation (alignment). Once this is in place, the current state inefficiencies need to be defined in measurable terms. For example, “John spends a lot of his time entering invoices to ERP” is not nearly compelling as “We invest 20 hours a month entering invoices to ERP, and another 30 reprocessing invoices due to data entry errors. With a fully burdened rate of $X/ hour, this costs our company $Y per month”.
Once the problem has been thoroughly defined, align your proposed solution with the problem using hard numbers. How much time will be saved that can be used for more strategic work? How much growth would the proposed solution allow the department(s) to absorb without adding headcount?
Finally, before you present your business case, make sure that you have a well-thought-out plan. Highlight the project strategy, and include conservative cost estimates that include the known hard dollar costs, contingencies, as well as internal resources that will need to be utilized.
Most digital transformation initiatives that are not approved are not due to a lack of need within the organization. In most cases, the steps outlined above were not followed, and while the business felt real pain, the problem, benefit, and strategic value were not well conveyed to leadership. If the business case is not well constructed and presented, then the status quo will be around for years to come.
Other Relevant Insights:
5 Signs Your Source to Pay Organization Needs to Undergo a Digital Transformation
Benefits of a Source to Pay Digital Transformation (Infographic)
Critical Data Flow for Source to Pay (Infographic)
