Thursday, 27 May 2010

Innovation with suppliers starts inside your organization

Although at first glance this may seem trivial, the answer isn’t that simple. But it’s crucial for the way you organize your innovation process with procurement. Will your R&D department develop on its own, protecting IP from outsiders? Or will it work with suppliers and customers to co-create? Or why not outsource the innovation by asking your partners to deliver certain end-results? And to complicate this decision further; how will this mode of innovation evolve along the stages of the innovation process? Will you start idea generation with your entire supply base? Or with a few partners? This is just the tip of the iceberg of questions that you’ll be asked when you want to decide on how to innovate. There is no ‘one size fits all’, so what you need is a set of structures and processes.

Steps towards organizing innovation with suppliers:
  • Define the types of innovation your company wants to apply, and for each;
  • Define the procurement business model, and;
  • Define process and required competences

Note that these elements impact both your internal organization and the interface with your suppliers. The type of innovation in the various steps of your innovation project determines the required business model, which is translated into structure, processes and competence requirements. For each type of innovation, you need predefined structures in place to support it.

By defining the influencing factor for the timing and extent of supplier involvement in the innovation project beforehand, the procurement and supplier involvement can be managed in a predefined way. For cases in which high uncertainty exists, this can be done stage by stage instead of beforehand. Key to this is setting up a decision model that helps R&D and Procurement alike to choose the right business model.

Once your company has defined the possible types of innovation in each stage, you can go further to define the business model that supports it. On a high level, this encompasses the client focus and target setting of the Procurement department, the activities and resources required and the partner network. This also includes governance issues such as the degree of differentiation (type of hierarchy, spread of involved departments) and the methods of integration (team structure, leadership, project management, targets, information flows).

Each type of innovation has different requirements to the differentiation and integration factors, and both are heavily influenced by your market position, corporate structure, infrastructure and culture. In this phase you might find that you need to set up new structures in order to support all desired modes of innovation

Finally, each type of innovation with its business model will have a different flow of the actual innovation process. It is obvious there are completely different roles required when doing co-creation as opposed to doing internal R&D. And so the content of the process varies among modes of innovation, as well as the required competences, the division of tasks and responsibilities, and the content of the innovation stage gates.

The competences are key to a rational division of tasks. Each innovation mode requires certain competence sets, and these will have to be sourced from the appropriate departments. Giving attention to these competence sets will help both Procurement and R&D define which competences should be present or developed where.

Specific challenges exist on organizing the collaboration with suppliers and managing the relationship throughout the innovation process. But before any relationship with suppliers is defined, you need to organize internally. As said, there is no 'one size fits all' model for this, you need a framework with all the options.

Only when R&D and Procurement are fully enabled to work together, you will be able to leverage supply base capabilities.

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