Supplier Enabled Innovation – where Business, Supplier and Procurement leadership contribute to open innovation!

This is the third article this month on Supplier Enabled Innovation.

The other two you can find by clicking on these links: Supplier Enabled Innovation: early involvement not always! and Supplier Enabled Innovation Key Success Factors.

Next month the topic will be on changing a procurement organisation.

Open Innovation Programs struggle to deliver

Open innovation programs struggle to meet CEO’s expectations. According to a McKinsey publication, 84% of the executives say innovation is important to their growth & strategy, however only 6% is satisfied with their innovation performance. What has 20 years of open innovation programs delivered to the companies running these programs? And what has been the contribution of the supply base to these results?

Suppliers’ companies are running similar open innovation programs like your company. Depending the industry, they invest 2-13% of annual revenue in their R&T and Innovation efforts. For sure most of this goes into improving the current portfolio, expanding markets and applications, usually >75% of budgets. However, if they can adapt, transform their businesses, they will also be looking at trends and developments that might disrupt their business. And it will be in these areas that they will be embarking on more ‘uncomfortable’ innovations which are normally described as adjacent (product + service) or transformational innovations (customer experiences).

How good is your company with an open innovation programs accessing these resources and funds of suppliers? In general we can conclude that the bulk of the companies is still not successful. Of course, there are several well-known and often quoted cases. However, most companies struggle. Why is this? Here I would like to discuss a few reasons.

Supply base and partnership opportunities need a larger piece on the  business agenda (albeit only resulting the COVID-19 crisis)

First, most CEO’s are customer focused and focus on top- and bottom line, M&A, asset utilization and their own core (technological) capabilities. Simultaneously this often coincides with a blind spot for what they could expect as a customer from their supply base, apart from cost reductions/increases and risks. In an increasing complexing world, the need to source capabilities, technologies, new developments from trusted business partners is increasing. The COVID-19 crisis has shown this. Business leaders need to commit themselves structurally for a mere part of their time to get involved in the relations of strategic supply partners and prospective suppliers as this would help to access the funds and resources for innovation. Value chain and network thinking also requires business managers and CEO’s to reshuffle their agenda to make sure that they also know their top 10 trusted and value generating suppliers as well as their strategies and related R&D programs. 

Open Innovation Programs could leverage existing partnerships more  

The second reason is that open innovation programs tend to focus on venturing, startups, scalers, universities, incubators, new business areas, licensing and of course building an open innovation culture and excellence program.  Relations with outside partners, start-ups (different stages of seed funding) are having their own challenges. Although technologies are often promising, hurdles like scaling up to regional or global roll out, IP agreements, non-matching cultures and large corporates too often engaging with a m&a mindset make these relationships in the least particularly challenging. Arguing that speed is needed, efforts to circumvent procurement are common. Engaging outside partners, jointly with procurement, including an increased focus on current strategic suppliers with focus on developing new and more strategic supply relations as an outcome might be for many open innovation programs an addition to the journey to increase success.

Procurement needs dedicated resources 

The third reason is where I address the Procurement leaders and professionals. Results of open innovation programs require strong support from procurement. Setting up a supplier enabled innovation program in any organisation and any industry is giving the speed of change an absolute necessity. Happily, we see already for years the importance of supplier enabled innovation reflected in the annual reported CPO’s top priority lists and a growing number of successful companies that embarked on this journey. Granted, not easy to do this successfully given the agenda where digitisation, talent management, complexing supply chain, daily operational issues, sustainability, driving supplier relationship management and continuing realisation of efficiency and cost reduction are already taking up so much of the headspace. Today I simply emphasis that supplier enabled innovation deserves dedicated resources, extra efforts, and x-functional resources to work with your strategic suppliers. At the same time, it needs rethinking of governance and operating models in which category management and the transactional process (even when located in business services) very often still dominate. Procurement leadership team needs to make it part of their agenda to work structurally with business leaders and the leadership of their key suppliers. Only then we shall see progress and value created from supplier enabled innovation.

If you are interested to discuss in detail, get support in starting up, improving  or designing your supplier enabled innovation or partnership activities, feel free to contact.

Next article will zoom in on transforming a global procurement organisation.