EP 017: Stop Buying Technology. Start Changing the Operating Model W/ Mason Morgan

0:00Music

0:15And today on the show I'm delighted to be joined by Mason Morgan. Mason and I, we first worked together when Mason joined us at Catalyst LA and he will be on a judging panel for the 2027 ProcureTech 100. Today, Mason is a Managing Director at Cross Country Consulting. Mason, welcome to the show. Thanks for having me, Phil. Nice to see you again. Likewise. And I'll ask the question I always ask at the start, which is, did you find procurement or did procurement find you? I'd have to say that I found procurement. I considered, you know, during college and prior in my early days, like a lot of people, I didn't really know what I wanted to do.

0:53I considered a number of career paths, but then it was after grad school, I realized I was most interested in operations. So I began my consulting career more broadly in supply chain. So doing supply chain and execution downstream supply chain work. And then kind of gradually over time, I focused more and more on procurement by choice. And what pulled me in is that procurement to me sits at this really interesting intersection of finance and physical operations, technology, of course, risk, but also human behavior. So there's this interesting mix of art and science that I like, and it's kept me engaged as procurement has changed quite a bit over the last 15 or so years that I've focused on it.

1:36Well, with this podcast being the Procuretic Insider, we're definitely going to anchor around procurement technology. And procurement technology has definitely matured significantly over the last decade or so. Why do you think, just from the experience that you have that so many organizations actually still struggle to realize the value that they expected from these investments they've made over the last decade or so in procurement technology? I think a lot of failed technology ROI is still because, and I say still because I think this has been a dynamic that I've seen for a while, is that companies still approach technology programs as tech only implementations, right?

2:20So companies have these existing policies, legacy policies, you know, issues with fragmented ownership, lack of standardization and process, lots of local exceptions. They have, you know, data knowledge lives across all types of unstructured data. And none of this has served that these companies particularly well, and then they say, okay, well, we're going to implement technology and that's going to be a panacea that's somehow going to paper over all of those in a broader operating model elements without changing any of them, while keeping them in place. And so to get the highest ROI and sustain it over time, companies really need to treat programs as operating model changes that have tech as a component, albeit an important one.

3:10I would argue an increasingly important one. So that means to some degree they're going to need to adjust, make some adjustments to roles, governance structures, you know, decision rights, process ownerships, how procurement services are delivered to the business and not just implementing the software. where there's also, I think everyone acknowledges the fact change management is important as well. Anytime you're rolling out a new technology, but I think there's a procurement specific adoption challenge that's pretty unique relative to other functional areas, especially when you talk about transactional procurative pay.

3:49So an indirect procurement where the ROI depends heavily on business adoption. yet there's this dynamic where every employee is a consumer in their personal life so they have very high expectations for for usability what the experience is going to be like so if it's cumbersome people are going to circumvent you know using the new procurement technology so you're going to lose that demand signal you're going to not capture you're going to fail to capture key details until it's too late and you know the business case is going to start to collapse do you think that it's uh even possible because we've talked for years and years and years about the buying experience and trying to make the buying experience easier and more like a personal buying experience is that a a false goal with all the levels of governance and um controls that we have to put in place or is it just a matter of you know we haven't had the technology that enables it so far so it's more of a technology issue than it is a uh you know this is just more complex than going buying something online for yourself personally?

4:53I think it is more, it should still be the goal and it's more possible now with the technology that's available today. It's still a worthwhile aspiration for companies to try and create a set of conditions and provide the tools so that it's actually the easiest path is for people to provide that information sooner rather than later. And you can do that, right, by relying more on, you know, applying AI to look at broader context and unstructured and structured data sources so that you're only asking that person to provide the absolute minimum of what they need to provide. And a lot of it can come from information that's needed comes from elsewhere.

5:36You talked about digitizing procurement, you know, increasingly being about the operating model. And that's something that we definitely believe in. You know, technology is an increasing and ever-increasing part of procurement operating model. But do you see that actually playing out on the ground in transformations that are taking place right now? It is actually, let's think about our operating model and then the technology supports it versus it just being, hey, what's the latest technology and let's try and implement it around our existing processes, our existing operating model.

6:15I think that you do see, well, I see a lot of companies and clients who are willing to look at the broad operating model changes. and they recognize that, at least on the surface, right, except that, okay, it's not just technology, but we need to look at all the processes, including maybe parts of the process that are going to be executed outside of the technology, how we structure ourselves, what do the RACEs look like, how are we defining the roles, are we upscaling our team, all of that. I think, and so some companies are certainly approaching it that way with, again, technology just as one element of the broader operating model and the design implementation of that being done in coordination with all these other elements.

7:14I think where it gets really hard is when you talk about when companies focus, go beyond to, again, the transactional procurement and start trying to engage in the upstream call-called strategic procurement, right, which requires, typically requires a more fundamental shift in decision rights and, frankly, a permission structure, right, that has to be, has to come from the highest levels of the company to say, okay, this is how we're going to work with procurement and here's, here is the, the role procurement is going to play, kind of the decision rights it's going to hold over these types of categories versus others.

7:52That's where it really gets more challenging. And I think that's where the biggest distinction is between the companies that really go all in and redesigning and upgrading their broader procurement operating models. It's really, are you looking at the full strategic procurement piece as well as transactional procurement? Are you really focusing more on a transactional source debate. Yeah. Now, just in the context of AI, and obviously we can't have any conversation without talking deeply about AI given its impact on procurement right now, a lot of people who are listening will be at different stages of readiness in terms of maturity in terms of how they're using AI.

8:35What have you seen that actually separates those that are truly creating value from their AI investments versus those that are perhaps still at the experimentation stage? Mm-hmm. There's a few key characteristics I see for companies that are finding success with AI. So the first difference is organizations that have created demonstrable value, they're starting with a business outcome, not with AI. And I realize that's not a novel idea, but having said that, there's still a lot of companies that I think are still too focused on AI for the sake of AI. So the companies that have success have that discipline around identifying which value levers they care about, quantifying the baseline, and then defining some use cases, right, that they could deploy against them and kind of measuring the outcome.

9:26The other attribute I see is that companies that are making more progress in this realm, accept that technology is going to keep moving. Some companies get paralyzed, It's waiting for the perfect architecture, the next model to come along. And the ones that are successful recognize there's always going to be a gap between where the frontier is and where they are. So they're making disciplined bets and they're diligent about redirecting or stopping their efforts, their pilots, if they're not producing value. because the reality is for most companies, if they could just harness what was the frontier of AI as of a year ago or probably two years ago, that still represents a step change, you know, improvement for them.

10:13And then companies, the other piece too, is I would say that I see companies that are doing well, they're taking a portfolio approach. And I like the barbell version of it. So I call it the ball version. And so on one end, small targeted use cases, right, that can prove value quickly, especially ones that involve, think about who the most ardent skeptics are, right, kind of key stakeholders where you want to make bigger changes to involve them in those smaller ones. And then in parallel, you undertake some bigger bets, right, that are going to, you know, more materially change how, you know, work gets done.

10:47And so the quick wins build the credibility and, you know, momentum and then the big bets. That's where your durable upside comes from. I think it's really interesting what you say about the acceptance that technology is going to keep moving. Because I do see and hear a lot of teams are afraid of that. Those that accept it, do they plan for, I don't know the best way of putting it, rapid obsolescence of what they're doing? That they recognize it's going to change and actually they're already planning. Even when they're implementing one generation, they've already got the next generation in mind.

11:23or, you know, because I'm sure it's easy to go and implement and then set it, forget it, and then three years later you're coming back and the world has changed greatly. It's also dangerous, well, not dangerous. It's also possible that you want to just continue to always be the frontier. So you actually never achieve what you're trying to achieve because you're always trying to upgrade it as the technology around you increases. How are you seeing organizations kind of balance those two things?

11:54I think so. I don't you see companies undertake it in a way such that they they are conscious of maintaining optionality. Right. And the design design decisions you make in the architectural decisions you make. So I think, you know, especially if you talk about most big enterprises, that means that they are, when you look at AI, they're deploying AI, you know, agents or use cases across a mix of archetypes. Meaning one is, okay, they already, they have existing technology, right? SaaS technology that maybe has some new AI features, kind of a no regret move to adopt those. but then they're building out their own bespoke AI stack that's going to give them maximum flexibility to build out their own use cases and to kind of expand across systems and across functions and building the capability to plug into different models and adopting integration structures like MCP.

13:05right what's your sense as we think about how this ultimately impacts the role of procurement what i mean by that is we spent a long time trying to become more strategic we've been talking about becoming more strategic certainly since i sat in procurement 25 odd years ago i look at technology implementations of the past and they've often focused on efficiency and transactional efficiency not necessarily how can we as a procurement organization create more value for the business. You talked about starting with use cases in terms of understanding the challenges or opportunities that the business has.

13:40How do we break free or do you see that the next generation of technology or technological change, as we're seeing around AI, is going to just simply be another way of making transactions faster versus changing the value proposition that procurement can offer to the business?

14:01I think, yeah, look, I think for a lot of companies have already made reasonably good inroads when it comes to automating transactions, right? When you talk about true rules-based, deterministic automation, and that's great because it does make transactional work more efficient and it creates, it frees up capacity. The real question is, and the real value comes from deliberate reallocation of that capacity towards higher value work. So I still think, back to what I was referring to earlier with the hard part being the strategic procurement piece and upstream engagement, I think that there's still a significant, the next frontier of value, right?

14:53procurement thinks about okay we've we've automated transactions so now we want to apply ai to help us make smarter decisions and introduce a whole new set of of capabilities within the strategic strategic procurement realm there's two primary extension planes still right that are available for most companies to take advantage of uh you know the first is deeper integration with the business and the functions that procurement supports. So that means really understanding what the business does, its products, its customers, its financials, operating constraints at a greater level of detail than your typical category team does today.

15:35And that's what allows you to collaborate on demand management, specs, support make versus buy decisions, help them understand the TCO implications of different product design choices, you know, support budgeting. It's like a whole nother realm that, again, most procurement organizations don't fully engage in today, if at all. And then the other is supplier integration. So moving beyond just working with suppliers on sourcing events and onboarding them and collaborating on POs and, you know, monitoring SLAs to actually, in a very intentional way, working with them on joint cost reductions, co-developing products and services, et cetera.

16:18Things that actually generate, could potentially generate revenue, right? And not just cut costs. Yeah, and that revenue generation, I think has been our holy grail, hasn't it? For so many years to try and transform how funds are allocated to procurement within a business versus allocated to sales or marketing or other areas that are seen as being more traditionally revenue generators where procurement hasn't been. When you think about that journey, what does that mean for skills? Like what needs to be true from a skillset perspective to be able to enable that? So there are some changes, I think that apply to almost everyone in procurement from a skills standpoint.

16:57So historically value came from drawing on accumulated expertise, right? To provide the best answer at the highest levels. Increasingly, it's going to come from formulating the right hypothesis, right? Asking the right questions and using systems and design thinking to codify and support work in AI. I think, and even table stakes skills, like we want people who pay attention to detail, good attention to detail, right? Which is really, you can argue more of a behavior, I guess, than a skill. But you think about even that changes in the AI world, right? Where you need to actually be able to review AI-generated content that's right 98 % of the time, but still requires judgment to catch the 2%, right?

17:40I think, so that's when you really start to think about the implications, it is, and you look at kind of skills and behaviors, there's some general shifts that I think are gonna be needed across the board. But when you look at role types too, I think it gets even, the changes are even more fundamental, right? So take category managers, for example. So yes, category managers are gonna need to have category and technical knowledge, but that AI makes up, you know, the much larger body of accumulated knowledge, obviously easier to access. So the differentiator is more around nuanced contextual judgment, being able to connect procurement decisions to business outcomes.

18:22So this means, so what does this mean? I would call the skill business acumen that has to be built. So, you know, I alluded to this before is, do you really understand in and out how that business unit or function you're supporting operates? operates almost to the point at which you could operate within inside of it. And so then you layer on that, you know, commercial judgment, are you able to frame up problems, interpret data? Everyone needs to have some base level of AI fluency, right, in terms of understanding how these systems work. So I think really, you know, AI makes the answers cheaper.

18:56So it's the good questions and good judgment. It's really become the coin of the realm. that that critical thinking you know when you're hit with a wall of answer ai generated answers it's easy to scroll past it and think yeah that direction looks okay without necessarily going into the weeds and and i often think that um uh you know when you think about it from a category management perspective and using ai as a support assistant to build a category strategy it's it's so uh for somebody who already understands the category that's so powerful for somebody that doesn't necessarily understand the category that can be really dangerous because it's that difference between being able to understand and spot the nuances where some of the interpretations are not quite um uh you know real world if you will and can't be put in front of a supplier during a negotiation or in front of a stakeholder and presented as fact whereas if you don't necessarily understand the category entirely um or don't have that critical thinking you're going to miss those things which means the moment you present them you will probably be left out of the room um and you know lose credibility right well i think that i i totally agree and i think that that supports the argument that around expertise still mattering as much if not more so than other because anybody can generate a roughly credible um answer to pretty much any question right at this point so it's it's really being able to understand you know the nuances um how do you know when it's time to actually redesign the process rather than just simply adding a layer of technology on top of it

20:34a simple to me a simple test is if we were creating the starting creating the company or at least our function today with today's technology would we want this process right what we need this process? And if the answer is no, then you want to be very, obviously, take a hard look at of, you know, avoiding falling into that trap of just trying to automate or digitize something as is and really ask some fundamental questions around, do, can we scrap this process entirely, or does it fundamentally need to be changed, meaning, you know, steps removed, redefined, and so on. The other thing to look at too is to take a close look at exceptions for the process, especially in the procurative pay space, but just in general, right?

21:32If the adherence to the prescribed process is low, right? And there's a lot of workarounds, a lot of special approvals needed there's a lot of offline work happen you know that's diagnostic data right it's not just annoyances so you really want to that's a good sign that that that process just needs to be you know fundamentally changed if not scrapped yeah entirely it's funny i see and hear you hear about rogue spend a lot and that's one of those processes that um as a when i was uh you know So earlier in my career as a practitioner, I would think about that and think, well, the business is trying to do their own thing and they're not following the process.

22:14And that it's a business problem, not a procurement problem. I think with maturing, I realized actually that's a procurement problem because they're going and buying things in their own channels because procurement doesn't make it easy for them to get what they need or how they need it. And it's things like that where you look at, as you say, perhaps exceptions to the policy or are people not following policy and thinking of that as being a process issue rather than a stakeholder problem. Yeah, absolutely. I think procurement always needs to take the perspective of it's not you, it's me, right?

22:47How I can do, you know, providing the right set of guardrails, tools, and support, right, so that people are able to, so that the right way to do it is the easiest way. I'm not saying that there shouldn't sometimes be tension in the process because that's part of what we do as well. But there are good places to start when you're looking at where to redesign process. Talking about processes, we obviously hear a lot, we cover a lot about procurement orchestration. We talk a lot about enterprise workflows and how that's starting to enable a lot more cross-functional collaboration. I just wonder if you think about, let's fast forward that into procurement's future.

23:33Does procurement become less about owning every step of a process? And we've kind of tried to get our arms around it as part of, as we shift up the maturity model in the past. And it's more about just coordinating work across the business. Yeah. Yes. I think, to me, there's a distinction between ownership and influence, right? And I think procurement actually has to probably give up some ownership to gain more influence and actually have more of a tangible impact in general for the typical procurement organization. So, you know, historically, not just procurement, but all functions, right? You demonstrate your importance by owning a process, right?

24:13So procurement sourcing, legal loans, contracts, finance loans, controls, et cetera. But at the end of the day, at the enterprise level, the business doesn't care who owns which each step. He cares about outcomes, getting what they need quickly and are the best possible commercial terms. So I think I alluded to this a minute ago. I think procurement's role increasingly becomes about designing the rails and the delivery mechanisms of policies, guardrails, providing an intelligence, supporting AI. so that a human is only intervening where commercial judgment is going to create disproportionate value.

24:57Otherwise, it just runs on its own without direct procurement intervention. So the goal shouldn't be to touch more transactions. It's to have more spend that's well governed with less procurement intervention. And I think to me, there's even bigger implication. If I start thinking a little bit even farther ahead, I think most people imagine a future when they imagine that they imagine the future of their function, the functional boundaries remain intact. Right. So what is AI enabled procurement function going to look like? What's AI enabled finance risk legal? I don't think this is necessarily where we're going to end up.

25:39I think the number and shape of functions in a typical company or in some ways are artifacts of a world where you had a lot more manual work. There's unstructured information that was trapped in documents and repositories that only two people could access or in people's heads. You had localized expertise. So if you think about the promise of AI, what it should be able to do, it's to lower those information and coordination costs. So I think we could start to see the emergence of fewer broader functions organized around a broader set of outcomes and relationships. So if I take that premise and I think about, well, okay, what does that mean for procurement?

26:20To me, I start thinking about this function or mega function that is something akin to like an office of third party management, right? So because the same company can be a supplier, a customer, can be a partner, a competitor, a regulator, some combination. So today that relationship is super fragmented, right? I mean, your typical supplier will say, you know, I have a lot of companies will say I have seven relationships with your organization. So over time, I can see that becoming more integrated capability, right, where you're looking at the full economics of that relationship, the strategic value, you're managing risk, you know, more holistically.

26:59And I think you're starting to see around the margins, at least like some indications of movement sort of that. if you see like procurement is more and more taking on at least partial ownership right of tprm you know as one example so to me that's an interesting i mean it's just a theory at this point i would say um but to me it's a kind of a logical um instate where things are going over the longer term it feels like that's a um you know you see these some of these organizations who are making big sweeping pronouncements about how they're integrating AI into their operating model, how they're changing the structure of their organization.

27:44And we need to kind of, there'll be a lot of people watching to see whether these are successful or not, whether they need to rehire a lot of people, whether they need to bring some of the silos back, or whether that's an operating model that sticks before others then start to lean into it. And, you know, it requires people to lean in, I think, at the CEO perspective. It's a top-down because there's so much politics involved in it. But from a conceptual perspective, you can absolutely see why do you need all these silos. And then where does expertise sit? You know, does expertise sit in pods, you know, that would previously have been in different organizations or different functional areas where they can come together?

28:23Right. Yeah, and the movement towards what I'm describing as major functions doesn't necessarily mean an aggregate. it's necessarily that much smaller or fewer it's it's just organized differently right so if you think about you know the age-old problem with procurement is cross-functional collaboration well one way to make it easier is to have fewer functions right yep um so i've got a couple of questions left and then uh then we need to wrap up for today but one of them is i just want to talk about you'll be talking then about c-suite for those execs that are outside procurements and these are often the people ultimately who are signing the checks for investments in procurement technology do you find that they have any particular misconceptions about procurement tech that perhaps inhibits their their motivation to fund investment by procurement in tech

29:22I think it varies quite a bit depending on the, obviously, the particular background of the executives and the degree to which they've worked with procurement in the past or not. But in general, I think there are two that come to mind. So one is that procurement technology is primarily about making just procurement more productive. The other two is I think your typical executive, would you say procurement technology, they're going to basically think that means P2P, right? They're going to be thinking about transactional procurement. And so I think both views are too narrow, right? So the P2P, you know, obviously focus misses the fact that there's a lot of growing set of tools out there.

30:10it seems like this actually may be an area outside of P2P where there's the most growth, right, in terms of the number of solutions available and the capabilities of tools that can provide procurement intelligence directly to business leaders or help identify sourcing and savings opportunities that would be directly, you know, accretive to their P &Ls or to better collaborate with suppliers that, for which they're the primary stakeholder, right? So I think that's one big area. And then I think, you know, to the point about just focusing on procurement productivity, I don't think a lot of, again, especially at the the most senior levels of the organization realize how much time their teams in the business spend on procurement related processes.

31:04Right. And so this comes out time and again, when I've done baseline, you know, surveys of, of business users, as well as when procurement teams about how, how they're, how, how, and where, how much time they're spending and, and where. And so I, I think they underestimate the value to their teams of what, you know, latest and greatest procurement technology can provide. I think that's hard to change the hearts and minds for that too, because my experience is usually that is relayed back to executive leadership as being a procurement process problem, not a procurement technology problem. And so there is sometimes skepticism that, you know, if procurement has designed these processes that are so difficult for are people in the business to use, how can I trust procurement to fix it with investment in technology?

31:52And that sometimes, at least that I've seen in transformations, makes people a little bit more shy on pulling the trigger. So there's something to be said for the story that procurement needs to get out in front of about perhaps why technology limitations are the cause of process difficulties that teams may have and that it is a technology that is something that can be solved with technology and process change. It's not because procurement is just trying to make life difficult for everybody. Right. Absolutely. And then the final question, just to wrap up, is I think a lot of the procurement leaders that we talked to today, there are so many different directions that they can go on in terms of transformation right now, but they don't have the money to fund it all.

32:37and so they have to place bets in certain spaces. I know this is a difficult question because everyone's at a different level of maturity, but is there any advice you'd give to a CPO who's just got budget for one transformation initiative over the last 18 months? Where should they be putting their chips in the short term? I know the premise of your question is if you had to pick one, but my answer would be don't pick one to actually take whatever budget you have allocated to you over that 18 month window. And you can treat it as one, you know, macro initiative or effort that is broken up into phases.

33:15Because I just don't think you can undertake a big project that consumes a bunch of, you know, a lot of resources and time from various stakeholders for the big reveal at the end. It's just too long to wait for evidence that things are moving, given how quickly things are moving. So I would first run, you know, over the first 60 to 90 days, a small number of targeted AI pilots tied to measurable value. Just as I described earlier when I was talking about the portfolio approach. So, and these shouldn't be random demos, ones that are going to deliver or have a high probability of delivering tangible value.

33:55So like common ones I see are ones that address leakage, right? so contract to you know p and invoice leakage detection you know intake classification and routing um you know ai use cases or agents that assemble uh information and fact fact bases that are needed to go quickly runs you know sourcing events those are a few that i would i would suggest you know be considered um for that first bucket and then you set a baseline you know measure the results, as I mentioned before, and then if they don't work, then you move on quickly. If they do, track the results, right? So that you have the story, the fact-based story to tell, to justify the next one.

34:41And then over the next three to six months, I would think in terms of, okay, now let's shift the focus. We built presumably the permission structure and credibility to move to a more visible end to end lighthouse process. So pick something that matters to the business. There's meaningful manual effort today and friction, a lot of stakeholders involved in, you can, but you can fix it without reorganizing, you know, half of the company. And then, and then I, you know, after that, if you think about the last, part of your 18 months that's been allotted to you the last six months or so, you use that credibility and capacity to move upstream into that deeper business integration, demand and spec management, category and commercial strategy, the supplier innovation, the harder strategic procurement areas, as I alluded to before.

35:38But you have to set the stage to get the permission to go do that. Yeah. I think that permission structure is really important just to take away because I know I would always look and think, oh, I don't really want to do P2P stuff or I don't want to do transactional stuff. I want to be involved in the category of management and where the big decisions are made and where I feel I can have biggest impact. But the perception, the data perception of procurement is formed at that transactional level. And if you can't get that right, then as you say, you don't necessarily get permission to work on the things that are more strategic.

36:15Right. Yeah. I've been in the room many times where we presented the idea and the benefits to the business of, hey, let's go through and define the governance by category and what the strategic categories are going to be. And that means we're going to take the lead on developing a category strategy and we're going to run global events. And they say, that's great, but what about these suppliers that we haven't paid that are blowing up my phone? We got to go fix that first before we and move into the more exciting stuff. Mason, I want to thank you so much for joining me on the podcast today. What I'll do is we'll include a link to your LinkedIn profile on the show notes for today's episode.

36:55Those will be at procurement.com, and then you'll see a specific section of Procuratech Insider Podcasts. This will be in there, and your LinkedIn profile will be within the show notes for today's episode. So I appreciate you joining me and sharing some of your experiences with us today. Thanks, Phil, for having me. I've enjoyed it. Take care. Thank you. Thanks for listening to this episode of ProcureTech Insider. If you found this conversation valuable, you can subscribe to our ProcureTech specific newsletter, The Stack. Every Thursday, you'll get intelligence on ProcureTech companies, market developments, and insights from practitioners delivered right to your inbox.

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