Interview: Digital Transformation is more of a Business Transformation
(Pic Courtesy: Jacob Gorm Larsen)
Jacob Gorm Larsen, the Head of Digital Procurement at Maersk Group, has perhaps one of the most interesting assignments in this space: how to digitize the procurement processes in a firm that is more than 100 years old!
Denmark-based Maersk Group is no ordinary company; having survived two world wars in which it tragically lost several ships and many seamen, the company has now grown to become the “poster-boy” of global trade.
It was 10 a.m. in Copenhagen, a city known for its canals, when Jacob received Beroe’s video call. When asked about how it feels to work for a company with such a rich heritage, Jacob began reminiscing: “I joined Maersk way back in the spring of 2004, which is 17 years ago. I guess time has really flown. I started off my career within procurement. I have had a number of different roles, but the approximate red line throughout my different positions has always been how to use technology to improve and optimize procurement processes”.
Over the years, he helped build Maersk’s first contract management system as well as a knowledge platform, which contained information such as how to make use of global supplier agreements on PCs and laptops, and for travel and hotels.
“I have probably spent the most time building up and rolling out our global e-sourcing and e-auction program. For the last three-and-a-half years, I have headed a department called Digital Procurement — reporting to the CPO — that is responsible for end-to-end digitization of procurement,” Jacob said.
Jacob is steeped in knowledge of various digital technologies and is an expert in e-auctions. In fact, he has authored a book titled “A Practical Guide to E-Auctions for Procurement” that was released recently.
As our conversation moved on to the daily grind of work, he acknowledged that digitizing the procurement processes in a century-old company has its own challenges.
New Value Proposition
Jacob’s focus is on creating a new value proposition to expand the scope of where procurement needs to deliver.
“I think that the procurement value proposition will get much closer to the customers. Whether we talk sustainability or other Environmental, Social, and Corporate Governance (ESG) areas overall, procurement must really “up their game” to be part of those new agendas. One way of doing that is to have a strong, dedicated focus on automating much of the mainly transactional work that is taking place in the procurement function today," Jacob explained.
He added that some of the more strategic tasks may also have to be automated, which will later free up time and resources: “we can create more strategic value for the company without adding an army of people”.
At this juncture, Jacob was specific that the aim of digitalization or automation is not to cannibalize the procurement function, “in such a manner that we end up halving the workforce. Instead, we do it to position ourselves for the future value proposition, which will be much broader, for example, where we will need new job types. That is why we do it. Automation is the fuel we use to build the future procurement organization”.
NIMBY: Not In My Backyard
According to Jacob, one of the main challenges in implementing digital initiatives is the people dimension.
“It is the same in all large initiatives. You need to get the people on board. If they are not on board with your plan, then it will never work for you. That has been an ongoing challenge for us throughout the years.
“Digital transformation of procurement is more of a business transformation and not a pure play technology transformation. It is about introducing new processes and new ways of working. That is the tough part," Jacob explains.
Over the years he has faced a few skeptical stakeholders who were not readily buying into his transformation projects.
“We have a name for some of the more skeptical stakeholders. We call them ‘NIMBY'. It is short for ‘Not In My Backyard’. It means that the stakeholders would say, ‘Listen, I love your digital projects, but it really doesn’t work for my category. So, if you can do it somewhere else, then I will support you. But please don't mind me’. We've had a lot of those conversations over the years," he said.
Next, Jacob used the analogy of nutrition to further explain his point. To him, Digital Transformation is like a change of lifestyle and not just a change of diet.
“You need to use all the tricks in the book on change management. You need to inform people, educate them, and you need to really sell the value proposition so that they get it. At times, you also need to push your agenda -- so it is a mix of the ‘carrot and stick’ approach. In terms of ‘carrot,’ you need to tell the stakeholders there are interesting opportunities that will make their life easier. You need to train them so that they understand the new solutions. On the other hand, in terms of ‘stick,’ you need to make them commit to hard targets and ensure that their bonus depends on it. You have to do those things your way," Jacob elaborated.
He also stressed the need for direct support from the CPO to pull off a successful transformation.
Then there is the question of how to convert procurement data into an asset rather than a barrier for value creation.
“Besides all this, one has to get the right data in place. Master data is critical for long-term success and viability. But to be quite honest, you don't sell a lot of tickets, or create a lot of excitement with a lot of people when you talk about Master Data Management. So as a program, you need to have ‘lighthouses of foundational things’ that you need to fix.
“To drive and create excitement as you go along, you need things that pay off immediately, which creates excitement. For example, robots that will take on tasks the very next month, an algorithm, or a process mining solution that will visualize data in a completely new way or run thousands of options – you need those kinds of things to secure excitement and acceptability from the organization. As the owner of the digital transformation unit, I need to balance the long-term objectives with the short-term ones, such as those which create excitement. The short-term gains allow you to work on long-term, more challenging initiatives. It’s balancing act,” Jacob elaborated.
“Best of Breed” Approach
Jacob said that his team adopts a best of breed approach to technology in procurement: “That's because our business is quite diverse. We have diverse technology solutions to take care of many different processes. The technology choice is also dependent on the type of business problems we are trying to solve”.
As for the “make vs buy” question, he said he prefers off-the-shelf solutions because the cost is low if they are used over several years.
“Well, you can build it yourself, but there are development costs. Besides that, you should also consider whether the solution that you have built internally is as user friendly as the leading technology that you can buy in the marketplace. It is important to weigh various options before taking a decision," he added.
PhD in Applied Mathematics
A couple of years ago, Jacob made two key hires: a PhD student in applied mathematics and a data science expert. Among other projects, they worked on developing algorithms that have the capacity to drive automated compliance of purchase requisitions.
“One of the things the PhD student has created is an algorithm that can predict the likelihood of certain purchase requisitions getting delayed. The algorithm completes this prediction by looking at past data, of which we have plenty. Once the algorithm pins down a particular purchase requisition that has the potential to get delayed, it will flag that transaction to the concerned buyer who can then proactively intervene to avoid the delay.
“All of this is possible for me to explain to you today because we have brought about a real mindset change. People are now more open to digital transformation initiatives. Once you get on board with that mindset, understanding what a PhD in Applied Mathematics can do for your procurement function is a lot easier," Jacob concluded.
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