Innovation Isn’t About What You Control, But What You Can Access. The Procurement View.
Article based on an excellent and inspiring article by Greg Satell:When I read the article, I immediately thought about Procurement because Procurement could (yes, could…) play a vital role in the innovation process by bringing the outside in.
The secret sauce for innovation…
The secret sauce is secret because innovation itself and conditions that foster it are, both, quite complex topics that I will not dare to address in their entirety. However, the fact that innovation constitutes a competitive advantage and is a condition for survival is not a secret; many companies learned it the hard way. Therefore the motto “innovate or die” is, more than ever, a critical one. No organization is “too big to fail.” No organization is immune to the VUCA (Volatile, Unpredictable, Complex and Ambiguous) world we live in
Therefore, organizations need to move to new operating models and acquire new capabilities to move from managing incremental innovations to managing “disruptive” innovations:
Incremental innovation focuses on continuous improvements (DMAIC) in existing products or services.
Disruptive innovation creates a dramatic change that transforms existing markets or industries, or even builds new ones, by introducing groundbreaking new products or services.
To do that, they need to connect with the right people (internally and externally) and have correct data to identify/assess/execute and transform their operations and/or business/operating model. Of course, there are many other cultural conditions for innovation: motivation, risk tolerance, diversity…
Supplier-led Innovation and Procurement: a long way to go
Procurement has a crucial role and responsibility in managing innovation (incremental or disruptive). It is because its openness to the outside world and its diversity are essential factors that boost creativity and innovation. Also, the thing is that Procurement has (potentially) access to a massive source of new ideas: suppliers.
However, the reality is far from being ideal. The role that Procurement and suppliers can play in the innovation process is still not at the level it should be.
For example, several reports from the Hackett Group show that:
Procurement has a deficient ability to execute
The importance of (supplier led-)innovation decreased over the last three years.
The lack of positive evolution in “execution” together with a decreasing level of “importance” is worrying for the future of the profession (and the future of those companies).
And, this is exactly why the article that I mentioned earlier resonated with me…
“Today, your competitiveness is not based on the assets and capabilities you control, but what you can access. So rather than focusing on what your capabilities are internally, you now need to think about how you can extend them into customers, partners, vendors and open platforms to access ecosystems of technology, talent and information.” Greg Satell
The text above should really speak to Procurement professionals and be a wake-up call regarding the role they can/should have to support innovation processes because Procurement operates in a business ecosystem and must become a platform for growth & innovation!
Being granted access…
Access (internally and externally) to the right resources is vital for innovation. And, as Satell says, you can only be given access. Procurement cannot force the door open. Stakeholders, partners, and suppliers will let Procurement in as long as they see Procurement as a customer/supplier of choice (and not a squeaky wheel).
“Every time [customers] interact with a product, a service, a person, or an automated system, they judge how well the interaction helped them achieve their goals, how much effort they had to invest in the interaction, and how much they enjoyed the interaction.” Outside In: The Power of Putting Customers at the Center of Your Business by Harley Manning, Josh Bernoff, and Kerry Bodine
Many factors influence how business partners judge the quality of the interactions they have with Procurement. It is for that reason that Procurement should focus on the concept of “experience” and embrace it on the stakeholder side (“customer experience”) AND the supplier side (“supplier experience”). It is, in a nutshell, and among other aspects and considerations on the pillars of the digital transformation of Procurement:
Access to data and information is another factor that impacts the capacity organizations have to innovate. It is because many innovations are data-driven. The most immediate example in the area of incremental innovation is the 6-sigma methodology that is very focused and centered on data and data analysis. However, there is a broader and newer perspective on data that contributes to more profound and more disruptive innovations. Data ecosystems and marketplaces are emerging. The convergence of several new technologies create a new potential to buy/sell/use data in a way that is both efficient, effective, and trustworthy:That data, in turn, can be a source to make better products or services or to create new businesses or revenue streams. Some sectors are already getting such benefits. For example, the pharmaceutical industry uses data to provide tailored treatments to each patient. It is possible because of the integration of sensors in everyday life products called wearables (smart watches are an example) that track and record vitals and other health information. In addition to that digital health technology, the vast amount of health-related data can be put to the service of increasing the efficiency and effectiveness in the development of new drugs and treatments. Artificial Intelligence is central in leveraging that amount of data to shorten development cycles.
The automotive industry is following the same path of data-based innovation and transformation. Digital transforms almost every sector through (and because of) data. All of this has evident implications for Procurement because companies’ products are evolving towards services and outcomes based on data. That obviously changes the external spend profile of companies and requires Procurement to manage new spend categories and/or new suppliers (technology, data providers,…). Beyond a passive role, Procurement can (and must) be more proactive one by identifying new suppliers and trends on the supply market that could represent opportunities for innovations.
Because of the space Procurement occupies in organizations, it can be the cornerstone of a deep transformation that focuses on developing ecosystems and platforms to provide/get value to/from all partners, inside and outside. That approach relies on being a supplier/customer of choice and collecting new and more data. These are some of the crucical conditions to get access to resources, ideas, and insights that no other organizations have access to; the foundation of a competitive advantage!