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- December 11, 2018
- Sean Park
As organizations move to adopt leading technologies such as artificial intelligence and virtual and augmented reality, the question arises as to who should be involved in sourcing suppliers and negotiating deals for them.
Having now worked with a few companies on these types of projects, I see a leading role for procurement. The possibilities for these technologies are very exciting, but procurement needs to be involved in order to ensure that there’s a solid business case, and that the organization is building a portfolio that capitalizes on synergies between technologies, while ensuring maximum value from its investment.
Right now the supply market is such that some of the large players actually have less advanced and un-integrated solutions, while some of the small, niche players actually have better solutions and technology. The sourcing organization can sort through the hype from the big players, as well as vet the smaller ones for risk and scalability.
Making the business case
The first step, as always, is making a solid business case. My company is working with a global CPG company right now on two applications that are both AI-based. One is a notetaker, which uses natural language processing to take notes for you on a call or live meeting and then create a transcript and summary of the conversation.
The presumed business case for this is twofold. It will improve employee satisfaction, because most employees would rather just talk and listen, and not worry about scribbling down notes. A lot of people just don’t do it, or they aren’t good at it. So, the tool does it for them, creating accurate records that can be accessed by anyone who needs it. There’s increased transparency, and institutional knowledge is not stuck in a notebook or in someone’s email box.
Up until recently, the error rate on this kind of AI was so high that it was virtually unusable, but it’s progressing rapidly. It’s still relatively expensive, but once you get to a large number of users the price comes down, so it makes sense for the enterprise market. The other application is a voice-based meeting scheduler, which has progressed quickly as well.
In both of these cases, we’re rolling out the technology within one geography, within one business unit. We’ll take a survey before the implementation, and then again after a two-month period to see whether or not they want to roll it out to the rest of the U.S. division of the company and/or globally. If the answer is affirmative, we’ll use the experience with the test implementation to make the business case and inform the requirements.
We’re taking the same approach with some AR and VR projects for manufacturing organizations, for maintenance and repair applications, and sometimes for installation as well. The basic business case for these is to prevent costly site visits. With AR and VR, a lot of work can be done or supervised remotely, with a high degree of accuracy, within a shorter time frame.
Finding the synergies
These are very different technologies, and yet they can augment each other. Imagine an environment where augmented or virtual reality technologies act as sensors, providing data to an AI platform, which then processes the information for continual improvement.
For example, let’s say you have hundreds of turbines at a wind farm. AI can better predict and prevent breakdowns and learns from itself to make increasingly accurate predictions. AR and VR can be used to augment that accuracy, as well as guide a local resource to perform the maintenance. We’re starting to see projects like this in our pipeline.
Devising a strategy
As we’ve seen with SaaS, business people are being bombarded by vendors, and IT is being hit up by a lot of the same people. They’re each getting different stories and conflicting information about which way they should go. There’s a lot of potential for new technologies to be applied without a cohesive strategy, ending up in silos within the organization and not delivering all the value they could.
So, part of procurement’s role is to look at the big picture and provide impartiality. Obviously, the head of IT and the chief digital officer, if there is one, should be at the table. They understand the infrastructure architecture, what the systems integration needs may be, and the roadmap, while the business best understands the problem they’re trying to solve.
Procurement can help bring the two together and balance the needs of both. They can lead an efficient, effective sourcing process, ensuring legal and regulatory compliance.
What we’ve seen so far is that when the process is run by IT, technology solutions will typically fit well with the technology roadmap of the company, but they don’t always match the priorities of the business or do the very best job of solving whatever problem it is they’re trying to address.
The reason is that these applications—especially AI--are tailored to solve very specific problems. There aren’t many generic or best of breed solutions that are going to work across multiple companies or use cases. Therefore, it’s imperative that everyone have a very deep understanding of the business requirements and make sure that offerings are carefully vetted to make sure they can meet them.
The other reason for procurement to lead is that they are often by nature somewhat risk-averse. They should meet vendor hype with a healthy amount of skepticism, positioning themselves to make the business aware of new technologies, but only after they've vetted them. They can save the business a lot of time by buffering them from incessant sales pressure.
For technologies of interest, procurement can lead a try out in a piloted environment. I’m a strong advocate of working that way, especially with cutting edge technology. You minimize your exposure, and if it works, then you have a lot of information you can use to do a smooth rollout on a larger scale.
This is right in procurement’s wheelhouse--getting IT, legal and the business together to agree on the scale and scope of a pilot, and setting up a scorecard to determine whether there’s a business case—or not. You need that kind of objective process to avoid being seduced by shiny object syndrome.
Getting out ahead
As always, the danger for procurement is finding out about these purchases at the last minute, and then they have zero influence over the process or outcome.
Now is the time to reach out to the CIO, CDO, CTO, CFO, or whoever else is involved in leading digital transformation at your organization and find out what their investment plans are.
I’ve seen studies from a couple of sources that say that 50% of enterprises will spend more on AI-driven solutions than on traditional applications by 2021. I think that figure is inflated, but these technologies are very much on people's minds. Even if ten percent of their application spend goes towards these technologies by 2021, that would still be a significant.
Most companies are not in the “innovate or die” kind of situation that salespeople often depict. There’s still plenty of time to get into the game, in a thoughtful way that ensures that these technologies really bring value to the company. The best way to do that is for procurement to take the lead in driving the process.
Sean Park is Group Practice Lead, Procurement and Strategic Sourcing at Acquis Consulting Group, an accredited Coupa implementation partner.