2017 Global SRM Research Report - Solving the value Puzzle

CURRENTSTATEOFSRM

ARTICLE 01/05

ENTREPRENEURIALSRM: EXPANDINGHORIZONS IN PROCUREMENT

Business is in flux. All sectors of the economy are looking for new ideas to help avoid becoming victims of disruption from outside. With the right approach, procurement is well-positioned to play a major role. Why be entrepreneurial?

But these changes are set against more fundamental transformations across the globe: ageing demographics in the West, Japan and China; rapid urbanisation in many developing nations; barriers to entry falling away due to internet technologies. Consumers are changing too. Constantly plugged into social media and online networks, they can sniff out deals and massage relationships to their advantage. Consumer-facing businesses are aware of these trends and are adapting their offers to become more akin to services, often managed online, rather than ones based purely on retailing or products. The World Economic Forum estimates digital transformation in retail and consumer products industries over the next decade (2017-26) will create $2.95 trillion of potential value for the industry and consumers. It says four business models will emerge to transform the industry. They are: → T he next-generation sharing economy Product rental for a fraction of the retail price, in lieu of ownership; this includes resale of used goods. → The personalisation economy Expertly curated products, based on an individual’s preferences, are automatically ordered and delivered on a consistent schedule. → On-demand economy Automatic reorder (eg, via sensors and a replenishment program) of a product when the level is low.

Companies successful in building these models will do so in partnership with other organisations. “To effect this transformation, retail players will need to form ecosystems or ‘coalitions of the willing’ to both provide full consumer solutions and secure key capabilities,” the report says. Again, it is not just consumer industries. New business models are cropping up across industry sectors. For example, tyre manufacturer Michelin uses a combination of connected sensors and analytics to help truck fleet customers reduce fuel consumption and costs, and allows them to pay for tyres on a kilometres-driven basis.

In December 2016, the eyes of the business world rest on the corner of 7th Avenue and Blanchard Street, in the US city of Seattle. Here, a shopper leaves a store without queueing or paying for her groceries. She just walks out. The reason she attracts the attention of international commerce, rather than the police, is her employer, Amazon, owns the store. It is trialling a combination of artificial intelligence, sensor and near field communication to allow products to be automatically debited froman Amazon account as the shopper leaves, without other means of payment. The online retailer expects to open the store to the public later this year in amove seen as a physical sign of the changes already sweeping through consumer industries, changes to which procurement must find a response. But it is not only consumer industries in the throes of dramatic transformation. Digital technologies, and the business models they support, promise to transform all sectors. In automotive, for example, 20 percent of profits will come through sharedmobility, via services such as Uber, by 2030, according to research from PwC. But the share of industry profits available to automotive original equipment manufacturers (OEMs) will fall from 70 percent in 2017 to less than 50 percent by 2030. At the same time, the share of profit available to digital services, mobility services, new technology supply, fintech companies and start-up electric vehicle suppliers will grow to 60 percent. “Clearly, the traditional carmakers and suppliers need to significantly accelerate their transformation capability. Their current rate of innovation is too slow to keep up with all the new players entering the field. This is particularly true in the areas of new technology capabilities, piloting and launching new products, and overcoming legacy mind-sets and functional silos”, PwC says.

Airbnb was founded in 2008 by Joe Gebbia, Brian Chesky and Nathan Blecharczyk, three young entrepreneurs in San Francisco, as an online service offering short-term living spaces, bed and breakfast and business networking opportunities. The company now boasts an estimated market valuation in excess of $30 billion, making it the world’s largest hotel group —without owning a single hotel. The trend propelling companies like Airbnb has acquired a name: Uberisation. It’s an ugly word, but a powerful one. It captures the idea that, with little capital investment, an entire sector can be dismantled and reassembled by adopting a business model which offers services on demand through direct contact between customers and suppliers, usually

via an online platform and mobile technology. Regardless of any setbacks Uber itself is facing, the trend it has given a name to strikes fear into established industries. Yet none of the technologies companies like Airbnb and Uber exploit are exclusive to them. What makes them different is the way they think and act. To rise to the challenge that these disruptive start-ups represent, chief executives are looking for senior management to think and act differently: to be more entrepreneurial. Organisations that can rapidly whip up innovation with trusted suppliers and partners will be the ones who succeed. The question is, what does this mean for procurement? In the following pages, we aim to provide some answers.

PROCUREMENT’S EXPANDING HORIZONS

The procurement function cannot wait for a top-down prescriptive blueprint before forming alliances to help the business grow. There is a sense that successful procurement leaders are already becoming entrepreneurs, looking for and seizing opportunity both within and outside their companies. They are looking to change the value that procurement offers the business. Instead of savings, the focus is on growth, newmarkets and profit. This couldmean more innovation in cost reduction, speed to market, access to skills or resources. Entrepreneurialismwill play a role in each of our six pillars of SRM: value, engagement, governance, people, technology and collaboration. Look out for the State of Flux Opinion at the end of each Pillar section to find out how. To make these changes, procurement needs to know what resources it can exploit, what can be realistically achieved and what the alternatives are. But let’s start by examining what we mean by entrepreneurial procurement. 

Article 01: Why be entrepreneurial?

Article 02: What does it mean to be entrepreneurial?

Article 03: What resources will support procurement entrepreneurs?

→ Service economy

Article 04: Is this vision of entrepreneurial procurement realistic?

Instead of a basket of products, customers buy a service that meets their basic or aspirational needs.

Article 05: If you are not an entrepreneur, what are you?

STATEOFFLUX 2017GLOBAL SRMRESEARCHREPORT