Digitization versus digitalization

From the April 2023 print edition

I remember the early days of industry-specific apps built on the MAI Basic Four. The early days of Oracle and SAP and their acquisitions and assimilation of competing platforms, as well as their mantra of “we don’t get out of bed for any project less than $1 million.”

Microsoft‘s interest in acquiring SAP (The Mendocino Project); and the high rate of ERP initiative failures, for example the Veterans Health Administration Bay Pines incident and the FoxMeyer drugstore chain collapse; the emergence of the on-demand SaaS model solutions implemented at a low cost in months or weeks versus years. Why am I sharing this history? Because it’s time we stopped pursuing the “digitization dream.”

Jon Hansen is editor and lead writer for the Procurement Insights Blog and was host of the PI Window on The World Show on Blog Talk Radio.

I could write a paper on the high rate of e-procurement initiative failures. However, I’ll talk about the few successes to explain why we have to stop thinking about digitization and focus on digitalization.

An exception, the Commonwealth of Virginia’s eVA initiative, is an excellent place to start. eVA’s success wasn’t based on its focus on one suite or best-of-breed technologies, but its procurement leadership taking ownership of its progressive integration. Or, as the top Virginia execs put it, they would have and continue to have success with any technology.

Assistant VP of strategic sourcing and acquisition services at the University of Maryland, Baltimore Keith Gagnon, provides his take. Gagnon held senior executive positions in Virginia procurement at the state, higher-ed, and county levels.

“Stakeholder buy-in is one of those reasons,” he says. “From the beginning, there was internal buy-in from the top down—from the Governor’s Office to agency heads, procurement directors, and agency staff. This internal buy-in and advocacy lead to external buy-in from vendors and the public. Another reason is that eVA’s tools and the data they gather are accessible and actionable. Buyers and suppliers can easily access a wealth of data on past and present procurements to aid them with their current work and inform them.”

One thing that impresses me regarding the stakeholder buy-in with Virginia is that over 20 years, there have been many personnel changes, including the Governor’s Office. Yet, eVA seems to be in the Commonwealth’s DNA. They prioritized people’s buy-in by understanding what they needed to do to achieve their objectives, established the best processes, and adapted technology to align with these two elements versus having people and processes adapt to the technology.

People, process, technology
Technology is evolving into an intuitive extension and an extended partner to the human interface. We are focusing on processes that are augmented or assisted by technology instead of being defined by it. Unfortunately, many still look to technology to improve their processes rather than the other way around. I call this the “technology-process-people” approach to automation – which is a form of digitization.

Alternatively, some have modified the approach by focusing on “process-technology-people.” It seems like the ideal approach because you establish the process before seeking the technology to automate it. This is called equation- based modelling. However, it is still digitization – and you have seen its success rate in the past.

So let’s revisit the Commonwealth of Virginia’s success, where the state used the people-process-technology framework, or agent-based model, to digitalize (not digitize) their procurement practice.

A cultural imperative
In a 2007 interview, the director of the eProcurement Bureau for the Commonwealth of Virginia, Bob Sievert – who has since become CIO for the National Association of State Procurement Officials (NASPO) – got my attention when he said, “that government is not just a “single business,” but is actually comprised of many different lines of business.”

He also expanded on his “single business” comment. According to Bob, the recognition on the part of Virginia that government goes beyond an org chart that includes higher education, K-12, corrections, public safety, transportation, health, social services and construction and so on, meant that they understood the “special needs, special rules and special challenges” associated with the procurement practice of each entity, both individually and collectively.

What this meant is that eVA didn’t fall into the cost justification trap of becoming an enterprise “software” or digitization project. Its success came from understanding the unique requirements (or operating attributes) at the departmental or people level. They made eVA a cultural versus technology imperative.

I’d like to discuss clean data in the context of digitalization. Rob Handfield is the Bank of America University distinguished professor of supply chain management at the North Carolina State University Poole College of Management and executive director and founder of the Supply Chain Resource Cooperative based in Poole College.

In the conversations I’ve had with Rob, there’s a common theme: the digital transformation, for example, digitalization of procurement, is impossible without “clean data.”

Here is the tie-in to culture and digitalization versus digitization; regarding clean data, 95 per cent of executives identify “organizational and process challenges as the primary obstacles impeding the adoption of big data and AI initiatives.” So the problem with “accessing and using quality data to its full potential is a people and process issue,” not a technology issue.

According to the May 2021 article Getting beyond the Twilight Zone of data uncertainty, creating a data (and digital) culture “is an essential cornerstone for laying a solid data (and procurement) practice foundation.” Based on the above, are you digitizing or digitalizing your organization’s procurement practice?