Economic why, social why

From the August 2022 print edition

When it comes to ESG (environmental, social, and governance) success, drawing a straight line between the “economic why” and the “social why” depends on more than the understanding and awareness of that connection and its benefits.

Various ESG initiatives may hit the right buttons across a spectrum of financial and noble social benefits. Still, if it falls short on execution, you still get mediocre results. A 2021 global survey shows this, highlighting that while 81 percent of companies have a “formal ESG program,” only 50 percent believe their company “performs effectively against environmental metrics.”

A practical workstream
In 2008, one of my Procurement Insights blog readers sent me a long but thought-provoking question regarding Bill Gates’s 1999 book, Business @ The Speed of Thought. I will share their original text as it will paint a fuller picture of the thought process regarding workstream automation back then.

The member asked: “Almost 10 years ago, Bill Gates of Microsoft wrote a book titled Business @ The Speed of Thought, where he laid out his vision for how organizations should utilize technology to become more responsive, adaptive, agile, etc. Specifically, he drew an analogy between an organization’s IT infrastructure and living beings’ autonomic nervous systems. Now, reading this book over again, I’m struck by a perception that even now, most organizations still do not have the level of IT integration of which Gates speaks. So, my question(s) to you is this: Does your enterprise/organization have real-time reporting and notification of all important data?

Are you able to react and adapt in a very agile way, thanks to your IT systems? Or are you actually constrained in your ability to adapt by those very systems? Would you say your organization really has a ‘digital nervous system?’ I’m curious to see if my perception – that there will be a lot of ‘no’ answers here is really valid. Additionally, where answers are ‘no,’ I’d be interested to hear about the reasons why.”

Looking back on my answer, there are two things I will point out. First, with my answer’s references to Web 2.0 and Web 4.0, I was talking about going from static ERP-based procurement platforms to the dynamic, P2P AI or digital-era solutions now available.
The second is that I saw the amazing possibilities of today’s technology first-hand in 1998 and 1999 when, with funding from the Government of Canada’s Scientific Research & Experimental Development program, I developed one of the industry’s first algorithm-based web procurement solutions. Even though I sold the company
in 2000, I knew that experience would come in handy one day.

The digital nervous system
My Response to the question was: “I recently answered a question regarding the future of enterprise software modelling, which relates to the core elements of your question. Here is an excerpt from that answer: You are really talking about the differences between agent-based and equation-based modelling.

The latter has been the traditional model used by software developers because it attempts to quantify and therefore confine multiple strands. e.g., the attributes of diverse stakeholders into a single, definable ‘static’ stream or process. Outside of finance, equation-based modelling does not translate to other, more dynamic areas of an enterprise, such as an organization’s procurement or supply chain practice.

Agent-based modelling, which has been around for approximately 15 years, first seeks to understand the unique operating attributes of diverse stakeholders. Once understood, it then attempts to link these seemingly disparate attributes through the utilization of advanced algorithms to produce a reliable, real-world ‘collaborative’ outcome that results in a tangible benefit on a real-time basis.

To a degree, Web 2.0 represents the natural evolution of the agent-based model (development efforts are well underway in defining a viable Web 4.0 model).
However, because many vendors such as Oracle, SAP and Ariba have made a substantial investment in their equation-based models, their efforts are more focused on bridging the synchronization chasm through the introduction of the somewhat passive service-oriented architectures (SOA).

Even Oracle’s Larry Ellison admits that the best they can hope to achieve is a ‘near real-time’ capability through this strategy. And near real-time is not indicative of the true synchronized architectural requirements of a dynamic, agile enterprise.

For this reason, the many organizations that have made an equally substantial investment in their current ERP platforms are ‘stuck’ in terms of working within what
is quickly becoming an antiquated framework. And it is for these reasons that, for more organizations, the answer to your question would have to be no.”

Near real time is still not enough
Here is why today’s P2P (Web 4.0) technology is critical to achieving your ESG objectives. To start, “the complexity of ratings and multiple frameworks (GRI, SASB, ISI 2600)” makes monitoring performance across a global supply base difficult.
Today’s P2P solutions’ ability to synthesize these ratings and multiple frameworks to assess and measure supplier adherence is critical to ESG success while enabling the procurement team to focus on improving the supply base instead of managing a scoring model.

Of course, the above all depends on organizations having reliable access to clean data – but that’s another topic.

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.