Procurement 4.0 Requires Adaptivity Beyond Agility
"Our findings reveal that agility does, in fact, strongly correlate
with higher overall performance and other procurement capabilities."
Procurement 4.0 in 2021 isn't only about agility
Procurement agility is buzzing from everywhere. Everything we needed to do was about "value" just recently; now, it is about "agility."
In 2021, the broader agenda of Procurement 4.0 seemed to be limited to agility only.
The notion of "agility" existed for decades, well before the Agile Manifesto.
One of the definitions from the mid-1990s describes it as the "ability to detect opportunities for innovation and seize those competitive market opportunities by assembling requisite assets, knowledge, and relationships with speed and surprise."
This fantastic definition reads much better than the 2021 Deloitte CPO Survey version of the "ability to draw conclusions quickly, and move nimbly and easily."
Simultaneously, the recipe for agility by Deloitte sounds more like a mantra than actionable advice, e.g., "being able to configure upstream supply chain and procurement itself to become more agile."
This one sends a reader into an endless loop and recalls a quote from "Men in Black":
"Best of the best of the best, sir!... He's just excited and has no clue why we're here."
Agility should be seen as an ability to swiftly leverage business opportunities and (even more so) to survive emerging threats and handle inevitable changes with possibly minimal losses.
Agility is not necessarily related to the direct creation of value, but it is expected to create necessary resilience for future threats. Thus, it can be seen as insurance against future environmental changes.
Three dimensions of agility
Seriously speaking, I concur with the definition by Atlassian:
"You're only as #agile as your ability to ship frequently and without drama."
We all have the experience of being agile whenever a big boss takes over and demands miracles happen. Suddenly, our governance becomes flexible and responsive, stakeholders transform into partners, and things start flying.
The problem with this situation is the "drama" element. Perhaps, this is because agility is way more complex than kicking people around.
- Customer agility is the ability to cooperate with customers in the exploration and exploitation of innovation opportunities;
- partnering agility is the ability to leverage assets, knowledge, and competencies of external partners (suppliers, distributors, contract manufacturers, etc.) in the exploration and exploitation of innovation opportunities;
- operational agility is the ability to accomplish speed, accuracy, and cost economy to exploit innovation opportunities.
Firms that have developed all of these dimensions of agility should be better positioned to engage in more competitive action by bundling their customer, partnering, and operational agility.
When a big boss triggers the "drama" scenario, they only stimulate the operational agility apparatus. Therefore, the short-lasting effect and suboptimal outcome.
Agility is a subset of Procurement 4.0 attributes.
The result of procurement efforts is not a contract – it is the value delivered to the business and consumers. The longer the value reaches its recipients, the less effective the procurement work.
This leads us to one more definition of agility – the sustainably shortest lead time between the business requirement formulation and benefits realization.
ITIL Service Lifecycle suggests that it starts from the business and customer requirements and loops back during the continual service improvement.
What is Procurement 4.0?
Procurement 4.0 enables the delivery of value-generating products and services and demonstrates the following attributes:
- agility, i.e., the shortest sustainable lead time between the formulation of business requirements and delivery of projected value;
- multi-speed/multimodal operations, e.g.,
- different resources, tools, processes, and metrics applied depending on a stakeholder, sourcing object, or specific situation,
- strategic alignment between different modes;
- the market expertise, e.g.,
- commodity, currency, market indicator fluctuations,
- political, economic, and regulatory events affecting the market,
- ability to forecast changes and send an early warning to the business,
- ability to mobilize resources and adjust rapidly to changing market conditions;
- the diverse toolkit, e.g.,
- digital solutions providing speed, efficiency, and analytical data,
- performance measurement and reporting tools suited for different audiences,
- methods and processes simplifying and accelerating the source-to-contract cycle,
- contract templates and clauses adjustable to different sourcing scenarios;
- the risk management, e.g.,
- risk assessment and mitigation strategies,
- monitoring of risk indicators,
- rapid response capabilities;
- the supplier relationship, e.g.,
- fully functioning SRM framework,
- enablement of innovation not only by words but by strategy and governance,
- recognition and support of social and sustainability agenda.
The above constitutes today's business agenda, not a visionary statement.
The business doesn't appreciate those of us stuck with savings, RFPs, and boiler-plate contracts - they want to eliminate such atavism by automation and outsourcing.
Agility as a dynamic capability
Each organization possesses a mix of ordinary and dynamic capabilities.
Ordinary capabilities mean a certain degree of sufficiency (or even excellence) in performing a well-defined task. They generally fall into three categories:
- administration,
- operations,
- governance.
Ordinary capabilities can be measured against the requirements of that task, e.g., labor productivity or cycle time, and benchmarked internally or against best-practice standards.
However, achieving the best practice doesn't imply a competitive advantage, as other companies may accomplish the same through consultancy, benchmarking, and commercial technologies.
Dynamic capabilities are higher-level competencies that determine the firm's ability to
integrate, build, and reconfigure internal and external resources/competencies to
address rapidly changing business environments.
While ordinary capabilities are about efficiency, dynamic ones are about innovation.
Dynamic capabilities also fall into three categories:
- identification and assessment of an opportunity (sense);
- mobilization of resources to address a chance and to capture value (seize);
- continued renewal (transform).
Dynamic capabilities are 'strategic' and distinct from ordinary abilities. Firms can
maintain and extend competitive advantage by layering dynamic capabilities on top of
ordinary capabilities.
Agility comfortably fits under dynamic capabilities related to working practices and methods to sense changes and facilitate a quick response.
Another remarkable example of dynamic capabilities is "digital options" - a set of IT-enabled powers in the form of digitized enterprise work processes and knowledge systems.
Emergent adaptive capabilities
Organizations must increasingly deal with discontinuous, complex, and unpredictable change.
Learning to respond to weak signals of environmental changes constitutes the
development of dynamic capabilities for environmental adaptation or adaptive capabilities.
Adaptivity is often equated with agility, but they are not the same.
Agility aims to organize ordinary capabilities to respond to changes and enable higher performance as a dynamic capability. Therefore, it is primarily reactive, as per its routes in software development.
Adaptive capabilities involve quickly noticing changes in the external environment, understanding stakeholders' perspectives, and developing successful responses to demands before creating survival risks. Eventually, they evolve into dynamic capabilities upon adjusting the firm's dominant logic to the "new normal."
Furthermore, agility is about positive opportunities, while adaptivity deals with a hostile environment.
Agility is a sufficient but not necessary attribute of Procurement 4.0
There's no doubt that agility is a crucial element of Procurement 4.0. Worth mentioning that it is a fine but not necessary condition for prospering in the new era of global crises, rapid technological change, and intense competitive rivalry.
Firms need to develop a broader set of dynamic capabilities. Furthermore, they need to enhance their adaptivity to respond to the hostile environment, which is a matter of survival.
Similarly, procurement needs to be agile and adaptive to become one of the critical dynamic capabilities of the future business.
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More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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