Beware of Shiny New Digital Solution!

SPEAKERS

Sakthi Prasad (SP), Jacob Gorm Larsen

S P  00:02

Hello and welcome to the source, a Beroe podcast. In today’s episode, we are going to be speaking with Jacob Gorm Larsen, a digital procurement expert. Until recently, he was the head of Digital Procurement at AP Moeller Maersk, the famous shipping company that’s considered as the backbone of the global supply chain. After a long career, Jacob left Maersk late last year to start a consulting firm called Moneyball CPH (CPH stands for Copenhagen). Moneyball advises companies on various digital procurment initiatives.

Hello Jacob, welcome to The Source, a Beroe podcast, I’m happy to have you here.

Jacob Gorm Larsen  00:32

Good morning Sakthi. And I'm very happy to be here. Always a pleasure.

S P  00:37

Thank you. Thank you, Jacob. So, Jacob, the digital procurement ecosystem as you know, is more vibrant than ever. In fact, there is a sub-market evolving, where a few service providers are offering a bucket list of digital suppliers. In fact, some suppliers, that is, solution providers, some of them at least, spend top marketing dollars to get onto such lists. So, you've been a buyer or a practitioner for so many years, you have been at the helm of affairs; How do you see such lists? And are they of any help? If so, how?

Jacob Gorm Larsen  01:20

Yeah, first of all, I'd have to say that I completely agree that there's so much going on right now within the whole procurement space, and especially within the tech space of procurement, there's never been a better time, I think, to work within procurement. And I also see clear trends that we see new solutions emerging, if not on a monthly or weekly basis, then at least a very, very frequent basis. And then you are right,  there is a lot of lists as well, or mappings of solutions, etc. And I think they can sometimes can provide good inspiration for practitioners to sort of navigate and potentially find new solutions. I also think sometimes that they can be contributing to the confusion, almost because there's so many of them that it can be hard to even navigate the lists, which are created with the purpose of helping us to navigate the landscape to begin with. So, a lot of viewpoints, a lot of different lists available, and it's fantastic overall, but it probably also contributes a bit to the confusion for practitioners.

S P  02:39

Okay, confusion, in the sense?, can you elaborate on that?

Jacob Gorm Larsen  02:44

Confusion in the sense that the purpose of such a list I think, is to sort of provide one complete mapping of what is going on, and when you then suddenly have 10 versions of that truth of what is going on, who is using different types of categorization and, and is putting emphasis on different parts, then, of course, it can be difficult to navigate, because some will include more or less all solutions, others will have a more selective approach. Again, some will apply a traditional categorization of Procurement Solutions, while others would have a different view on how to categorize things. So from that perspective, I'd say one challenge is to keep up with all the solution but another is just keeping up with all the lists, and I think that's part of the opportunity as well in this space is to provide some improved guidance to practitioners on what is going on in this whole space because it's completely impossible to fully keep track of what is going on, I think for everyone.

S P  04:02

Okay, that's, that's interesting. Jacob, at times, you get a feeling that procurement perhaps talks about digitalization, quote unquote, for the sake of it because there is no other cool quotient right? There is so much talk, so much discussion, so many hashtags around this going around, even if say, for example, teams don't need many of those tools that are currently in the market, even if those solutions don't really cater to their day to day operational needs, but still there is a tendency to talk about it. You have been an insider for so long. So, what drives this motivation? Is it because, they need to keep up with the latest happenings in the market or, is it peer pressure? Okay, my peer is talking about it, so I should also talk about it?

Jacob Gorm Larsen  05:07

I definitely think there's probably something to that. But, overall, I've been a practitioner for about 20 years in this space. I have seen a number of examples, and we can all be guilty of that, including myself, that is this almost Fear Of Missing Out for practitioners that there's this hype about it, so we better do something and then you jump on, potentially the next shiny object, which can be all good; but the main challenge is that it's not necessarily directly linked to your procurement strategy or your business priorities. And that's really what I want to change is - don't look for the next shiny object. Make sure you have your business priorities, your business strategy clear. And then use that to drive the selection process of new technologies. And it sounds simple, but I know from my own previous position as head of digital procurement in a large organization, that can be extremely difficult to navigate and to manage all the different priorities. But we have to flip it around. So that we don't go for the next shiny object. We don't just get confused by this fear of missing out on all the digital opportunities. And then we make sure we clearly link the digital initiatives to the business priorities. And to be honest, maybe it's not even needed to invest heavily in digital solutions, maybe some of the solutions you already have, are all good. And it's just a matter of really driving value realization from them rather than keep pouring money and investments into digital solutions. And it might sound awkward for me now, I'm still getting used to the role as being advisor or consultant, but being a practitioner, that's how I see it - that it's not necessarily a matter of just investing more and more, it's about investing in the right things. And maybe investing less actually, and then make sure you focus priorities on realizing value on what you already have. And I think a lot of practitioners are getting that wrong. So that's my sort of two cents on that and what is going on within the space at the moment.

S P  08:01

Okay, shiny objects. That's a very interesting way to describe the situation I would say.

Jacob Gorm Larsen  08:10

But I think it's not limited to procurement. There was a recent article in Harvard Business Review, which captured and described that if you look at any digital transformation, one of the most common pitfalls is that you focus on the next shiny object, on this overhyped startup who has a fantastic pitch and as you said, before, all your peers already signed up with them. So, let's jump on this so that we don't miss out on it. And as I said, maybe that shiny object is not what is solving your most urgent business problems. Maybe you need to look at something as foundational as your p2p process or master data or fixing your contracting processes, etc. That could drive a lot more value and that's what I want to do to move away from the shiny object. Well, not move away, because I still think there is value to look at new solutions and also run proof of concepts. In my previous position with Maersk, I had tremendous value from testing out new and very new solutions also. But it was all linked to a business priority. It could be a challenge that we had a lot on, say Spot Buying and enormous resources that went into spot buying by how could we sort of automate the larger part of those of those Spot Purchases? And there was actually not a shiny object, but a very valuable new startup and a solution who we could then adopt to support us on that. So, it's not to out startups, I think it creates value in many different ways. Also, just in the mindset change, which in my book is the most important part of the digital transformation, the selection process of it has to be closely linked to the business priorities and the strategy of the procurement function.

S P  10:30

So how can one be immune to the marketing messages of these service providers? Because if people do buy the shiny object, it means, you know, the suppliers’ marketing team has done a good job and the sales team, of course,

Jacob Gorm Larsen  10:48

Of course, and they do it, they do a fantastic job.

S P  10:53

Have there been instances where you are actually quite convinced about the presentation and then you almost made the decision. But then you had to walk back few days later, oh, no, no, this is not good for me, even though the messaging is actually very good.

Jacob Gorm Larsen  11:08

I think none of us are immune to that kind of messages. And I think that's probably one of the biggest mistakes that you can have is to say that you're not, going to fall for this, so, I won't listen to it, it doesn't influence my decision. Of course, it does. It does with all of us. But that's why again, you need a structured process for developing your digital roadmap. Because if it becomes an emotional process, or a little bit ad hoc, jumping from opportunity to opportunity, then the risk of you ending up with the wrong solutions are pretty big, it has to be part of a structured process. So phase one, understanding your needs and business priorities, then second, understanding the market and the digital opportunities, and that's where you want all the great pitches. So I've run it and it's one of the things I do now with practitioners as well, I run a digital Safari inspired by another consultancy, to give inspiration on what is out there, because it's not only the information overload, that can be a problem, very often, practitioners will also, not know about certain solutions, and then it's about inspiring them, but doing as part of a structured process. So that inspiration is very quickly linked to how can it fix our priority one, two, or three, and not priority 50, even though it was a fantastic pitch and a fantastic sales and marketing effort by the solution provider

S P  19:45

Jacob there has been a lot of venture capital investment into the space. What kind of impact do you think these investments are having? On these companies in general and the ecosystem, for example, whether, from a risk-return point of view, do they tend to over promise because there's pressure to show some returns because there's a lot of venture funding going in. And you've been there in many of those discussions with many of these companies. So how do you see this playing out.

Jacob Gorm Larsen  20:34

And now, I'll be very honest, and maybe a bit controversial, but I think it tabulates the source to be honest, because, of course, a good thing that the venture capitalists bring in and the market is being flooded with money at the moment, so there's so much money out there that it's relatively easy, I think for startups to get funding. And that's, of course, positive because it means that they can develop some great solutions. But the reason why I say it's a double-edged sword is also that for some of them, and I actually think that is becoming a problem for some, their priority switches from keeping customers happy and developing value for customers to keeping investors happy. And that's not really the purpose of a company - to keep investors happy. I know they have an expectation on them getting a return on their investment, of course. But when you kind of see that focus, then it becomes problematic, I think, because then it becomes, I wouldn't call it a bubble, I would say it just becomes problematic, because you can only keep that up for so long. If your purpose, mornings- nights, and touring all the day is not to deliver value for your customers, then you have an expiration time for your company or your solution. And with all the venture capital coming in, I do see sometimes, that that's a little bit unfortunate trend that it seems like some of the activities that are launched and some of the money that is spent by some of these companies is about keeping investors happy rather than creating value for customers. And, and we have to think everybody has to be very careful about that. Because that's not creating long term sustainable value.

S P  22:40

Yeah, so longevity matters, right? longevity of a company? Because if someone is investing in a solution, least that they would expect is, at least the product would be supported for a few more years. And if that's not…

Jacob Gorm Larsen  22:58

Absolutely, yeah.

And it's not only a matter of being supported, when at least I was working for large corporates and you invest in a startup and you take them in, you know that the product is not done, and you accept that there are compromises and things that it cannot do. That's fine. But you also you engage with them because you expect that then you can be part of shaping the product going forward. And that's extremely important, then, of course, all their development should go into then improving that product. And that's extremely important that it's not only a matter of reporting it, it's also a matter of building and developing, improving the product every single day. And you would also expect again that a Start-Up to be much more agile and faster in launching new versions, new features, etc, than some of the large, established players in the market.

S P  24:02

That's actually a very good point. Releases and upgrades. They are the key actually.

Jacob Gorm Larsen 

Absolutely.

S P

Okay. Moving on Jacob, let's say a company that has a procurement team, has a functional p2p system. Do they need to necessarily go for digital solutions? Or are there other digital solutions that can be implemented on top of the backbone? If yes, where do they start in terms of picking a solution? I mean, what would be the first port of call in terms of shopping for a digital solution?

Jacob Gorm Larsen  24:45

Yeah, and that's a fantastic question, because it's also not even though I've seen some attempts at it, providing sort of - This is where you start and then you move on to this and this.. In my view, you can't do that, because the answer to the question is that it depends where to start. It depends on what they should in fact do. So it depends on their procurement strategy, On the overall business priorities and how procurement supports that. That’s again what drives the selection of where to start, or if to start at all. And again, if they have implemented a p2p function that works perfectly fine, maybe right now is not the time to make a huge investment, but it's more about them firming up and driving compliance to the existing solution if you don't have the bandwidth to take it one step further. But it's the individual business priorities of each organization that has to drive that selection. So for some,  advanced analytics and more use of data would be the right place to start, for others, and I've seen that in in a number of organizations as well, it's more within the sourcing space where there's some low hanging fruits - implementing at Digital sourcing solution - auctions being one example, because what we need is more efficient ways of renegotiating our prices, our internal processes are actually good, it's about lowering our prices. Others could be more on the automation part, for example, so that they have very manual, p2p processes with a lot of human touch points, well, then it's about looking at how can we increase automation, either through a p2p solution, as you mentioned, or maybe the problem is the link across a number of different systems and you don't have the patience to wait for tickets or spend 18 months building what they call a real integration. So then you got to look at things like RPA, who can connect systems in a matter of days or weeks to drive immediate impact and value for the procurement organizations.  

S P  27:35

There is a lot of pressure on procurement to show ROI in the programs that they are running. And this can be a limiting factor when it comes to selecting a solution provider. Because there's always this thought, okay, I implement, I spend money to implement a solution. But then what happens after that? So that's it? That's a big question. Right? So how best to showcase ROI, after implementation? And have you faced any situation where you implemented a solution and then you struggled to showcase ROI to your stakeholders.

Jacob Gorm Larsen  28:18

I think you're absolutely right that for a lot. I think that's the mindset with these things that you, first of all, have to realize that the journey doesn't end when you have signed the contract, and you have budget approval, and you've done the implementation of the solution. That's the beginning of the journey. That's where you begin to realize value. And I think a lot of practitioners are struggling with really pushing through on those things. So I've had discussions with practitioners who would say, well, we've done a transformation: we've automated, so many processes, and then I said, Okay, that's great. What does that mean, in terms of headcount, have you reduced or where have you moved all those people? And then they suddenly become silent because we haven't really followed up on it. But we assume that then people are doing something better. And I think with one thing that was absolutely fantastic about my previous job as head of digital procurement at Maersk was that in Maersk, I also had a boss who was religious about following up on those things, and who would not allow us to invest in a solution and then let's see how it works. He would insist on us tracking it in a very detailed manner on a monthly basis. For example, for our RPA program, we would do a report every month, how much have we robotized and what has the impact been on the organization, not necessarily in terms of reduced headcount. But then it could be transforming an operational buyer into a different role as an analyst or if somebody resigned, then instead of hiring an operational buyer, we would hire a more advanced analyst instead, for example. And then we would track those things. And he would keep us honest, not only me as the program owner, but the whole leadership team within procurement. Similar with, sourcing and use of P auctions, we would systematically track the value generated by the text pollution every single month, year over here, and you have to do that, because all else then it will, it won't really materialize the value equation. With him, when you talk automation, you have this concept called a Parkinson's Law. And Parkinson's Law is about a job will take the time to complete, which you will take the time you allocate to complete in order to do it, that wasn't right. But the gist of it is that it a job, people will always find things to do. So if you automate part of their job, they will find other things to do. And sometimes that can be very useful and very good things. But if you do it in a large, global organization, there is also, I think, a fairly high risk or big risk, that not all these new things that people will begin to do is linked to the strategy that you're trying to drive forward within procurement. And that's why you need to track it very, very closely. So it's the beginning of the journey when you take the system life and that's where the real work begins. But you have to follow up and track these things very, very systematically and on a weekly or at least, monthly basis. If you want to make sure to realize the value from your investments or else then it will simply fizzle out very often, and you'll have fun trying it out but it won't really hit the bottom line or at least you won't be able to document that it's hit the bottom line. There's a long answer to a short question.

S P  32:35

I get it. That's very informative, because you did give some anecdotes, from your previous company to show how religiously you were tracking the ROI. I think that's very important. Amidst the excitement of scouting for new solutions, I think it also makes sense for teams to track the ROI after implementing them.

Jacob Gorm Larsen  32:59

But maybe also just worth adding that it's also where sometimes the discussions becomes very bright and very direct, because you present it, and it can be tough discussions to discuss. We have done this, we've invested a lot and we don't see the impact on your organization, Mr. Category Manager or Mrs. Category Manager - what is going on? Why aren't you realizing the value that these tech solutions are providing? And that can be uncomfortable to answer, especially in a global leadership meeting. But I think you need those kind of discussions and a little bit of friction sometimes if you really want to push these things forward. It's always fun to watch the demo of the startups and to engage with them. And they bring in good energy. But you need that friction, you need to take the tough discussions on how you realize the value or else then it simply becomes for the fun of it. And we had a lot of tough discussions. And there was a lot of pushback on me saying, Hey, Jacob, all these solutions, they're not doing what you promised and sometimes they were right, we were not delivering what we were supposed to. And other times, they were simply not on the ball enough to ensure that head counts were converted so that we could push forward this digital transformation. But it's just to say, change doesn't happen without friction. And if you want to digitally transform your procurement organization, it won't be all fun and cool demos, there will be friction and tough discussions to have as well. We had a lot of those, but it's how you also create value. So it's part of the story as well.

S P  35:01

Okay, that's great. Can a small and medium sized procurement firm take advantage of the many solutions that are currently available in the market? Because one gets a sense that many of these solutions are perhaps tailor made for large organizations, with a big team. And if you think that yes, SME procurement teams can indeed take advantage of the solutions, where and for what should they scout to begin with?

Jacob Gorm Larsen  35:41

I think I understand the question, and the short answer to it is yes. But I would also say that, of course, what new digital solutions aim at if we sort of look at an overall level is that they want to bring in a new technology- AI, machine learning, slick interfaces, quick ways of connecting systems, etc, they bring in new technology to solve complexities. And large organizations are just world champions in creating complexities. And that's why the business case is so fantastic for these types of solutions, because they can help large organizations overcome a lot of these own created complexities. But small and medium sized businesses can definitely also benefit from a lot of these. They just have to be perhaps even sharper on ways that we prioritize what is our main business objective here that we want to solve with this? And then there are plenty of opportunities out there. And again, I can't say that they should always start within the sourcing space, or always start within the analytics, because it really depends on what they have already done and what they want to achieve. So I can't tell them what tool to go with without looking at their situation. So the the answer, again, is that it depends and they have to adopt a structured process to develop a digital roadmap. And I can tell you some of the companies that I'm helping now with their digital roadmaps, that are small and medium sized companies, different budgets, but the problems are really the same. It's about linking business priorities, to available digital solutions. So from that perspective, it's the same.

S P  14:52

Is digitalization a ruse to slash account in the procurement department? Sometimes I get that feeling, you know, I may be wrong, but you have been at the forefront. So, what's your opinion on this?

Jacob Gorm Larsen  15:19

I think that it's it's not the purpose on its own to reduce headcount from digitization. Not at all. I do think there's opportunity for actually increasing job satisfaction and the value that come from jobs, because you can automate a lot of low end tasks. And then you can move people up the value ladder. For some, part of it will be about realizing benefits from headcount automation, but it's not a purpose. On its own, I see it much more that procurement in the years to come, will have a number of fantastic opportunities. One is dealing with the whole ecosystem of suppliers around ESG related matters. You need a lot of resources from procurement to drive that whole agenda. And either you can hire a lot of additional headcount for the procurement function, or you can upscale or change some of the more transactional jobs into these types of new profiles. And that's the transformation that I think will happen. Another area is advanced analytics, which is coming in big time. So, we'll see completely new data profiles, data scientists, etc, moving into procurement, and I don't see them moving in and on top of the existing organization, I think we'll see a change. So there's certain roles which will change a lot, the operational buyer, that role will look different in a couple of years from now, due to automation, the Category Manager and the rise of a virtual Category Manager, that role will change a lot and become much more analytical and much more collaborative. So, I think automation is part of the fuel that drives forward the transformation of procurement. But it's not the purpose on its own. But again, that's what your strategy needs to determine is what is it that you want to get out of it, is the purpose of the digital transformation to sort of lower the costs or serve. So being fewer people in procurement delivering the same value, then, of course, automation and reduction of headcount, it becomes a little more important, or is digital transformation really about changing the value proposition that comes from a procurement function in the future to be, you can say the owner of, for example, the ESG agenda, or a function that delivers a lot of value through, for example, advanced analytics. And then it's about upskilling, and adding resources who can drive that forward. And again, unless you have unlimited headcount, which very few people have, then you need to find you can say those headcount somewhere, and typically, that will be through automation. So I know there is a debate about whether automation is sort of cannibalizing on the scope of procurement and ultimately will make procurement irrelevant. I don't see that at all. You know, automation is not an AI that is replacing the need for talent and people in procurement. On the contrary, I think the scope of procurement will be expanded over the years. And I think more than ever, it will be exciting to work in procurement, because it will not be the way it was 10 or 20 years ago, a back office transactional function, it will be right at the center stage driving some very, very strategic initiatives for the company overall. So, I'm very optimistic on the future for procurement and I think automation is a very important part of the fuel that will drive that transformation of that development of the function overall.

S P  37:41

Okay, that's great. Thank you so much, Jacob for providing valuable insights on digital procurement ecosystem. Thank you.

Jacob Gorm Larsen  37:50

Thank you, always a pleasure to be part of it.

SUMMARY KEYWORDS

solutions, procurement, practitioners, digital, jacob, priorities, automation, shiny object, discussions, drive, digital transformation, linked, business, people, roi, function, marketing, organization, startup, headcount