The mindset and capabilities required to digitize procurement
Part two of our interview with Jacob Gorm Larsen
Like every year, EFFSO organizes a CPO Round Table which gathers around 20 Chief Procurement Officers from Swedish companies. Digitalization of procurement has been a part of the agenda during the last five years. During our last CPO Round Table we had the opportunity to listen to Jacob Gorm Larsen. At the time he was responsible for Digital Procurement at Maersk, the Danish global shipping company.
Jacob took us and the audience by storm. Not only is he a thought leader on e-auctions and digital procurement in general, he is a true practitioner who knows how e-auctions work and what it takes to drive adoption successfully across a global organization.
No wonder his recent published book is called “A practical guide to e-auctions for procurement”. Already in 2010, his team did more than 1000 e-auctions. Since then, they have executed more than 10 000 e-auctions across industries and in all parts of the world. They have been using robots for more than one million tasks per year. This means more than 100 processes automated so far and growing every week.
Since then Jacob has moved on, after almost 18 years at Maersk. In December 2021, he launched Moneyball CPH, an advisory providing services within digital sourcing, e-auctions and digital transformation of procurement. To hear more about his new business and his favourite subject, how to apply technology to improve and optimize procurement processes, we decided to have a chat with Jacob. The interview resulted in two articles. The first focused on how to get started with digital procurement. Our second article is about the team and the competences you need to have in order to make it happen, and what skills set procurement will need in the future.
During 18 years you headed Digital Procurement at Maersk. What are you most proud of?
First of all it’s the team and the capability that we were able to build. The Digital Procurement team at Maersk was not only top notch in terms of understanding and applying the tools. These guys and girls were fantastic in terms of dealing with the resistance from the rest of the organization. Driving change can be a tough job and they were the ones sitting in the trenches, often taking the push-back when the colleagues in the organization felt we were pushing the transformation too hard. But we had a good team spirit and employee turnover was relatively low. Most of the people in my team were with me the entire journey – or at least 10-15 years some of them!
Then of course I am very proud of the results we achieved. We could actually see the last couple of years that the organization was changing. Any measure we put in place, we could see the transformation happening within procurement. Either in terms of automation levels, spend covered through digital solutions, number of automated POs or in terms of usage of our analytics solution, all were growing exponentially year on year. All this showed that we were moving forward and that the organization was becoming more data driven, which was really the whole purpose. What is cool about it is that when we started this journey in 2016, very few companies had done this before so there were few cases to look at and get inspiration from. We had to invent a lot of it from scratch. And I guess we must have done something good thinking of all the recognition we have received both within Maersk but also from outside the company, from the global procurement community.
Fantastic! And how did you build up your Digital Procurement team?
Out of around 600 FTEs in the whole Global Procurement organization, there were approx. 40 in my team. A few of them came from within the company but most of them were hired externally. Especially in the later years when we needed more specialized skills in for instance robotics. I mean, we didn’t have that many data scientists internally at the time…
How did you manage to attract data scientists to your procurement organization? Procurement has not always been considered especially ”sexy”.
True. But the way to pitch it, which is the way we did, is to say; “Listen, of course you can go and work for a company or a department where you become part of a team of 30-40 or maybe 50 data scientists but you will become a very small wheel in a big machinery. Or, you can join us where you can own things end-to-end. You’ll have to do all of it but you will be able to understand how these processes work, end-to-end, because you will be involved in everything”. I think this brings a huge sense of satisfaction especially if you are young and you don’t have that much experience.
But then of course, you need to offer them a good place to work where team spirit is nice etc. Also you need to have a strong mission and vision for the team. When you have all these elements in place, the offer becomes very attractive!
And what was your team’s vision?
Our vision was to fundamentally transform how procurement at Maersk was working, and we expressed this vision by stating that “there is a 50 percent automation potential” which means that automation of processes can become an accelerator for the transformation as we can transfer a lot of resources from transactional processes to more value adding tasks, thereby both increasing the impact as well as the job satisfaction of the team. This number was based on a calculation. We reviewed all the people and the high level processes and came up with a 51,2 percent automation potential but to make it easier to communicate, we rounded down to the nearest whole value.
Actually, the ambition was never to end up with 50 percent fewer people in procurement. It was all about eliminating the tedious tasks and free up time so that our people could spend more time on interesting, more strategic and more analytics based tasks. We called it conversions, and we tracked these conversions closely.
At our CPO Round Table event, you even said we will need more people in procurement, not less. What kind of people will we need in the future?
There are a couple of key skills that will be in high demand. The first one is in tech and data skills.
Today, we all master Excel more or less but in the future Excel will simply not be enough and we will have to know certain programming languages. Probably not at a very deep level because there will be data scientists on the team.
And the thing is that when you look at the classes students at universities are taking, it’s already happening! Last week, I was teaching at the University of Luxemburg where they have a Digital Procurement Programme. These students are not data scientists, they are not even supposed to be techy but they still take classes in Python and in some pretty advanced programming. In one or two years they will be the new talent coming in to procurement teams around in Europe and globally.
At Maersk we had data scientists who transformed complex processes and capabilities into algorithms. I have for instance seen them translate an actual category strategy into an algorithm. As a category leader or strategic buyer you will have to learn the language.
What about the other skills set?
The other skills set is around collaboration and innovation. These are not really new capabilities but they are becoming more critical on all levels. Firstly, externally with suppliers and collaboration partners. Procurement has always been the window to the ecosystem of suppliers, but this will be even more critical in the future with everything that is going on with the ESG-agenda (ESG, Environmental, Social and Governance). People in procurement will be working even closer with suppliers and external parties on different ESG subjects, ensuring that everything is done in accordance with good practice etc. Procurement functions that are at the forefront will have to own this collaboration.
Secondly, with these skills set you will be able to bridge the internal collaboration with other departments such as Operations, Finance, Commercial etc. Here, and more than ever, we have a fantastic opportunity as a function to show the value we can bring to the table. That is why we might very well end up with more staff in procurement, not less!
How different is it to what we have today in terms of skills set in Procurement?
The data science is definitely evolving and I don’t think that a lot of people employed in procurement today have Python skills. There are a few specialists here and there but very few have even the sort of basic understanding of it. I think this will change in three to five years from now.
On the collaboration part, it will not be very different to what we have today. But it will be so much more important because ESG is filling up more and more of the procurement agenda. So if collaboration skills set is needed today, in the future it will be critical. Up until now you could come a long way in procurement by just being the owner of cost and being really good at driving that. In just a couple of years, that won’t be enough to be a well performing procurement function.
According to you, how can procurement organizations acquire these skills?
First of all, I don’t think that the entire current procurement staff will be made redundant and replaced by new people coming in. It’s not that what we’ve previously been doing in procurement has become irrelevant, not at all. However, there will be a need for upskilling.
Not everyone will want to embark on that journey – and they’ll have to find something else to do. These are the ones who will be replaced by very specialized profiles like for example data scientists which we will see more and more in different procurement functions. But there are definitely people that can be trained and converted into new roles, as long as they have the motivation for it. That’s what we did at Maersk, and we tracked these conversions regularly. And that’s super important because if you don’t follow it up to ensure that the time that is freed up is invested in the right things, you will not see transformation happening!
So you will end up with a mix of upskilling existing staff and recruiting new profiles. And to sum this up, I think the true stars will be those that can combine these new skills with a deep understanding of procurement as a discipline and how we execute it in the specific company. If you can combine some of these it can be extremely powerful.
Lastly, tell us a about your future plans. What does Moneyball CPH do?
With my new venture, Moneyball CPH, I want to help companies that have not yet started this journey to enhance the performance of their procurement teams through data and digital solutions, to put it short. It means helping them with the strategy and the mindset but also helping them to implement it. For the simple reason that I’ve done it before and I have seen the transformation take place.
The name comes from a book by Michael Lewis called “Moneyball – the art of winning an unfair game” which is also a movie. It’s all about using data and technology to make smarter decisions. With the right insights even the smallest guy can gain an edge over big competitors…
PS: EFFSO has initiated a partnership with Moneyball CPH. We have seen that EFFSOs methodology and way of working works hand in hand with Moneyball CPHs practical experience from digitizing procurement. If you want to know how we can help you embark on this journey, just let us know.