Hackett 2023 CPO Agenda FINAL 2301

THE CPO AGENDA
Complimentary research
January 2023
Key Issues
By Amy Hillcox and Chris Sawchuk
© 2023 The Hackett Group, Inc. All Rights Reserved. The Hackett Group I Procurement Key Issues I 1
To thrive amid uncertainty, technology and
digital transformation will be key
Executives expect 2023 to be another difficult year as they confront an unprecedented confluence of
factors – a progression of the global economic downturn due to recession, high inflation, continued
geopolitical turmoil and talent shortages driven by long-term demographic shifts. Their concern
about these risks is evident in The Hackett Group’s 2023 Key Issues Study. Approximately two-thirds
of respondents across all business functions cited the potential for economic downturn and/or
recession to be the top risk during the coming year, while over one-half expressed concern about
the risks of talent shortages and inflation. Notably, more than one-quarter of study participants said
the inability to successfully transform the business and related functions is of key concern.
To prepare for economic downturn or potential recession, organizations are changing their spending
patterns to improve margins and find cash flow to fund potential recessionary challenges. It is clear
that executives are looking to technology as they consider how to address these pressing enterprise
risks: 45% of executives said they are accelerating digital transformation (automation, advanced
analytics and modeling) in preparation for a downturn – more than any other response measured,
including capital spending and cost reduction programs. The cloud has moved to the forefront as
the platform organizations must leverage for agility, growth and transformation. In the study, 42% of
enterprises reported having legacy solutions that must be replaced. For many of these applications,
cloud solutions are now the only game in town. But organizational disconnects hold back many
companies from achieving the transformation they are targeting.
2023 procurement priorities
With this unprecedented environment as a backdrop, procurement executives shared their priorities and planned
improvement initiatives for 2023 (Fig. 1).
FIG. 1 2023 priorities and planned improvement initiatives

Ranking of procurement priorities* Ranking of planned procurement improvement initiatives**
1 ENSURE SUPPLY CONTINUITY TALENT MANAGEMENT 68%
2 COMBAT INFLATIONARY PRICE INCREASES DATA ANALYTICS AND REPORTING 65%
3 REDUCE SPEND COST STRATEGIC SOURCING 60%
4 PURSUE PROCUREMENT DIGITAL TRANSFORMATION

AND MODERNIZE LANDSCAPE
CATEGORY MANAGEMENT 59%
5 IMPROVE ANALYTICS AND INSIGHTS CAPABILITIES SUPPLIER RELATIONSHIP MANAGEMENT 54%
6 STRENGTHEN THIRD-PARTY RISK MANAGEMENT

VISIBILITY AND CAPABILITY
RESPONSIBLE PROCUREMENT (ENVIRONMENTAL, SOCIAL,
GOVERNANCE – EXCLUDING SUPPLIER DIVERSITY)
54%
7 ACT AS A STRATEGIC ADVISOR TO THE BUSINESS LEARNING AND DEVELOPMENT 50%
8 IMPROVE STAKEHOLDER-CENTRICITY THIRD-PARTY RISK MANAGEMENT 49%
9 IMPROVE PROCUREMENT AGILITY (I.E., ADAPT QUICKLY) CORE PROCUREMENT TECHNOLOGY 44%
10 EMBED RESPONSIBLE PROCUREMENT SUPPLIER PERFORMANCE MANAGEMENT 41%
* By weighted average level of importance (i.e., low/moderate/high/critical) for the top 10 procurement priorities selected by respondents
** By percentage of companies with a planned initiative
Source: Key Issues Study, The Hackett Group, 2023
2023 procurement priorities (cont.)
Three of the key issues – supply continuity, spend cost and digital transformation – remain among the top five this
year. Given the economic environment, it is not surprising that combating inflationary price increases soared to No. 2.
Improving analytics and insights and capabilities also rose several spots as organizations realize the importance of being
able to support more predictive, prescriptive, and intelligent decision-making to tackle challenges like inflation and
supply continuity.
While many of the top 10 planned improvement initiatives mirror the priorities, some are not as well aligned.
Interestingly, talent management does not feature in procurement’s top priorities for 2023, yet it is the function’s
No. 1 improvement initiative planned for 2023. Executives view talent management as a relatively mature capability
area, which most likely explains its absence from the top 10 priorities. On the other hand, leaders view the maturity to
be lower for one-half of the priority improvement initiatives – including supplier relationship management, responsible
procurement, third-party risk management, core procurement technology and supplier performance management –
making these critical areas for development.
priority 1
Ensure supply continuity
Supply continuity has retained the top position for the second year in a row. Supply issues have
remained top of mind for many teams due to the additional disruption caused by the Russia-
Ukraine conflict in 2022. Reducing supply disruption is critical to protect revenue and profitability.
The mandate is clear that procurement must accelerate and enhance capabilities for ensuring
supply continuity. This means engaging risk monitoring across a broader set of risk exposures
at earlier stages of the supplier life cycle – during the beginning of the sourcing process – and
continuing to monitor and mitigate risks using real-time data and insights through the full supplier
life cycle. Visibility and timelines are key. Procurement must use the proper digital tools to
maximize visibility through the supply chain, and leverage market intelligence data from multiple
internal and external sources.
In the 2023 Key Issues Study, several capabilities necessary for ensuring supply continuity,
including supplier relationship management and third-party risk management, were among the
critical development areas – considered critically important but in which executives have lower
confidence in the ability to deliver. Surprisingly, only about one-half of procurement organizations
have 2023 initiatives planned to address these areas.
priority 2 Combat inflationary price
increases
Against the current inflationary economic environment, it is not surprising to see combating
inflationary price increases high on the priority list. While inflationary pressures have eased in
some spend categories, they remain a concern in other areas. Teams need to manage this closely
with suppliers and keep abreast of commodity price movements.
More than ever in an inflationary environment, procurement functions must ensure they
have visibility of category-level price increases, with processes in place to manage pricing –
especially with critical suppliers. Therefore, it must strengthen commercial acumen to minimize
price inflation and mitigate contract exposure – while also managing key supplier partnerships
proactively to find solutions for curtailing price surges and mitigating supply disruption risks.
priority 3
Reduce spend cost
The top-line indicator for most procurement organizations is the ability to drive cost reduction
savings. Not surprisingly, spend cost reduction remains a core priority for procurement
organizations in 2023. This will force them to balance between managing inflation and taking
advantage of buyer-advantaged opportunities to reduce costs, leveraging more traditional
sourcing techniques.
From benchmarking analysis, The Hackett Group has found that procurement organizations in
the top quartile in both business value and operational excellence – what we call Digital World
Class™ – enjoy a 90% advantage compared to peers on this key metric alone. Looking beyond this
to procurement’s return on investment (i.e., spend savings over the total cost of procurement),
the performance gap widens, with Digital World Class procurement organizations achieving a
2.4 times advantage over peers. Based on these metrics, most procurement organizations have
significant opportunity for improvement.
priority 4 Pursue procurement digital
transformation and modernize landscape
Digital transformation continues to be an essential enabler of procurement organizations’ ability
to do more with less through better intelligence and increased speed, customer-centricity, and
competitive advantage.
Procurement organizations have a high level of adoption of end-to-end and core procurement
technologies, and growth projections for 2023 demonstrate the perceived importance of
technology enablement. Procurement teams are starting to move beyond the core to implement
functionality to support supplier life cycle management, as well as other supporting and
emerging technologies (Fig. 2 on page 9).
While large-scale deployment of these technologies is still limited, with project pipelines and
savings dashboards being highest at 49%, there is an exciting level of piloting for supplier
risk and performance management tools, as well as tail spend management solutions. Most
organizations are sourcing this functionality through point solutions, which is indicative of
ongoing development in these solutions. As this functionality matures over time, we expect it to
become incorporated into source-to-pay suites.
FIG. 2 Current and projected technology adoption levels
2023 GROWTH BUSINESS OBJECTIVE

CURRENT ADOPTION
PROJECTION* REALIZATION
Supplier risk and

Supplier 17% 50% 67% 17% 41% 59% 59%
performance management
life cycle
management
tools Supplier collaboration
and innovation 13% 38% 51% 10% 33% 67% 67%
Project pipeline and

49% 37% 86% 16% 28% 59% 13% 72%
savings dashboards
Supporting
and emerging Category
procurement management tools 32% 34% 66% 11% 30% 70% 70%
technologies
Tail spend management

tools and marketplaces 12% 42% 54% 10% 30% 67% 3% 70%
LARGE-SCALE DEPLOYMENT PILOT FELL SHORT OF EXPECTATIONS

MET EXPECTATIONS EXCEEDED EXPECTATIONS
*Year-on-year percentage change in applicable adoption metric for each technology
priority 5 Improve analytics and insights
capabilities
Procurement recognizes that success requires a data- and insight-driven approach. A critical
enabler is providing reliable and forward-looking data and intelligence to end users, including
capabilities such as modeling and projecting the impact of inflation. Digital and other technologies
are at the center of this capability, yet adoption remains mixed (Fig. 3 on page 11). Data analytics
and reporting ranked second among the top 10 procurement improvement initiatives planned for
2023, with 65% of organizations anticipating action in this area during the coming year.
Nearly one-half of companies surveyed have large-scale deployments of spend analytics tools,
and another 44% have pilots in place. More than one-half of companies that have deployed
spend analytics technology use point solutions. Still, this is among the technologies with the
highest anticipated growth in 2023 – a 17% projected year-on-year increase in adoption. On
balance, executives believe these tools meet or exceed expectations.
On the other hand, procurement remains slow to adopt advanced analytics – even though
organizations that have adopted advanced analytics are largely satisfied with their ability to
deliver on business objectives. Only 10% of companies surveyed have large-scale deployments,
and about one-third have pilots in place. Projected growth in adoption lags many other
technologies – at 8% for 2023.
priorit
5
Improve analytics and insights

capabilities (cont.)
One-half of organizations surveyed have a procurement center of excellence (COE) for analytics
currently in place, while another 40% are piloting or planning for one.
FIG. 3 Current and projected adoption levels for procurement analytics technology
2023 GROWTH BUSINESS OBJECTIVE

CURRENT ADOPTION
PROJECTION* REALIZATION
Spend analytics 49% 44% 93% 17% 37% 57% 6% 63%
Advanced analytics 10% 38% 48% 8% 27% 70% 3% 73%
LARGE-SCALE DEPLOYMENT PILOT FELL SHORT OF EXPECTATIONS

MET EXPECTATIONS EXCEEDED EXPECTATIONS
*Year-on-year percentage change in applicable adoption metric for each technology
priority 6 Strengthen third-party risk
management visibility and capability
The focus on third-party risk management (TPRM) remains as procurement teams have struggled
to have sufficient visibility into risk and the capability to react quickly to the rapidly changing
business environment over the past five years. The study highlighted third-party risk management
as one of several critical development areas – of high importance, but low maturity.
As supply chains become more complex, the scope of risk expands beyond typical quality,
performance and compliance concerns to include a broad array of risk areas. In The Hackett Group’s
2021 Third-Party Risk Management Performance Study, many executives expressed concern about
their ability to manage third-party risk management amid such complexity.
priorit
6
Strengthen third-party risk management

visibility and capability (cont.)
Another big factor is the very fragmented nature of TPRM processes within an organization.
Various departments own parts of the responsibility for third-party risk management. For example,
compliance, information security, and procurement operations groups often do some of the same
work in parallel, but each with its own goals, processes, and measurements. Responsibility for
monitoring and reporting risk, taking action, and managing the process often lies with the chief
procurement officer (CPO). However, nearly one-half of respondents in the TPRM study said that
while procurement is responsible for supply risk problems, it doesn’t have the mandate or resources
to fulfill that responsibility. This makes it difficult to drive purchasing only from vetted suppliers.
Complicating this is the fact that many organizations still rely heavily on manual activity – including
email and spreadsheet-centric approaches – to perform TPRM-related activities.
priority 7 Act as a strategic advisor to
the business
Procurement organizations continue to view becoming a strategic advisor to the business as
an enabler to achieving performance goals and delivering on an expanding list of enterprise and
functional objectives. Having a place at the table is key to the function’s effectiveness.
Business partnering is a key capability to increase procurement’s influence and become a trusted
advisor to the business. Two-thirds of procurement executives anticipate taking action over the
next year to strengthen governance and improve information flow as a means of elevating their
business partnering capabilities (Fig. 4 on page 15).
FIG. 4 Actions anticipated in the next 12-14 months to improve procurement’s business partnering capabilities
Formal governance model between

procurement and business stakeholders 67%
Improved information flow among

procurement and the business 65%
Make business partnering part of

the category management team role 44%
Assign procurement staff relationships

with specific business units/functions 41%
Executive-sponsored formal
business partnering strategy 36%
Improve procurement
staff’s business acumen 33%
Dedicated full-time
business partnering roles 16%
Business partnering
activities in COE scope 14%
No initiative planned 4%
Other 3%
priority 8
Improve stakeholder-centricity
Study respondents understand that being a strategic business-enabling function requires a focus
on the needs and expectations of stakeholders (e.g., customers, internal business, suppliers). The
function’s operating model must be designed through the lens of these groups.
Digital World Class™ performance is closely aligned with the ability to work with stakeholder groups
to provide an exceptional performance – whether that is in the form of working with a department
head on a strategic sourcing event or making it easy for end users to execute routine purchases for
the business. Our benchmarking analysis shows that Digital World Class performance organizations
are 78% more likely than peers to be viewed as valued business partners and two times more
likely to be rated as “exceeds expectations” by internal customers.
priority 9
Improve procurement agility
Becoming an agile enterprise that can adapt quickly is increasingly important for businesses,
but it requires developing agile behavior at the process level. Being able to pivot to support new
stakeholder requirements is critical to effectively support business objectives and stakeholder
satisfaction levels.
In a procurement context, the meaning of agility varies by organization but fundamentally relates
to the ability to adapt to meet changing requirements. Some capabilities are broadly applicable,
such as transitioning orders quickly to backup suppliers, mitigating external risk factors, preparing
for merger and acquisition activity, or preparing for other supply chain risk and disruptions on an
ongoing basis.
To maintain an agile operating model, procurement leaders must focus on keeping pace with the
accelerating speed of the market, delivering proactive supply-side innovation, enabling decision-
making excellence, leveraging a broad and diverse ecosystem of value-driving partnerships, and
delivering services with flawless quality and compliance.
priority 10
Embed responsible procurement
The expectations and demands of procurement’s stakeholders (e.g., employees, customers,
governments) regarding supplier sustainability (e.g., environment, social, governance) has
maintained this presence in procurement’s top 10 priorities for 2023. The study also highlighted
this as a critical development area – while the importance is high, executives view the maturity of
current capabilities to be on the lower end of the spectrum.
Enhancing supplier diversity programs, which was a separate item in the list of topics ranked by
executives in the study, fell just below this in the 11th position, further illustrating the importance
of environmental, social and governance (ESG) programs to procurement teams.
Procurement’s increased workload will continue
to create productivity and efficiency gaps
Addressing these varied priorities will require resources. The Key Issues Study confirms and quantifies what procurement
executives already know: They must find a way to do more with less. In 2023, the procurement workload is predicted to
increase by 10.6%, reflecting the broadening of priorities, but with little increase in head count and operating budget
(Fig. 5). This creates a productivity gap of 7.4% and an efficiency gap of 7.8%. After several years of reduced or flat levels
of staffing and operating budgets, the modest projected increases in staff and budget shrink the magnitude of these gaps
somewhat relative to last year’s study (11.4% and 12.4%, respectively) – however, procurement executives still have a
significant challenge in front of them. Increased technology spending – 5.7% – indicates a growing reliance on technology to
increase procurement productivity, efficiency and effectiveness.
FIG. 5 Change in projected procurement workload, staffing, budget and technology spend
7.4% Productivity 7.8% Efficiency

gap gap
10.6%
5.7%
3.2% 2.8%
Total Procurement Procurement Procurement

workload/volume staff (FTEs) operating budget technology spend
Internal challenges that hinder growth
Organizations encounter many internal challenges to transformation and growth. While these challenges vary across
and within organizations, it is important for procurement leaders to understand enterprise concerns and align their own
strategies for success. For the most part, procurement executives’ perceptions of top enterprise challenges are fairly
consistent with concerns of executives across all business functions.
The bad news is that these internal challenges are, in large measure, being addressed and managed either ad hoc or at
the functional level. These approaches have significant limitations and do not effectively address larger enterprise goals
that require extensive cross-functional coordination, ownership, and accountabilities for achieving business objectives.
Comparison of enterprise and procurement top challenges
Overall Rank Metrics Procurement
1 Insufficient budgets and/or unrealistic project time frames for transformation 3
2 Competing and/or conflicting functional priorities 1
3 Inconsistent data management across operational and financial reporting 2
4 Lack of time to partner with the business due to daily transactional work volumes and/or responsibilities 4
5 Lack of the right talent to leverage technology and solve business problems 5
6 Lack of interdepartmental process coordination 9
7 Status quo ways of working and/or internal resistance to change 6
8 No clear road map or plan 8
9 Lack of change management maturity 10
10 Lack of collaborative planning and performance management 7
Areas of focus for 2023
Economic and geopolitical disruption, along with other factors such as an unprecedented talent shortage, remain
prominent features in the outlook for 2023. The typical reaction to a recession is to cut staff and cancel investments.
However, in an economy that already has more open jobs than people looking for work and a shrinking future workforce,
procurement organizations that discard employees risk the possibility of never getting them back. And those that halt or
cut funding for business process automation will only find themselves further behind digital leaders.
Given today’s unprecedented combination of threats, we believe procurement executives will need to adjust their
priorities to ensure they are able to support their business stakeholders to be successful in the upcoming year. Here are a
few areas of focus that are relevant to most procurement organizations:
Enhance team capabilities. Make sure your team is equipped to effectively manage inflationary pressures across the
supply base by elevating capabilities such as strategic sourcing, commodity market price intelligence, cost modeling, total
cost of ownership and contractual price variance management.
Architect your technology landscape purposefully. It is critical to get the right balance of the integration provided
by the enterprise resource planning and suite solutions versus the more specialized functionality available from point
solutions. Explore opportunities to digitize procurement processes that drive additional value such as negotiations enabled
by artificial intelligence, category management tools and supplier collaboration/innovation solutions.
Areas of focus for 2023 (cont.)
Automate core transactional processes. Continuously pursue digitalization of these processes to improve efficiency
and accuracy, as well as to enable use of advanced analytics to provide insights necessary for making good and timely
business decisions.
Embed and expand responsible procurement programs. This will support your organization’s sustainability and
diversity objectives. Procurement teams need to establish a robust set of policies, processes, and governance to support
corporate ESG objectives by sourcing and managing suppliers in a responsible manner.
Invest in business partnering capabilities to elevate your function’s stature as a strategic business advisor.
Procurement teams need to strive to raise their performance levels to drive a competitive differentiation. Unlocking the
full potential of procurement is only possible in lockstep with business stakeholders.
Amy Hillcox
Senior Research Director, Are you ready to transform your
procurement capabilities?
Procurement & Purchase-to-Pay
Advisory
Chris Sawchuk Backed by our unparalleled benchmarking data and best practices repository, as well
Principal and Global Procurement as experience across the full transformation life cycle, The Hackett Group is ready
Advisory Practice Leader to support:
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THE CPO AGENDA

FIG. 1 2023 priorities and planned improvement initiatives

1 ENSURE SUPPLY CONTINUITY TALENT MANAGEMENT 68%

2 COMBAT INFLATIONARY PRICE INCREASES DATA ANALYTICS AND REPORTING 65%

3 REDUCE SPEND COST STRATEGIC SOURCING 60%

4 PURSUE PROCUREMENT DIGITAL TRANSFORMATION

5 IMPROVE ANALYTICS AND INSIGHTS CAPABILITIES SUPPLIER RELATIONSHIP MANAGEMENT 54%

6 STRENGTHEN THIRD-PARTY RISK MANAGEMENT

7 ACT AS A STRATEGIC ADVISOR TO THE BUSINESS LEARNING AND DEVELOPMENT 50%

8 IMPROVE STAKEHOLDER-CENTRICITY THIRD-PARTY RISK MANAGEMENT 49%

10 EMBED RESPONSIBLE PROCUREMENT SUPPLIER PERFORMANCE MANAGEMENT 41%

2023 GROWTH BUSINESS OBJECTIVE

Supplier risk and

Project pipeline and

Tail spend management

LARGE-SCALE DEPLOYMENT PILOT FELL SHORT OF EXPECTATIONS

*Year-on-year percentage change in applicable adoption metric for each technology

Source: Key Issues Study, The Hackett Group, 2023

Improve analytics and insights

2023 GROWTH BUSINESS OBJECTIVE

Spend analytics 49% 44% 93% 17% 37% 57% 6% 63%

Advanced analytics 10% 38% 48% 8% 27% 70% 3% 73%

LARGE-SCALE DEPLOYMENT PILOT FELL SHORT OF EXPECTATIONS

Source: Key Issues Study, The Hackett Group, 2023

Strengthen third-party risk management

Formal governance model between

Improved information flow among

Make business partnering part of

Assign procurement staff relationships

Source: Key Issues Study, The Hackett Group, 2023

7.4% Productivity 7.8% Efficiency

Total Procurement Procurement Procurement

Source: Key Issues Study, The Hackett Group, 2023

Comparison of enterprise and procurement top challenges

Overall Rank Metrics Procurement

1 Insufficient budgets and/or unrealistic project time frames for transformation 3

2 Competing and/or conflicting functional priorities 1

3 Inconsistent data management across operational and financial reporting 2

6 Lack of interdepartmental process coordination 9

7 Status quo ways of working and/or internal resistance to change 6

8 No clear road map or plan 8

9 Lack of change management maturity 10

10 Lack of collaborative planning and performance management 7

Source: Key Issues Study, The Hackett Group, 2023

• Procurement/digital operations service delivery model design, implementation

London • Master data management and architecture

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