It’s likely that your organization is going digital because it is necessary for its survival. Unfortunately, the one big mistake that many companies make is assuming that digital transformation is just another ‘add on’ to existing operations. In fact, it’s more about leveraging digital technology to make strategic improvements across an organisation.1 So it’s important that you understand why digital transformation is relevant for your entire enterprise and that you know how to leverage it. This article describes the author’s own experiences - what worked and what didn’t.
For several years I’ve been working with both sales and purchasing within procurement, to digitize the commercial contracting process at Shell. I have been asked many times at conferences for my thoughts and experiences on the subject matter. I felt that I should share a practitioner’s view of lessons learned to prevent others from repeating my mistakes. If you read through my conclusions about the processes, people, and artefacts (contract templates, sourcing strategies, supplier portfolio etc.), you should be in a position to avoid some common mistakes and solve these challenges in a way that meets your business requirements.
Understand the business problem
Is it productivity or transformation? Technology deployments often fail when underlying business friction is not well known or defined. Often, we misdiagnose the issues and decide to purchase a tool to solve them. However, you only need to read business journals to see the wealth of information available on the topic of failed technology deployments, which were based on tools that businesses mistakenly believed will resolve their issues. But too often, unexpected and costly results appear instead.
So, before buying or investing in anything, my advice is to begin analyzing your approach, by answering a few questions, such as:
- Are you trying to optimize what you do to operate more efficiently or effectively? In other words, is your business problem about productivity?
- Or are you trying to shift your business model and generate new value streams? More to the point, is your problem about transformation?
When you digitize, you are simply operating an analogue process using technology. A prime example is email. We all know that before email, we relied on paper messages, but now email instantly transmits paperless messages to multiple recipients.
When you digitalize, the technology expands. It generates new value through new methods or models. In procurement, digitalizing could result in creating new business revenues by creating supplier ecosystems or marketplaces that bundle new products for your business to sell to your customers.
Why is this difference so critical? In an established organization, it is hard to digitalize if you haven’t digitized your business.
It is vital that your contracts and business processes exist in cyberspace and not physical space of manual processing, so that you can leverage the metadata to enable your digitalization agenda to operate properly. If a contract is tucked away in a filing cabinet, the data that you have generated might not be retrievable and might be lost to you.
Even if you try and solve this issue by buying a Contract Lifecycle Management (CLM) technology, you may not necessarily resolve your business challenges. The critical first step is to fix the underlying contract management process before you buy the technology. After all, as the oft-quoted line says, “A fool with a tool is still a fool.”
So, how can you make sure your procurement function is properly digitized?
Here are three pieces of advice about processes, people and contracting artefacts that should assist you.
Processes – My first advice is to use some good old-fashioned Continuous Integration (CI) and create value stream maps to understand the origin of your business issues. Business processes behave like the old fairground game of ‘whack-a-mole’ 2. Issues pop up that had originated further upstream in the process, because a resolution was made without understanding the end-to-end result, which created a new problem further down the line.
Many times, I have seen an issue fixed early in the procurement process, which resulted in a manual effort for someone in accounts payable or another supporting function that is invisible to the team attempting to solve the issue. So, understanding the real end-to-end process and mapping is critical as a transformation lever.
Some people tend to be critical of my second piece of advice. I am a huge believer that we need to be human centric in addressing problems. This means we should remember that human beings don’t always act logically or rationally and so our solutions should center around how people behave, not how they should behave. The field of behavioral economics has revealed some interesting insights, which promote our business processes to control the outcome that we want. A great example is adjusting the contracting process so that we sign a contract first and then send it to a counterparty as an act of good faith, rather than use the traditional sign last approach.
In addition to having CI in your team, make sure that you have access to design thinkers.3 If you understand the users and how they will use your platform, you will avoid problems later that come from low levels of user adoption. This means you must include design users whenever you are selecting, designing and implementing any technology that you are considering.
Contracting artefacts - Gather all the documents generated or required in the execution of your contract or process and ask what they are for and why they exist. One of the best questions that I ever asked after having seen a 100-page contract is, “why do we need a contract?” I asked this question because there is an implicit assumption that the job of procurement is to generate contracts. In my view, the purpose of the procurement function is to enable trade and balance risk and reward. Consequently, it is possible that for certain categories and purchases, a fully executed contract becomes an overkill. So why the obsession with negotiating a long form contract with a counterparty? After several unhelpful answers, I finally got to the nub of the reason, “so that we can resolve a dispute in a court of law”. This led to my next question, “how many times do we end up in court?” The answer was, “hardly ever.”
This raised an ‘aha moment’ for me. We are designing the contracting artefacts (documentation) for an event that may never happen. In other words, we are embedding inefficiencies into the process, because we are not prepared to take a calculated risk. I then considered the full suite of documents required in executing the process and I realized that we primarily use them for support. Thus, the very existence of a contract, which is complicated and complex to develop, relies heavily on a specialist for it to be drafted.
But if you apply design thinking, you will see many opportunities to simplify and rationalize your business process that has evolved over time. You can then avoid embedding the inherent inefficiencies into your technology. If you automate a bad process, people will figure out how to work around it.
Focus on outcomes over style
Very often you can digitize in your business without having a top of the range technology. If you have a “good enough is good enough” mindset, you may end up with a simple workflow engine built in SharePoint.4 However, if you are clear on the problem that you are trying to solve, your entire digitized agenda could be the introduction of e-Signature,5 which is fine to use. Focusing on outcomes is all about solving the problem, not implementing a tool. It requires maintenance of flexibility and being prepared to change your mind as you generate new insights.
Finally, you need to become data obsessed!
In fact, you must know how your data model fits into your process model. You need to understand what data you need and where, when, and how all data should be transmitted.
In contracting, most businesses, regardless of size, will probably need to automate their contracting workflow and have a repository for documents from which the required metadata can be extracted. You will most likely need some sort of an e-signature solution and a way of transforming your data into your Enterprise Resource Processing (ERP).6
Here at Shell we are digitizing as part of our goal of becoming a net-zero emissions energy business by 2050, in step with society and as part of our efforts to drive the energy transition.7 Digitizing the business processes to improve efficiency and digitalizing the supply chain to create new value streams for Shell, our suppliers and our customers form part of our Powering Progress strategy. In digitizing our contracts, we can capture the metadata within and drive huge efficiencies. For example, in our manufacturing business we are close to 98% automation of the source-to-pay process.
As we create a digital operating environment, we can introduce dashboards and control towers to operate our business more effectively. However, some of the biggest gains will be in creating new business models and in thinking of suppliers as customers and customers as suppliers.
- Six common mistakes companies make when going digital Source: Sandra Melo, DataScope article: September 27, 2018
- Whack-a-mole -- the practice of trying to stop something that persistently occurs in an apparently random manner at the point where the occurrence is noticed, such as terminating spammers' e-mail accounts or closing pop-up advertisement windows. Source: Wiktionary
- “Design thinking encourages organizations to focus on the people they're creating for, which leads to better products, services, and internal processes.” Source: What is Design Thinking article by IDEOU
- SharePoint definition: a web-based collaborative platform that integrates with Microsoft Office. Launched in 2001, SharePoint is primarily sold as a document management and storage system, but the product is highly configurable, and usage varies substantially among organizations. Source:Wikipedia
- eSignature: an electronic signature, or e-signature, refers to data in electronic form, which is logically associated with other data in electronic form and which is used by the signatory to sign. Source:Wikipedia
- Enterprise Resource Processing (ERP) refers to software and systems used to plan and manage all the core supply chain, manufacturing, services, financial and other processes of an organization. Source: QAD
- Our Climate Ambition. Source: Shell
ABOUT THE AUTHOR
Fraser Hill leads digital transformation within the managed supply chain upstream and downstream throughout Shell. His team of 120 staff is accountable for all technology, process design, artificial intelligence (AI), big data and digital innovation. Shell spends $35 Bn in procurement across tens of thousands of vendors each year. Fraser’s team ensures that Shell has the processes and supporting platforms to manage this vendor ecosystem cost-effectively to deliver value for the group.
Shell is a global group of energy and petrochemical companies. Our operations are divided into our businesses: Upstream, Integrated Gas and New Energies, Downstream. Our Projects & Technology organization manages the delivery of Shell’s major projects and drives our research and innovation. Our Projects & Technology organization manages the delivery of our major projects and drives research and innovation to develop new technology solutions. It provides technical services and technology capability for our Integrated Gas, Upstream and Downstream activities. It is also responsible for providing functional leadership across Shell in the areas of safety and environment, contracting and procurement, wells activities and greenhouse gas management.
Content reflects views and opinions of the author and do not necessarily reflect the views and opinions of World Commerce & Contracting.