IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 70, NO.

12, DECEMBER 2023 4175

Procurement 4.0: How Industrial Customers

Transform Procurement Processes to Capitalize
on Digital Servitization
David Sjödin , Anmar Kamalaldin , Vinit Parida , and Nazrul Islam

Abstract—The rapid development of digital technologies can offerings. This is a key challenge for procurement, to facilitate this
revolutionize industrial companies’ operations through the pro- collaboration and to find ways of strengthening our competitiveness
curement and application of digital solutions following a logic of through supplier contributions.”
digital servitization. However, industrial customers must refine (Chief procurement officer of a mining company)
their internal processes to exploit the potential servitization. In this
transition, the procurement organization is pivotal in orchestrating
IGITALIZATION is a fundamental disruptive force of the
relationships between its internal functions and supplier’s ecosys-
tems. Yet, traditional procurement processes are poorly suited to
the evaluation and procurement of digital servitization offerings,
D fourth industrial revolution (Industry 4.0) that is revolu-
tionizing the way business is conducted in industrial value chains
hampering value cocreation between suppliers and customers. The [1]–[3]. In this new age, the industry is becoming increasingly
purpose of this article is to investigate how procurement process “smart” by using the Internet of Things (IoT), intensive data
models can be adapted to address the opportunities and challenges exchange, and predictive analytics [4]. However, the defini-
of digital servitization for industrial customers. The investigation
is based on a case-study design, drawing on data collected through tion of digitalization extends beyond technological applications.
in-depth interviews with informants from 11 leading customers and Specifically, digitalization is “the use of digital technologies to
8 global suppliers. Based on the data analysis following the Gioia innovate a business model and provide new revenue streams
methodology, in this article, we describe key challenges with the and value-producing opportunities in industrial ecosystems” [5].
traditional approach and identify novel procurement practices to While this transformation is often discussed from the supplier
capture value from digitalization. The article’s key contribution side in terms of business model innovation through digitally
is to propose a process model for Procurement 4.0, highlighting
enabled products and services, the shift is equally important for
four phases: mapping digital opportunities, selecting digitalization
partners, codeveloping digital solution contracts, and promoting their industrial customers who will use these offerings in their
continuous digital innovation. Furthermore, we define three over- operations [6], [7]. The opportunities for industrial customers
arching principles for procurement 4.0: nurture digital ecosystem are vast; automation and optimization of processes can im-
generativity, orchestrate cross-functional integration, and leverage prove productivity and profitability by saving costs, accelerating
supplier capabilities through agile cocreation. production, and reducing errors while providing environmental
Index Terms—Advanced services, digital servitization, digital and safety advantages [5], [8]–[10]. To exploit these benefits,
solutions, digital transformation, digitalization, ecosystem, industrial customers must develop their capacity of acquiring
Industry 4.0, Procurement 4.0. and seamlessly implementing digital solutions, such as fleet
and site management and digital platforms. However, there is
increasing evidence that large-scale digital solutions procure-
I. INTRODUCTION ment by industrial customers is lagging in uptake, and existing
“Digitalization is a transformative force for our industry, and we examples often fail to realize their promised potential [11].
realize that we cannot do it alone. We need to find better ways of work- Thus, there is a need to further understand the challenges
ing together with our suppliers to drive innovation in the selection, and to enable practices for the procurement of digital solutions
design, and implementation of new types of digitalization-enabled [6]. In fact, it is increasingly clear that customers’ procurement
organizations are pivotal in orchestrating relationships between
Manuscript received 14 March 2021; revised 25 June 2021; accepted 13 their internal functions and suppliers to ensure the creation
August 2021. Date of publication 8 October 2021; date of current version and capture of value from digital offerings for themselves and
14 September 2023. This work was supported in part by Vinnova, PiiA, and
Formas Sweden. Review of this manuscript was arranged by Department Editor
their ecosystem of suppliers. However, this is not easy because
L. Santiago. (Corresponding author: Nazrul Islam.) procuring digital solutions requires a radical shift in customers’
David Sjödin and Vinit Parida are with the Luleå University of Technology, business and procurement logic. For example, digital solutions
971 87 Luleå, Sweden, and also with the University of South-Eastern Norway, are more intangible and uncertain and may require alternative
3679 Notodden, Norway (e-mail: [email protected]; [email protected]).
Anmar Kamalaldin is with the Luleå University of Technology, 971 87 Luleå, ways of designing, customizing, evaluating, and implementing
Sweden (e-mail: [email protected]). such offerings within the supplier–customer relationship [12].
Nazrul Islam is with the University of Exeter Business School, EX4 4PU Indeed, many suppliers now offer complex digitally enabled
Exeter, U.K. (e-mail: [email protected]).
product-service-software systems targeting customer outcomes
Color versions of one or more figures in this article are available at
https://doi.org/10.1109/TEM.2021.3110424. [13], [14]. Similarly, data-driven artificial intelligence solutions
Digital Object Identifier 10.1109/TEM.2021.3110424 use operational data mining and analytics to suggest how best to

0018-9391 © 2021 IEEE. Personal use is permitted, but republication/redistribution requires IEEE permission.
See https://www.ieee.org/publications/rights/index.html for more information.

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 4176 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 70, NO. 12, DECEMBER 2023

optimize the use of not only single pieces of equipment but also for the successful procurement of digital solutions. Indeed,
entire fleets and production lines [5], [15]. These new trends in most research has focused on the supplier perspective [5], [16],
suppliers’ offerings have been described as digital servitization, whereas current knowledge of how customers engage in procur-
which refers to “the transition to smart product-service-software ing and implementing digital solutions remains in its nascent
systems that enable value creation and capture through mon- phase [6]. Consequently, there is a need to further investigate
itoring, control, optimization, or autonomous function” [13]. how traditional transaction-based procurement models [24], [26]
Thus, fostering and exploiting digital service offerings require can be adapted by firms to effectively orchestrate internal and
novel processes to procure new types of offering and to define supplier relationships so that digitalization creates and captures
how value is created, delivered, and captured by suppliers and value for themselves and their ecosystem of suppliers.
customers [16], [17] in a way that departs from the standard In targeting these gaps in knowledge, the purpose of this
procurement process [18]. article is to investigate how procurement process models can
We argue that traditional transactional procurement models be adapted to address the opportunities and challenges of digital
act as an increasing constraint on procuring complex product- servitization for industrial customers. To fulfil this purpose, our
service-software systems [6], [13]. The alternative is to create article draws on the rich case-study data from 11 industrial
new processes for procurement (Procurement 4.0) that can bet- customers and 8 suppliers who are leading adopters of digital
ter support the agile relational orientation needed to support servitization in their industries.
the digital transformation of industrial companies. Building on Our findings offer several contributions to theory and prac-
emergent industrial discussions [19]–[21], we define Procure- tice in digital servitization and industrial procurement. First,
ment 4.0 as a procurement approach to optimize supply chain we identify three key industrial customer challenges related to
efficiency, agility, and innovation through digitalization by fo- procuring digital innovations: evaluating the value of digital
cusing on strategically orchestrating relationships between vari- solutions, prioritizing digital investment across organizational
ous internal functions and suppliers’ ecosystems. This definition silos, and incentivizing supplier-driven digital innovation. Sec-
acknowledges the strategic role of procurement in digitalization ond, we further classify the blueprint of a revised four-phase
by driving new value propositions from suppliers, meeting new process model for Procurement 4.0 in digital servitization,
business needs in internal functions, and, more importantly, extending the traditional perspective [24]. We detail how the
seeking the integration of data across internal functions and process unfolds over four phases: mapping digital opportunities,
the industrial ecosystem [19]. However, several knowledge gaps selecting digitalization partners, codeveloping digital solution
remain concerning how industrial customer organizations can contracts, and promoting continuous digital innovation. Thus,
successfully transform their procurement practices to earn ben- we complement existing studies on the procurement process
efits from digital servitization. (e.g., [24]) and provide additional contingencies for digital
First, there is a need to understand the challenges of procure- servitization (e.g., [6], [27]). Third, we summarize our findings
ment in digital servitization. Indeed, procuring digital solutions in an overall framework for Procurement 4.0, highlighting key
requires a radical shift in customers’ business and procurement overarching principles for capturing business value from digital
logic, shifting from a capital expenditures (CAPEX) model that innovation. In doing so, this article unpacks the underlying logic
focuses on procuring physical assets to an operating expenses of procurement in the digital era, which focuses on nurturing
(OPEX) model focusing on services and solutions [22], [23]. digital ecosystem generativity, orchestrating cross-functional
This necessitates a new relational perspective with key suppliers integration, and leveraging supplier capabilities through agile
[6], [10], and the standard procurement process [24] is not co-creation [6], [12]. Finally, the article explores the relational
well suited to these new types of offering [12]. Accordingly, dynamics between the supplier and the customer as they realign
many companies may struggle with key procurement-related their value-creation and value-capture perspectives. Here, we
activities such as designing specifications, customizing solu- underscore the importance of an ecosystem perspective, with
tions, and evaluating intangible digital solutions [11]. However, our findings strongly suggesting that digital servitization extends
we currently lack insights into the new challenges related to beyond standard dyadic relationships to increasingly involve
implementing Procurement 4.0 practices. For example, many the procurement of digital solutions enabled by an ecosystem
industrial customers struggle with evaluating and procuring of suppliers.
digital solutions consisting not only of products or services
but a guarantee that customers will achieve a certain outcome
[11], [14]. Yet, we lack in-depth insights into the nature of
these challenges relating to internal organizations, processes, II. THEORETICAL BACKGROUND
and evaluation procedures. Thus, we seek to identify the key Our theoretical background builds on literature detailing the
Procurement-4.0-related challenges facing digital servitization. evolving and increasingly strategic role of the procurement
Second, there is a need to understand how industrial customers function in firms, aiming to leverage supplier’s expertise through
can structure their procurement processes to capitalize on digital procuring services rather than products. We further discuss the
servitization. Indeed, the transition to Procurement 4.0 is still specific trends underlining the need for changing procurement
in its infancy [25], and there are no clear guidelines on how processes to capitalize on digital servitization, as procuring
industrial customers can transform their procurement processes digital solutions require a cocreation logic between customer
to capture the value of digitalization. More specifically, industry and suppliers. In doing so, we describe the associated research
and academia lack insights into the key phases and activities gaps motivating us to conduct the present article.

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 SJÖDIN et al.: PROCUREMENT 4.0: HOW INDUSTRIAL CUSTOMERS TRANSFORM PROCUREMENT PROCESSES 4177

TABLE I
EXAMPLES OF CONCEPTUALIZATIONS RELATED TO PROCUREMENT 4.0

A. Evolving Strategic Role of Procurement for Digital strategic activities and initiatives [20], [38], [39]. Accordingly,
there is a need to better understand Procurement 4.0 and what
Servitization
may likely follow in the next generation, as current research on
Since the 1990s, scholars have acknowledged that the role this issue is still limited. There have been a number of attempts in
of procurement within firms has progressively evolved from an conceptualizing the interaction of procurement and Industry 4.0
administrative to a strategic function [28]–[30]. With increasing in literature and whitepapers, especially in the last five years,
competition and the need for specialization, recent decades and different terms have been used. Table I lists examples of
have seen industrial firms engage in outsourcing activities and such conceptualizations, which we build on to comprehensively
processes that fall outside their core competencies, enabling define Procurement 4.0 as a procurement approach to optimize
access to vital capabilities, technologies, and innovations from supply chain efficiency, agility, and innovation through digital-
suppliers. This changed logic became increasingly evident as ization by focusing on strategically orchestrating relationships
companies leveraged their suppliers’ expertise by procuring between various internal functions and suppliers ecosystems.
advanced services rather than easily definable products. There
is a clear need to empower procurement departments to drive
efficiency and innovation from their supplier’s ecosystems [31].
B. Why Procurement Processes Need to Change in Digital
The increasing dependence on relationships with suppliers, and
their growing strategic role [32], has emphasized the worth of Servitization
a procurement function in fostering supplier-driven innovation We argue that industrial customers attempting to capitalize
[30]. Indeed, procurement is increasingly important for an orga- on digital servitization need a substantially revised procurement
nization and its partners to reduce costs and increase competi- process, following the logic of Procurement 4.0. Indeed, the
tiveness and profitability [33]. For example, a well-functioning proliferation of digital technologies points to radical changes at
procurement unit can be instrumental in defining optimal stock the core of business activity and a significant transformation of
levels at supplier and buyer warehouses, reducing overall capital customer–supplier relationships based on digital solutions and
commitment and price levels, leveraging innovation, govern- how they create, deliver, and capture value [6], [12]. These digital
ing service contracts, or increasing supply chain intelligence solutions typically add more complex service and software
through buyer–supplier relationships and alliances [24]. elements to physical products to create customized customer
Procurement scholars continue to emphasize that the procure- solutions [13]. The shift to procuring these more complex types
ment of services is conspicuously different from the procure- of digital solutions necessitates significant changes also in how
ment of products (e.g., [34]–[36]). This is especially true of the procurement functions are organized.
digital servitization trend, where more and more suppliers move The standard procurement process model is typically de-
from either the provision of products to digital services or the scribed in four linear stages: assignment specification, supplier
integration of products, services, and software into hybrid solu- selection, contract implementation, and outcome and evaluation
tions. However, procurement scholars recognize that insights are [24], [26], [35]. While prior research acknowledges that the level
lacking on how organizations reshape the procurement function of objectification varies at different stages and that complex
to efficiently procure digital solutions. A new procurement services require a more dynamic perspective in procurement,
paradigm needs to be defined if industrial customers are to many contingencies remain unclear. A revised procurement
stay on the competitive edge; they must use their procurement process for digital solutions needs to provide an organizational
function strategically and innovatively to leverage the poten- mechanism to coordinate and drive innovation and ecosystem
tial of digital servitization [6], [20]. In essence, the task is to cooperation and to integrate digital transformation internally.
redefine procurement processes focusing on value rather than We argue that shifting to the procurement of digital solutions
costs. Here, supplier ecosystems and their corresponding assets demands a change in the underlying principles of procurement
and capabilities need to be leveraged with particular emphasis for several reasons.
on innovation, value, and strategy [20], [37]. This requires au- First, the output of digital solutions is often produced from
tomating (or outsourcing) operational activities and focusing on the interaction between supplier and customer. This necessitates

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 4178 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 70, NO. 12, DECEMBER 2023

closer engagement with suppliers than simple transactional ex- To summarize, we argue that the research community’s un-
changes because the characteristics of digital solutions are such derstanding of procurement of digital solutions remains limited.
that they cannot be a priori stipulated in detail [6], [17]. Rather, There is a strong need to further untangle the composition of
they need to be cocreated by buyers and suppliers in a more processes that are more highly structured so that the procurement
iterative and agile way through the procurement process [12], of increasingly intangible digital solutions can be aptly directed.
[35]. Accordingly, shifting to services and solutions results in Research on this remains limited; hence, we seek to address this
a drive to create the trust and transparency needed to ensure gap in the literature by providing insights into how procurement
long-term success in buyer–supplier relationships [6], [40], [41]. process models can be adapted to address the opportunities and
For example, suppliers can create higher value by being closer challenges of digital servitization for industrial customers.
to customer’s operations and designing solutions that address
the specific pain points of the customer. More specifically,
III. METHODOLOGY
suppliers can use data from a fleet of equipment to identify
areas for improvement in the customer’s ongoing operational To understand how the next-generation Procurement 4.0 pro-
processes—for example, optimizing equipment and condition- cess for digital servitization is organized in industrial manufac-
based maintenance [42]. The supplier’s ecosystem relationships turers, we adopted an inductive case-study design [44]. Case
that are required to deliver value are also changing, adding studies make it possible to mobilize multiple observations on
further complexity. For example, new governance challenges complex relational and organizational dynamics [45], [46]. The
might arise when new stakeholders, such as cloud computing case-study methodology is also particularly useful in developing
suppliers, become involved in the business and need to interact inductive theory and fine-grained insights into a theoretically
with existing machine suppliers [22]. Therefore, a vital need novel phenomenon [47], such as how procurement process mod-
in the procurement process is the development of governance els can be adapted to address the opportunities and challenges of
mechanisms and common information infrastructures to create digital servitization for industrial customers. The unit of analysis
transparency, traceability, and agility in using the increasing was the procurement process for digital solutions, and the focus
amount of information and data required to support the creation was on the customer perspective. However, data were collected
of digital solutions from suppliers’ ecosystems [6], [12]. from a comprehensive sample involving both customers and
Second, in digital servitization, the role of procurement as a suppliers in order to capture the relational perspective, following
downstream interface between internal and external processes the suggestion of Tuli et al. [48] and Kamalaldin et al. [6] to
needs to increasingly manage the cocreation of cutting-edge collect data from both sides (i.e., both customer and supplier
digital solutions in innovative buyer–supplier relationships that views). This approach facilitates a deeper understanding and
promote a long-term perspective [6]. Accordingly, the shift to contextual richness of the interactive dynamics within “the
digital solutions often requires new competencies in evaluating search, negotiation, contractual, and implementation phases”
offerings such as data analysis and software development, which relevant to procurement in the digital servitization context [49].
surpass the existing procurement approaches and competencies
of industrial customers [23]. In addition, since the nature of these A. Case Selection and Sampling Strategy
digital solutions is less clear, inputs from multiple organizational
actors from development to operations are required to ensure Our sample includes Swedish multinational business-to-
appropriate specifications, shared value interpretation, and a business (B2B) companies that are active in the procurement
clear strategy for implementation [12]. Yet, many industrial (customers) or provision (suppliers) of digital solutions. To
companies have unclear organizational processes for procuring justify the generalizability of our findings, we followed the
digital solutions and face organizational resistance and inertia guidelines of Eisenhardt [50] in selecting cases from differ-
in seeking to move beyond their legacy of procuring mechanical ent industries and product categories. These firms represent
equipment [13]. diverse industries (e.g., mining, forestry, automotive, energy,
Finally, companies face challenges in aligning incentives and telecom, manufacturing, and public transport), thus providing
contractual details in the procurement process. For example, dig- an opportunity to contrast various perspectives on the industrial
ital solutions or product-service-software systems often mean procurement process. More specifically, three criteria guided
moving from a CAPEX model, such as the traditional purchase our selection of cases. First, a key selection criterion was the
of equipment with add-on repair and maintenance services, to ability of the companies to vividly describe concrete examples of
an OPEX model where the customer pays for an outcome—for procuring digital solutions and to provide in-depth information
instance, performance improvements [22], [23]. While this shift, on the customer–supplier relationship and its key activities, sup-
in theory, aligns incentives to a common goal, it also exposes ported by essential documentation and background information.
the customer to significant uncertainty and risk, which it needs Second, we sought to select more innovative (i.e., new to the
to manage because it is now dependent on the supplier. Some firm) and complex examples of digital solutions with the aim
studies suggest that such supply risk can be reduced by focusing of capturing cases that exemplified more significant shifts in
at an early stage on a more transparent flow of information, the procurement process. Third, we selected companies where
trust, and joint warning systems [6]. Yet, traditional procurement we had access to senior executives because of prior research
processes are not well adapted to deal with such contingencies. cooperation. This made for rich data collection from a compre-
In contrast, recent research suggests that procurement holds hensive sample of companies that spanned the perspectives of
a critical role in adjusting business models and contractual both customer (11 companies) and supplier (8 companies) across
agreements to changing conditions over the life of the contract diverse industries and, hence, enabled us to obtain an unbiased
[12], [43]. view. This broad range of companies and informants helped us

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 SJÖDIN et al.: PROCUREMENT 4.0: HOW INDUSTRIAL CUSTOMERS TRANSFORM PROCUREMENT PROCESSES 4179

TABLE II
CASE COMPANIES DESCRIPTION

to develop a holistic understanding of the procurement process, asked to recommend people who played an active role in pro-
and the rich empirical base provided solid foundations to explore curement in different phases. To capture a multifaceted view of
the novel phenomena of digital servitization and Procurement the process, we interviewed informants from both customers and
4.0. Table II describes the key characteristics of the firms studied. suppliers who had an experience of exercising various functions
and working in different phases. Examples of such positions
included chief procurement officer, project manager, business
development manager, operations managers, key account man-
B. Data Collection ager, and digitalization manager.
Data for the present study were gathered primarily through in- In order to avoid respondent bias leading to confusion on
dividual in-depth interviews with participants, using a semistruc- cause–effect relationships [51], we triangulated our data by
tured interview guide. The unit of analysis was the procurement applying multiple data collection techniques, including multiple
process for the digital service. Data on the procurement pro- interviews and a review of documents [53]. Document studies
cess were collected retrospectively and inductively, allowing entailed reviewing company reports, agreements, and project
for focused data gathering [51]. During the interviews, the documents (e.g., evaluations of key customer problems, internal
respondents were instructed to reflect on the process of procuring assessments, Power Point presentations) in order to validate and
digital solutions. For example, they were asked to consider contextualize our respondents’ views, thus enabling empirical
questions such as: What are the challenges with procuring triangulation. To increase reliability, enhance transparency, and
digital solutions? How does the process of identifying, selecting, create the possibility of replication, a case-study protocol was
designing, and implementing the digital solutions unfold? How constructed along with a case-study database. The database
are different organizational roles involved? What are challenges included case-study notes, documents, and analysis.
and best practices during specific phases? How did you select
digital solutions to create the most value? How did you agree
on the contractual details and profit sharing? The interview
format was continuously updated to capture interesting themes C. Data Analysis
as they emerged [52]. Departures from specific questions were Data analysis was based on a thematic analysis approach to
permitted and the format of the interviews was adapted to allow identify relevant themes and patterns [54]. We followed the Gioia
the pursuit of interesting and particularly relevant facets as they methodology, which allows researchers to identify patterns in
emerged [50]. In seeking answers to these overarching questions, a large and complex dataset [46], [55]. Moreover, it offers a
informants were encouraged to base their answers not only on the means to identify links within analytical themes effectively and
current procurement practices but also on their broader experi- accurately. Through a series of iterations and comparisons, it is
ence of procuring digital solutions. Thus, empirical comparisons possible to identify themes and overarching dimensions so that
were facilitated. The interviews ranged from 1 to 3 h, with an an empirically grounded framework can be developed. In doing
average duration of 80 min. so, we followed a three-step approach similar to that described
In total, 75 interviews with informants from 19 companies in the recent literature (e.g., [56], [57]).
were conducted (see Table I for details). Interviewees were The first step centered on an in-depth analysis of raw data
identified by snowball sampling, where key informants were (e.g., interview transcripts). This analysis focused on reading

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 4180 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 70, NO. 12, DECEMBER 2023

Fig. 1. Data structure and coding process.

every interview several times and marking phrases and pas- our findings revolve: challenges in procurement of digital solu-
sages related to the overarching research question. By coding tions (see Section IV-A) and Procurement 4.0 process for digital
the common words, phrases, terms, and labels mentioned, it servitization (see Section IV-B). The data structure resulting
was possible to identify first-order categories of codes, which from the data analysis process is presented in Fig. 1.
expressed the views of the informants. For example, informant As a final step, we engaged in theorizing the logic and linkages
statements, such as: “We have to get more concrete insights across aggregate dimensions, second-order themes, and first-
on the operational challenges from our factory level staff to order categories. Our aim was to synthesize the findings into a
identify innovation opportunities,” were coded under the label framework showing how the procurement of digital solutions
“seek insight from operational lead users to validate and refine unfolds and how firms manage the process (see Fig. 2).
demand specifications.” This step was facilitated by MAXQDA
software.
The second step of the analysis sought to discover links and IV. FINDINGS
patterns within the first-order categories. This iterative approach We sought to understand how a next-generation Procurement
led to the formation of second-order themes that represent 4.0 process for digital servitization can be organized for indus-
theoretically distinct concepts created by combining first-order trial customers. We first identified the challenges the traditional
categories. Our analysis identified seven second-order themes, procurement approach faced with digital servitization and then
which were on a higher level of abstraction compared to the mapped how companies coped by revising their procurement
first-order categories. In accordance with validity claims in the processes. The following sections present the identified chal-
literature, the themes were further refined based on reviewer lenges in the procurement of digital services (see Section IV-A)
comments, insights from prior literature, and data from inter- and outline a next-generation procurement process for digital
views and secondary sources such as internal documents, presen- servitization (see Section IV-B).
tations, and newspapers [58]. This step was conducted conjointly
by the researchers, facilitated by comprehensive discussions.
Internal validity tests were conducted to ensure greater accuracy A. Challenges in Procurement of Digital Solutions
within the emergent themes. This was achieved through corre- Procuring digital solutions, such as site optimization services
spondence and follow-up discussions with selected informants. and autonomous solutions, is a novel way of doing business
The third step involved the generation of aggregate dimen- for industrial companies. However, the novelty of the offering
sions that represented an even higher level of abstraction in the makes it an uncertain and challenging endeavor for the customer
coding. The aggregate dimensions thus generated were built on to fully understand the best way to buy such an offering. There-
the first-order categories and second-order themes to present a fore, identifying and understanding the challenges that are likely
theoretically and practically grounded categorization. From the to arise in the procurement process is a crucial first step for the
data, we constructed two aggregate dimensions around which successful implementation of Procurement 4.0 practices.

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 SJÖDIN et al.: PROCUREMENT 4.0: HOW INDUSTRIAL CUSTOMERS TRANSFORM PROCUREMENT PROCESSES 4181

Fig. 2. Procurement 4.0 process model for industrial customers in digital servitization.

Based on detailed analysis, we have identified three overarch- Procurement organization lacks an established framework
ing challenges, which create obstacles and add complexity to the for the assessment of value in suppliers’ digitally enabled of-
customer’s organization when seeking to successfully procure ferings. Digital solutions can involve running subscriptions or
digital solutions from progressive suppliers. Informants high- value-based costs over time with contingencies. This approach
lighted the need to develop and implement revised procurement adds to the uncertainty and complexity faced by the customer
processes to manage the new logic of digitalization. organization and usually results in the rejection of innovative
1) Evaluating Value of Digital Solutions: We find that a key digital solutions. An R&D Manager from Ironcorp described
challenge for industrial customers is to assess the value of digital this challenge as
services and solutions throughout the procurement process. This
“I think we are used to buying machines with a high CAPEX, and
can be explained by the intangible nature of digital solutions
then we get a service support agreement for three years. I know
and the uncertainty in procuring novel types of offering that are suppliers want to discuss other business models where they take more
unfamiliar to the organization. Indeed, several informants from responsibility, but this does not align with how we make investments
customer organizations recognized the difficulty in formulat- in projects, and frankly, we do not know how to evaluate this.”
ing supplier specifications for future operational digitalization
needs. On the ongoing process of digital transformation, infor- 2) Lacking Digital Investment Prioritization Across Orga-
mants remarked that knowing how to specify the digital solutions nizational Silos: A second major challenge for industrial cus-
needed now and in the future is a key challenge because both tomers is the lack of investment prioritization across organiza-
the technology and internal needs are rapidly evolving. This tional silos. The procurement organization is faced with the need
challenge is aggravated by the fact that many firms’ procurement to coordinate cross-functional roles concerning the purchase of
departments are not digitally savvy and are unfamiliar with, digital solutions. This is because the procurement of digital
for example, digital business models, such as site optimization solutions is not the sole responsibility of the procurement de-
services. For example, a procurement Manager from Zinkcorp partment; cross-functional inputs are required. Yet, the customer
remarked organization often lacks internal alignment in key functions,
such as procurement, R&D, and operations. This misalignment
“This is a huge challenge to know what we want because the technol-
can lead to internal pressures and missed opportunities. For ex-
ogy and our internal knowledge are evolving so rapidly. I find we are ample, many suppliers complained that misalignment between
often one step behind, and it is difficult to choose a supplier then.” the procurement and operations departments could prevent deals
for advanced digital solutions from being closed, which had been
This challenge is further amplified by the need to move codeveloped with operational end users. For example, an R&D
away from the well-known price-based supplier evaluation to Manager from Minceorp remarked
the value-based alternative. Since many digital solutions are “The role of the procurement function is changing. They need to take
not comparable, the price point becomes less valid and may a more leading role toward coordinating needs from other functions.
constrain digital innovation. However, value-based discussions This means they are actively working with R&D and operational
create challenges for which many procurement organizations are functions and jointly defining the solution requirements.”
ill-prepared in their standard practice. A key account manager
from Solutioncorp (supplier) described the challenge presented As digital solutions represent an entirely new form of offering,
by this approach. procurement organization often needs to find ways to enable data
sharing, while ensuring that the organization’s core knowledge
“Procurement organization tends to mainly look at the price differ-
is protected. This creates a tense and challenging arrangement
ences and the detailing of contract obligations. They do not care between the procurement department and other functions, in-
about the value of the product or the service that we deliver, so it cluding suppliers. A director of mine automation at Minecorp
affects digital service negotiations in a bad way.” explained

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 4182 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 70, NO. 12, DECEMBER 2023

“As we see it, we own the data and, of course, the supplier does not a problem if aligned incentives were to be assured. For example,
like to see it this way … If we share our data, it is sensitive information an IT manager from Ironcorp expressed the difficulty
that can impact our stock, but, on the other hand, if we do not, we
cannot rely on suppliers to digitalize. Without integrated datasets, “We have been working with performance-based contracts for a
the value is quite low.” while, but transforming performance into concrete value for us is
not so easy … What really is the added value, this can be hard to
Finally, we found that the responsibility to integrate digital- define.”
ization within the work approach was often fragmented. Each
unit had its own interpretation of how it should work to gain B. Procurement 4.0 Process for Digital Servitization
from digitalization. This considerable variation in perceived
needs within the organization creates a major challenge for Our informants indicated that industrial companies are often
procurement activities. An operations manager from Truckcorp able to adapt the way they procure digital servitization offerings.
described this challenge as It is clear that the standard procurement process for simple prod-
ucts or services seems not to work for digital solutions. Thus,
“Everyone is working in their own different corner in digitalization the traditional procurement process of assignment specification
… and I cannot see how it can benefit us if it is this fragmented.” followed by supplier selection, contract negotiation and devel-
3) Incentivizing Supplier-Driven Digital Innovation: The opment, and contract implementation [24] needs to be revised.
final challenge relates to incentivizing supplier-driven digital Although few companies have formal processes for procuring
innovation. We often found that the procurement department digital solutions, helpful patterns of successful procurement
understood the need to gain from the supplier’s digitalization practices would nevertheless seem to be in evidence. We mapped
capabilities but often failed in this pursuit. Leading suppliers these activities to propose a next-generation procurement pro-
have a much larger R&D budget to drive digital innovation. cess (Procurement 4.0). Our suggested process has four phases:
Therefore, customers must consider how they can best use mapping digital opportunities, selecting digitalization partners,
suppliers’ knowledge and skills. Traditional procurement logic codeveloping solution contracts, and promoting continuous in-
pays little attention to cocreation with suppliers, yet many in- novation. Each phase has key activities and raises important
formants remarked that close relationships with suppliers were questions. In the following sections, we detail each phase and
becoming increasingly important for digital transformation. A its activities, providing examples from the case companies.
project leader from Energycorp explained its importance in these 1) Phase 1—Mapping Digital Opportunities: Digitalization
words presents countless opportunities for operational improvements.
For customers, the motivation for procuring digital innovations
“What we have historically done is to buy a finished product with a is the recognition of a particular need or the identification of a
service agreement but, in this case [of digitalization], it is impossible specific problem to be solved. The key question in this phase
to do that … We need to do it together with someone; we can never is: How can digitalization improve our business? However,
do it ourselves.”
selecting the right focus is difficult because of the speed of
An added challenge is that digital solutions are not one-time change. Consequently, we found that successful companies
purchase offerings; they often require close cooperation between mapped digital opportunities in order to address key operational
customer and supplier throughout the life of the contract and needs or problems.
beyond to realize the value and bring about improvement. But The results show that it is helpful to apply a digital lens to
existing procurement activities lack the governance model to identify major process innovation opportunities when defining
incentivize performance and continuous innovation over time. A requirements. A key is leveraging digital infrastructure and
procurement manager from Minecorp identified the uncertainty large-scale operational data collection to identify potential prob-
in trying to incentivize supplier performance over time. lem areas. For example, analyzing operational data from smart
connected machinery can provide insights into opportunities
“I have a feeling that over time the supplier performance will slip; it for innovation and improvement. Accordingly, the requirements
always tends to do. I think it is difficult to keep them on their toes
for innovation should be focused on filling a gap based on the
without clear incentives for performance. This is a key risk we need
to consider.” analysis of facts and information. For instance, data analytics
can help with the recognition and removal of bottlenecks. A
Another challenge with integrating suppler-driven innovation common theme among operations managers was the vision of
as a part of a new procurement strategy was to identify and connecting equipment, installing sensors, collecting data, and
nurture SMEs and new ventures as potential key suppliers of analyzing these data more effectively to identify improvement
digital solutions. These actors lacked financial and industrial opportunities that could involve the ecosystem of suppliers. An
expertise despite possessing a high level of digital competence operations manager at Autocorp expanded on this theme when
that was viewed positively but was considered difficult to pro- discussing a supplier’s offerings.
cure. A procurement manager from Minecorp explained
“I think there is a lot of technology now that makes it quite easy to
“Mining is a very traditional industry, and for new smaller companies connect sensors and to get data from our operational processes ….
to become leading suppliers is challenging. But with digitalization, Actually, the issue now is how we should get some value from all
we see that we cannot only rely on large product-centric players, we this data that we are able to capture.”
need fast-moving SME suppliers as well.”
In selecting which digital opportunities to focus on, the
Finally, how to design fair payment structures for advanced procurement department should seek insights from opera-
digital services with performance guarantees was recognized as tional lead users to validate and refine demand specifications.

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 SJÖDIN et al.: PROCUREMENT 4.0: HOW INDUSTRIAL CUSTOMERS TRANSFORM PROCUREMENT PROCESSES 4183

The operations department is responsible for the day-to-day trajectory and potential for value accretion in the future. For
work, so operations employees are best qualified to define the example, informants in the mining industry were hesitant to
problem and specify what the needs are. This process should partner with suppliers whose offerings are competitive today
cover all kinds of requirements, including operational efficiency, but who lag on critical investments in future autonomous and
safety, quality, and performance. A procurement manager at electrified machines and digital ecosystems. A program manager
Minecorp explained what was needed: from Minecorp expressed this concern
“Of course, we create the overall blueprint, but [operations] need to
“It’s critical that whichever investment we make is future proof for
create the specifications … because we are not experts … this is the
the next decade with regard to digitalization, Internet of Things, and
key: to involve the stakeholders early.”
sustainability.”
For example, in Transportcorp, the purchase of an Internet-
of-Things platform directed at passengers involved drivers at an To ensure adaptability, many informants recommended the
early stage. This involvement then led to a critical feature being use of modular and scalable digital platforms as an impor-
added to improve the security of Transportcorp’s drivers. tant evaluation criterion. A procurement manager at Minecorp
Sometimes, focusing excessively on internal needs can be stressed the importance of strategic and forward thinking, em-
misguided in the context of fast-paced industry digitalization. phasizing that “the challenge is that, if you [want to] have a
All organizations struggle to stay abreast of emerging oppor- strategic partnership, it is to make them continuously improve.”
tunities, so a helpful practice that informants suggested was to Minecorp decided not to select a particular supplier who, al-
involve the ecosystem of suppliers when formulating digital- though a leader at the time, did not possess a mindset of openness
ization opportunities. Discussing various options and possible and a commitment to continuous improvement of their digital
solutions with suppliers can help a company brainstorm about offerings.
requirements and reflect on how best to tailor digital solutions Evaluating the most competitive partner amongst suppliers
to the company’s specific needs. This process is especially help- is a challenge for the procurement department. To help with
ful when repeated with diverse suppliers to obtain alternative this decision, the selection process should involve internal ex-
perspectives. As a procurement manager at Minecorp reasoned perts who can ensure alignment with the digitalization strategy.
Partner selection should be based on objective business criteria
“It is something that we do together in the end; even though the
for digitalization, developed jointly by the procurement and
best ideas are coming from the supplier, it is not often that it fits
directly into our needs or our process or whatever, so it needs to have operations teams so that goals are positively aligned. For exam-
interactive feedback back and forth.” ple, Forestcorp had a key priority of reducing operational costs
through digitalization. The key for the firm was to balance short-
The best ideas often come from combining customer knowl- term cost reductions with developing long-term knowledge
edge of operational needs with supplier knowledge of technolog- and digital capabilities to ensure continuous improvement and
ical solutions. For example, a supplier, Solutioncorp, recounted cost-saving over time. This approach pushed supplier selection
successful cases where customers had invited it to participate toward criteria such as the total cost of ownership rather than the
in creative sessions to identify potential process innovation op- purchase price. An operations manager at Forestcorp clarified
portunities from digital technologies. These opportunities then the importance of aligning the approach with the digitalization
generated significant efficiency improvements, which led to the strategy to ensure that resources are allocated wisely
development of a completely new line of business for these
customers. “We are making a lot of investments in our own digital system and,
2) Phase 2—Selecting Digitalization Partners: Capitalizing of course, to realize the benefits, we need to ensure that the supplier’s
on digitalization requires building an ecosystem of strong part- contribution can be integrated into some form.”
nerships around the company. Once requirements and opportu-
nities have been defined in the first phase, the purpose of the next The procurement and operations departments should jointly
phase is to find the best partner with whom to develop digital assess suppliers’ digitalization capabilities for future value
solutions. The key question is: Who can best help us digitalize cocreation. It is critical to assess the supplier’s qualities in terms
and improve over time? This is a critical phase in evaluating of customer-relationship management, the broader ecosystem
supplier offerings—identifying the “bells and whistles” (e.g., of partners, and the necessary digitalization expertise. Supplier
overly optimistic promises) and truly seeing what value and assessment may be based on the company’s own experience or
concrete benefit a supplier’s offerings bring. on the supplier’s reputation in the marketplace. For example,
A key activity for the procurement department is to evaluate Minecorp described how the decision to procure a new fleet of
supplier proposals based on long-term digital value generation mine trucks had ultimately hinged on the supplier’s openness
potential rather than immediate or short-term benefits. The and willingness to cocreate value for the digital platform. A
decision of which supplier to select should be based on facts supplier’s record of successful reference cases in cocreating
and current performance data as well as the future outlook for customized digital solutions with customers can also offer a
value expansion. The procurement department should select the sound basis for cooperation. Powercorp cited the example of as-
supplier that not only meet basic requirements but is also eager to sessing suppliers’ capabilities using a “tech-day” event arranged
improve continuously to develop the capabilities for continuous by one supplier. At this event, the end users of Powercorp and
innovation, and demonstrate the financial strength to invest in the procurement personnel directly interacted with the supplier,
digitalization to drive innovation. Thus, procurement must look discussed opportunities, and evaluated the potential gains the
beyond the current digital offerings of suppliers to consider their supplier could bring to the company. This kind of professional

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 4184 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 70, NO. 12, DECEMBER 2023

interaction can determine the digital capabilities and cocreation the contract was signed, mine operations staff tested the tech-
skills that the supplier has to offer. nology, gave technical feedback to the supplier, and documented
3) Phase 3—Codeveloping Digital Solution Contracts: Dig- expectations that would help the digital solution succeed.
ital solutions often entail a new supplier business model that One useful practice is to develop agility in managing the
requires careful attention from both sides to fully understand the customization and codevelopment of digital solutions. An agile
implications for the business relationship. After the supplier has approach involves embracing change through constant iteration
been selected, the details of the contract are negotiated between and refinement of digital solutions based on inputs from var-
the customer and the supplier. The aim is to reach a mutual ious firm actors. This is especially important in the contract
agreement on feasible solutions, terms, conditions, and roles and codevelopment phase. Informants suggested that codevelopment
to establish the basis for the partnership in terms of guidelines should use a value-driven approach that embraces change, even if
and ways to jointly solve problems. The key question in this late in the solution development stage. A business development
phase is: How can we create profitable solutions for both part- manager at Energycorp stressed the value of this approach.
ners? A major concern is to ensure that the contract is flexible
“I think the open approach between us focusing on identifying what
enough to adapt to change. Accordingly, the contract should
value we can create and defining the solutions together has been very
allow for the incorporation of new priorities and opportunities helpful.”
that may arise in the future and potentially create greater value
from digitalization. For example, when developing a digital platform, employees
The contract should also define how success is to be mea- from Equipmentcorp explained that they had used an agile
sured to evaluate supplier performance during implementation. approach to manage the project with their customers. Initially,
Evaluating success, however, would not be possible without certain functionalities had been included in the platform, but
the necessary facts and data. Consequently, there is a need to Equipmentcorp continued to develop them in cooperation with
negotiate and define analytics-based measurement and evalua- the customer, opening up new opportunities for improvement.
tion criteria. Such criteria facilitate a data-driven evaluation of This agile approach is worth enforcing by the customer when
performance during contract implementation and may be used codeveloping a solution with the partner.
to incentivize suppliers to focus on customer outcomes. Indeed, 4) Phase 4—Promoting Continuous Digital Innovation: A
well-designed data analytics enable continuous improvement common mistake is to focus excessively on the signing of the
and promote ideas for further digital innovation. A procurement contract as a “done deal” and to underestimate the importance
manager at Zinkcorp reiterated this point: of paying due regard to the actual operation of the contract. In
reality, once the solution contract is finalized and all details have
“We are increasingly focusing on setting up contracts that incentivize been settled, implementation and real value generation can take
the supplier to use insights from data and analytics to continuously place. The key question in this phase is: How can we ensure
support us in improving our processes.”
a profitable partnership throughout the contract? The imple-
mentation stage should be a learning experience in which both
Hence, the parties should agree on how data are collected, parties continue to evaluate and improve to leverage the rapidly
analyzed, and used for improvements. For example, the installa- expanding value of digitalization. Ideal contract implementation
tion of load-weighing solutions in trucks provides vital inputs on should be flexible enough to encourage and reward innovation,
how many tons have been transported and whether the solution creating a win-win situation.
has achieved the agreed performance. A key element in such a Continuous evaluation and improvement, however, can only
solution is that both supplier and customer are actively engaged be achieved with relevant data. Therefore, applying digital an-
in using the collected data to optimize operations by identifying alytics to measure performance and identify future ecosystem
bottlenecks and issues that can be addressed over the life of the potential is necessary. Smart connected machinery and asso-
contract. ciated platforms for data analytics can greatly support contract
Again, it is critical to involve expert end users to customize managers in evaluating the supplier’s implementation of the con-
digital solutions because these users have the know-how on tract but may also help identify future ecosystem collaboration
operations and associated risks. Involving expert users helps opportunities. For example, it is important to keep reviewing the
address all relevant issues in the contract and develop a better key performance indicators and revising them when necessary
idea of how to align the various operational processes and roles to ensure continuous innovation and improvement. This may
between firms. A procurement manager at Minecorp explained also uncover areas where additional suppliers or independents
why contributions by knowledgeable end users are so important software vendors from the ecosystem could become involved to
in this phase. expand the value of digital solutions. More importantly, expand-
ing the value of digital solutions over the long term should build
“When you start negotiating, you must have done your homework in
advance, so you understand what you are buying.”
on a generative logic where additional value could be unlocked
by engaging with the broader ecosystem. For example, an IT
This sentiment highlights the importance of involving end manager at Zinkcorp spoke positively of the exponential value
users and internal customers in contract customization. For that could be unlocked through digital solution investments.
example, when Minecorp negotiated a contract for a new digital “We need to invest in these digital solutions and monitor the data for
solution with a supplier, skilled and experienced people were ongoing improvements of our processes. But, I think the true value
deployed working on-site in the mines. Consequently, before is over time once we start to have larger datasets and can explore

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 SJÖDIN et al.: PROCUREMENT 4.0: HOW INDUSTRIAL CUSTOMERS TRANSFORM PROCUREMENT PROCESSES 4185

these more openly with AI and analytics. New partnerships between and principles in Procurement 4.0 for digital servitization. In
solution providers and additional partners can be involved to offer essence, the empirical results reveal how industrial customers
radical and unexpected areas for operational improvement.” can utilize a more agile and relational way of working with
Pulpcorp gave the example of how data generated from So- suppliers and extended ecosystems, focusing on value rather
lutioncorp’s motors combined with AI functionalities helped than cost so as to profit from digital servitization. This model
to optimize operations, ensuring that each motor was used also highlights the changes needed in procurement function to
and maintained optimally. These data insights could also be orchestrate relationships among suppliers and internally within
leveraged to optimize the performance of the equipment that the organization (e.g., R&D and operations).
the motor is running. Building on the structure of the standard procurement pro-
While the procurement department oversees the evaluation cesses (e.g., [24]), we have revised the nature of phases and
of contract implementation, the operations department handles underlying activities to align with a digital servitization logic for
the day-to-day on-site monitoring and use of digital solutions. Procurement 4.0. As presented in the previous section, the re-
Consequently, it is necessary to involve operational staff in vised process model includes four key phases and corresponding
stimulating continuous innovation driven by digitalization. This logics: mapping digital opportunities; selecting digitalization
involvement should be based on daily reviews and assessments partners; codeveloping digital solution contracts; and promot-
of contract implementation. An operations manager at Minecorp ing continuous digital innovation. However, our key insight
stressed the importance of feedback. is concerned with the customer procurement unit’s need to
reconfigure the underlining transactional principles into new
“We have some skilled people in the mine … and they are very good Procurement 4.0 principles.
at giving good feedback to suppliers.” Three overarching principles underpin the Procurement 4.0
approach and the corresponding activities that are required
The manager explained that the firm has a standard reporting
throughout the process: nurture digital ecosystem generativity,
procedure that encourages operations staff to continually report
orchestrate cross-functional integration, and leverage supplier
opportunities for improvement and innovation. The manager
capabilities through agile cocreation. According to our respon-
also confirmed that this process was increasingly important for
dents, these principles truly reflect the flexibility, pace, and
digital systems that were not yet mature. Digital innovation ideas
ecosystem-relationship focus required for industrial customers
could then be discussed with the technology suppliers based on
to capitalize on digital servitization. Fig. 3 presents an overview
the operational experience of using existing technologies.
of the principles, phases, key questions, and key activities of the
To ensure that ideas for improvement are not lost, it is im-
Procurement 4.0 process. The principles are described in further
portant to use regular joint meetings to capture, assess, and
detail in the following.
implement digital innovation opportunities. This step involves
1) Nurture Digital Ecosystem Generativity: Rapid digital
establishing a formal process with the supplier at the managerial
technology advancements are set to change the way customers
level to manage ideas for improvement and innovation. The
interact with and nurture their broader ecosystem of suppliers
process should follow a framework for selecting ideas to be
before, during, and after signing a contract. However, know-
implemented and for establishing priorities. A business devel-
ing where to start, which opportunities to exploit, and how to
opment manager at Energycorp stressed the value of frequent
appropriately define the scope of digital solutions are difficult
meetings.
issues. Hence, customers must use a digital lens to identify needs
“We have regular meetings on the strategic level with our supplier and opportunities, and they must monitor progress within their
to prioritize next steps and ensure we can derive more value out of operations. Investing in a solid foundation of data and analytics
digitalization.” of smart connected products provides enormous potential to
In other words, ideas that are considered “low-hanging fruit” improve performance by leveraging the ecosystem’s capabilities
can be identified. These ideas are relatively easy to implement for implementing novel digital solutions. However, adopting
and can quickly yield benefits for both parties. Employees of So- a progressive view on digitalization in procurement entails
lutioncorp mentioned the example of using the quarterly steering not only evaluating suppliers’ existing solutions offerings but
meeting with their customer, Minecorp, to drive improvement. also nurturing the future potential for value expansion through
For example, when Minecorp raised an issue with Solutioncorp partnerships and continuous improvements. As more digital
about the throughput in a mine hoist, a study was jointly con- solutions are implemented within operations and comprehensive
ducted to develop a digital solution that was implemented on datasets become available, the scope for generativity increases.
a cost-plus basis. Solutioncorp also intimated that this process More specifically, firms may seek to nurture an open digital
could be inverted, with the supplier identifying a bottleneck and ecosystem of partners to allow other actors to add additional
proposing a solution. value and to expand solutions beyond the initial ideas that
established the infrastructure and digital solutions.
2) Orchestrate Cross-Functional Integration: While collab-
C. Procurement 4.0 Process Model for Industrial Customers oration between suppliers and customers is required to source
in Digital Servitization digital solutions, close cooperation between customers’ inter-
This section brings together our key findings to develop a pro- nal actors is also critical. The goals and expectations of the
cess model for Procurement 4.0 (see Fig. 2). The model describes procurement and the operations departments should be aligned.
the foundation of the process, detailing key phases, activities, Here, clarity in the distribution of roles is vital. In contrast to

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 4186 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 70, NO. 12, DECEMBER 2023

Fig. 3. Principles, phases, and key activities of the Procurement 4.0 process.

TABLE III
SUMMARY OF THE STUDY’S KEY THEORETICAL CONTRIBUTIONS AND MANAGERIAL RECOMMENDATIONS

procurement performing an administrative role, we recognize how processes and operations should be carried out when new
that procurement needs to coordinate with R&D to obtain novel digitalization opportunities arise.
technological insights, gather detailed requirements from the
operational side, and acquire inputs on digital infrastructure V. CONCLUSION
from IT departments if digital service procurement is to be
By developing a Procurement 4.0 process model, the present
successful. Thus, in the digital age, the procurement depart-
article contributes to the emerging digital servitization literature
ment must become an orchestrator guiding the internal pro-
and offers managerial recommendations for senior managers
cesses that clarify the roles and activities of each function
in firms pursuing the procurement of digital solutions. The
during procurement.
theoretical contributions and managerial recommendations are
3) Leverage Supplier Capabilities Through Agile Cocre-
summarized in Table III, followed by a more detailed discussion.
ation: The entire process of procuring digital solutions should
be based on the logic of cocreation between suppliers and
customers. The vital question is how to combine knowledge A. Theoretical Contributions
and capabilities to jointly cocreate value and achieve greater This article makes three theoretical contributions to the liter-
benefits for all. To ensure a win-win situation, communication at ature. First, we contribute by conceptualizing an empirically
all levels, from both the managerial and operational perspectives, grounded Procurement 4.0 process model for digital serviti-
is required. zation. Prior studies on servitization have presented several
The aim is to discuss new opportunities for improvement and process models to cocreate digital solutions from the supplier or
innovation that will enhance value. For this, a flexible approach supplier–customer perspective (e.g., [12], [15], [59]). However,
is required that allows for creativity and the opportunity to review no study has yet to investigate the opposing view of industrial

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 SJÖDIN et al.: PROCUREMENT 4.0: HOW INDUSTRIAL CUSTOMERS TRANSFORM PROCUREMENT PROCESSES 4187

customer procurement processes [6], [16]. Yet, there is a strong Third, this article contributes by advancing our understanding
need to adapt the standard procurement models, which are not of the challenges faced by traditional procurement approaches
well suited to digital solutions [6]. Our model demonstrates in digital servitization. Indeed, industrial customers are increas-
that an alternative procurement approach is possible—one that ingly being offered sophisticated digital solutions, but many
is built on a cocreation logic with suppliers to enable quick companies still fail to adopt and manage such service contracts
iterative refinement of specifications for digital solutions. The with the proficiency needed to create real value in their in-
upshot is adaptability to changing requirements so that greater ternal operations. Thus, the opportunities for increased value
flexibility is injected into the procurement process. In line with from digital solutions are squandered in practice because of a
this novel view, our article shows how industrial customers failure to surmount the challenges presented by the traditional
can develop a more digital mindset built on agility, innovation, procurement process. We identify and explain three overarching
and relational engagement in the digital solution procurement challenges: evaluating the value of digital solutions, prioritizing
process. Despite its emphasis on the collaborative nature of value digital investment across organizational silos, and incentivizing
creation [5], [59]–[61], the literature provides scant detail on supplier-driven digital innovation. Failing to address these chal-
the joint activities, principles, and phases of value cocreation in lenges can explain the failure on the part of both suppliers and
digital servitization. The proposed Procurement 4.0 approach is customers to achieve a financial return on investment in the fast-
built on three principles: nurture digital ecosystem generativity, changing digital world [12] and may point the way to the causes
orchestrate cross-functional integration, and leverage supplier of value codestruction and lower profits in digital servitization
capabilities through agile cocreation. These principles are im- [65]. We further contend that addressing such challenges is a
plemented in the procurement process through an interactive vital aspect of succeeding with digital transformation.
approach over four phases. Accordingly, the value propositions
made by the supplier are interactively aligned with the needs
and requirements of the customer in developing digital solu- B. Managerial Implications
tions, and value capture is enabled for both parties [12]. We A new procurement approach is needed to allow customers
agree with Dey et al. [62] that digital technologies are not “a to fully benefit from digital servitization and to encourage con-
magic solution,” and that there is a need for regular interactive tinuous digital innovation by suppliers. Based on the challenges
dialogue between customers and suppliers for developing new described in the background to this article and our proposed
technologies and altering existing ones to create value. Our Procurement 4.0 process and principles, our findings can be
findings show that, in the context of digital servitization, cus- summarized in three managerial recommendations.
tomers may need to exert considerable influence on the formu- First, seek to benefit from digital transparency through new
lation of the value proposition by negotiating and contributing business models. Greater operational transparency enables new
their own resources to the process of cocreation from an early forms of value creation. The traditional procurement model of
stage. procuring simple products and after-sales services is increas-
Second, this article contributes by illustrating the central ingly outdated. New business models built around digital tech-
role of procurement as an orchestrator of digital transformation nologies allow suppliers to contribute to real value generation
and collaboration internally and within ecosystems. Our model by focusing on achieving customer outcomes. The complexity
details how procurement directs interactions between key roles of digital solutions creates a need for customer organizations to
and activities across multiple organizational levels of both sup- view suppliers as strategic partners working side by side. The
pliers and customers to cocreate value in digital servitization. business model as operationalized in a contract should reflect
Historically, research has focused on a more generalized and that need.
overarching level, whereas detailed explanations of such inter- Second, ensure cross fertilization and pollination within the
and intraorganizational processes are less common [6], [12], ecosystem. Innovation is becoming more open, and firms that
[63]. We further emphasize how inter- and intraorganizational can capitalize on this openness by building a fertile ecosystem
relationships impact value cocreation (e.g., [64]). More specif- around them stand to make immense gains. For example, by
ically, our findings indicate that procurement needs to involve purchasing a digital platform from its supplier, Transportcorp
different organizational functions that perform important roles has benefited from the fact that the platform is open to contri-
and activities in each phase of the procurement process and butions from a world of application developers. In this case, the
that show the interlinkages with suppliers. Furthermore, we supplier was the driving force in nurturing the ecosystem, but
provide a detailed analysis of how such involvement changes as some leading customers have taken a more proactive role to en-
progress is made from mapping opportunities and specifications sure innovation within their ecosystems. For example, Ironcorp
to the development of solution contracts and ultimately to the recently launched a bid to build an innovation ecosystem for
implementation of digital solutions. These findings contribute underground mining, inviting suppliers to join forces to solve
to the literature by providing empirically grounded conceptu- operational challenges with the support of a specified amount of
alizations of procurement’s central task in orchestrating vari- funding.
ous roles involved in procuring digital solutions, whereas the Finally, we recommend that procurement functions increas-
previous discussion has largely been confined to the overall ingly automate recurring processes and focus their resources
relational level (e.g., [6]). In particular, we detail the important on orchestrating strategic partnerships. Leading companies are
role of procurement in engaging the internal organization and learning to automate the standard transactional procurement of
the ecosystem in the pursuit of supplier-driven digitally enabled low value or commoditized products and services by building
process innovation [10]. digital capabilities to enhance efficiency and effectiveness. For

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 4188 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 70, NO. 12, DECEMBER 2023

example, automating simple tasks such as invoicing and recur- of how these types of ecosystem relationships impact the pro-
ring orders of consumables creates more time to develop insights curement process would be highly illuminating—particularly in
from data and to use these insights to identify improvement emerging contexts such as autonomous solutions [67].
opportunities. In consequence, attention can be focused on or-
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 4190 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 70, NO. 12, DECEMBER 2023

[66] A. Lyall, P. Mercier, and S. Gstettner, “The death of supply chain man- Vinit Parida received the Ph.D. degree in
agement,” Harvard Bus. Rev., pp. 2–4, Jun. 2018. [Online]. Avilable: entrepreneurship from the Luleå University of
https://hbr.org/2018/06/the-death-of-supply-chain-management Technology, Luleå, Sweden, in 2010.
[67] L. Thomson, A. Kamalaldin, D. Sjödin, and V. Parida, “A maturity He is currently the Chaired Professor of
framework for autonomous solutions in manufacturing firms: The interplay entrepreneurship and innovation with the Luleå
of technology, ecosystem, and business model,” Int. Entrepreneurship University of Technology. He is also a Visiting
Manage. J., Jan. 2021, doi: 10.1007/s11365-020-00717-3. Professor with the University of South-Eastern
Norway, Notodden, Norway. His research interests
include how companies can evolve their business
to higher profitability with digitalization through
servitization and business model innovation in
collaboration with leading companies in different industrial sectors. He is
currently an Associate Editor for the Journal of Business Research.
David Sjödin received the Ph.D. degree in
entrepreneurship and innovation from the Luleå Uni-
versity of Technology, Luleå, Sweden, in 2013.
He is currently an Associate Professor of
entrepreneurship and innovation with the Luleå Uni-
versity of Technology. He is also an affiliated Pro-
fessor with the University of South-Eastern Norway,
Notodden, Norway. His research works questions
how companies can change their business to profit Nazrul Islam received the Ph.D. degree in innovation
from digitalization through servitization and busi- management from the Tokyo Institute of Technology,
ness model innovation in collaboration with leading Tokyo, Japan, in 2008.
Swedish companies and regularly consults the industry. He is currently an Associate Professor of innova-
tion/entrepreneurship and an interdisciplinary path-
way lead for global political economy with the Uni-
versity of Exeter Business School, Exeter, U.K. His
research interests focus on interdisciplinary fields:
management of technology and strategy, innovation
and entrepreneurship, emergence and growth of dis-
ruptive and digital technology-based innovation, and
Anmar Kamalaldin received the Ph.D. degree in en- SMEs business sustainability. His research was published in the leading interna-
trepreneurship and innovation from Luleå University tional journals and he has complemented his peer-reviewed journal efforts with
of Technology, Luleå, Sweden, in 2021. three books.
He is currently a researcher at the Luleå Univer- Prof. Islam is a recipient of awards for his research, including the “Brad Hosler
sity of Technology, and his research focuses on B2B Award for Outstanding Paper” from USA and the “Pratt and Whitney Canada
relationships in digital servitization. His research in- Best Paper Award” from Canada. He serves on the board of directors for the
terests include innovation ecosystems and sustainable Business and Applied Sciences Academy of North America. He is currently
business models. an Associate Editor for Technological Forecasting and Social Change and the
Editor-in-Chief for the International Journal of Technology Intelligence and
Planning.

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