By Lone FønssSchrøder

Among the issues facing boards these days, none is more frightening than the prospect of innovators nullifying a business model or strategy, seemingly overnight. Well-publicized stories of disruption are a constant reminder that at any time, new and unrecognizable competitors can come up from below with high-growth start-ups built on compelling value propositions, lean digital company models, big data, and real-time intelligence.

Driving the point home is McKinsey & Company’s Strategic Principles for Competing in the Digital Age. As their recentarticle reports, a banking CEO said that his respective industry is in the midst of a transition that occurs once every 100 years. And it’s not just banking – every business in every industry is increasingly surrounded and affected by the rise of information technology.

Tech titans like Google and Amazon, with digital in their DNA, have pulled the rug out from under many companies. Meanwhile, smaller innovators like Uber, AirBnB, and Netflix have irked or eliminated incumbent players in their respective markets.

Boards of nearly all companies, and the leaders that report to them, now face the paramount task of responding to the havoc (and opportunity) caused by business’s total digitization and most, unfortunately, don’t have an answer.

Digital disruption doesn’t only apply to shaping industries: it starts from the inside out. As corporate leaders prioritize their digital agendas and explore ways to enhance capabilities, there’s huge potential to make an impact in an overlooked place: procure-to-pay (P2P). I believe boards should urge corporate leaders to transform their internal purchasing and payables from a manual, back-office function into a digitized, real-time cycle and an on-ramp for digitalization. Let me explain why.

Typically, board meetings review the order side of the business. Everyone wants to know where the next quarter is going to land. However, the order side is only one part of quarterly results and unfortunately, understanding spend and its inherent risks is still a big challenge. Too often, internal processes are manual and extremely slow; and the moment you know where your cost position is, it may be too late – leaders end up reporting a significant surprise to the shareholders, impacting stock prices.

Furthermore, most large-cap companies today function like banks, managing complex money flows across multiple business units. Their challenge is to properly design those flows, and implementing changes quickly when needed is hard without real-time cost and order data.

To meet the demand for visibility into costs requires a centralized and digitized procurement, AP, and treasury. P2P transformation is no longer limited to reducing costs, eliminating inefficiency, and meeting KPIs. Progressive organizations are managing growing streams of data and converging them into actionable insight to help support decisions made in the Chief Financial Officer’s office. They’re accurately predicting quarterly costs to improve analyst ratings, and even reduce currency risk, which I’ll explain later.

For most, however, P2P digitization as a strategic priority is nowhere in sight when it should be. Take manufacturing, construction, and engineering companies, for example, which operate on less than 10% margins. To make a profit, many are transitioning into managed-services companies, such as Rolls-Royce, which now delivers engines as a service. Such a transition means increased reliance on other businesses (suppliers, partners, etc.) which, in turn, means a need for closer and more seamless connectivity and much more transparency. They’ll also need real-time information to help maintain and grow their margins.

Unfortunately, most are not going to get that kind of information using legacy ERP systems. If anything, because ERP software projects are typically plagued with long implementation timelines, cost overruns, and little focus on the real-time aspects of the business, they leave you at high risk for ending up with different results than you expected from your supply chain. Those with high debt will be put at risk. Such cost volatilities can trigger a breach of a debt covenant. At worst, that can spell game over.

Supply chain risk can be greatly mitigated through digitization. An open network of digitally connected suppliers means that their data is born electronic, rather than paper or PDF. It enters buyer systems through the cloud as purely digital, flowing into applications and tools in real time to inform everything from supplier master data to payment terms, and beyond. Far from being a luxury, digitally based analytics can make or break complex decisions, such as choosing between two different currency strategies.

A digital agenda also delivers the real-time information needed to reduce guesswork, and it makes events or decisions more predictable. This is helpful for shareholders and for the banks that provide loans or credit. Real-time data improves compliance to debt covenants and helps to monitor and optimize working capital processes. Consider the cost to your company if you cannot expand because you don’t have enough cash and can’t get credit. Reframed, what is the cost if you don’t have control of your information? With the right technology, you can have access to that information. If your company is listed on an exchange, there’s no reason why Wall Street analysts should have better information about it than you do.

By driving a digital agenda in procure-to-pay, business and finance leaders can benefit their organizations in three ways:

1. Process optimization: By increasing use of electronic invoices, you can reduce approval cycle time, supplier inquiry calls, and invoice exceptions (by having suppliers resolve exceptions themselves). At the same time, you can improve visibility into overall AP processes and increase global compliance. Process optimization can save up to $7M per $10B in spending.

2. Financial returns: Automating accounts payable opens the door to huge savings and returns present with dynamic discounting. Essentially, you can invest cash safely at rates that can significantly exceed returns from many other traditional investments. Using programs and other working capital optimizations can result in up to $30M in savings per $10B of client spend.

3. Indirect cost savings: Currency risk is multiplied by the time it takes for transactions to be available in an ERP system. Speeding up the availability of transactional data – specifically, actual invoices that have future foreign currency obligations – will help your treasury make timely strategic foreign currency decisions that can result in significant savings. While a PO or similar order system can serve as a plan-ahead mechanism with lesser visibility and accuracy, access to real-time invoice data in foreign currencies before this data makes its way through an ERP system can be an effective tool in foreign currency hedging strategies. Your treasury staff will be better able to seize favorable FX rates and know when it is best make local currency payments.

Defunct major companies like Blockbuster, Circuit City, and Tower Records are prime examples of victims of the first wave of digital upheaval. A new wave is now upon us that will touch every industry, even those thought to be immune to disruption. (Deloitte hascoined such industries as “long fuse, big bang,” which include health, education, and utilities.) By targeting your digital initiatives at procure-to-pay, which regardless is already in need of modernization, you can begin to deliver the one-two punch that will keep you ahead of the disruption.

Finally, one of the companies on the forefront of helping enterprises digitize procure to pay is Tradeshift, a Danish startup that is now based in San Francisco. Born in the modern cloud era, the company, which is led by pioneers of e-invoicing in Denmark’s public sector, has built an open platform that facilitates the flows of data and transparency that I detailed above.

Lone FønssSchrøder is a member of the board of directors at Volvo, AKSO, SAXO, Schneider,Valmet, and Advising Credit Suisse – Towerbrook, and a co-owner XO &Norfalck.