SEI: Where Open Innovation Programs, Business, and Supplier Leadership meet!
Open innovation programs struggle to bring the results CEOs typically expect. A recent McKinsey publication stated that 84% of the executives say innovation is important to their growth & strategy, yet only 6% are satisfied with their innovation performance. What has 20 years of open innovation programs delivered to these companies running their programs? And what has been the contribution of their supply base to these results?
Are suppliers not running open innovation programs like your company? Depending on the industry, they invest 2-13% of annual revenue in their R&D and Innovation efforts. Probably most of this goes into improving the current portfolio, expanding markets and applications, usually >75% of budgets. However, if they have the ability to 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 also be embarking on more ‘uncomfortable’ innovations which are normally described as adjacent (product + service) or disruptive innovations (eg. customer experiences).
How good is your company with an open innovation program, at accessing these resources and funds of suppliers? There we only can conclude that the bulk of the companies are still not successful. Of course, there are some well-known and often quoted cases. But, most companies struggle. Why is this the case? Let’s discuss a few reasons.
Firstly most CEO’s think customer focused, top and bottom line growth, m&a, asset utilisation and focus on their own core (technological) capabilities. Simultaneously this often coincides with a blind spot for what they might expect as a customer from their supply base, apart from cost reductions/increases and risks. In an increasingly complex world, the need to source capabilities, technologies, new developments from trusted business partners is increasing. Business leaders need to commit themselves structurally for a part of their time to get more 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 manage 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. Here quick fixes supported with annual targets will not work.
“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.” – William Pollard
Secondly, open innovation programs tend to focus on venturing, start-ups, scalers, universities, incubators, new business areas, licensing and of course building an open innovation culture and excellence program. Relations with external partners, start-ups (different stages of seed funding) have their own challenges. Although new technologies can often be 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 very challenging. Arguing that speed is needed, efforts to circumvent Procurement are becoming common. Engaging external 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.
The third reason focuses on the Procurement leaders and professionals. Improved results of open innovation programs can be secured through strong support from Procurement. Launching a supplier enabled innovation program in any organisation and any industry is giving the speed of change an absolute necessity. For many years we have seen the importance of supplier enabled innovation reflected in the annual reported CPO’s top priority lists and a growing number of successful companies that have embarked on this journey. Granted, not easy to do this successfully given the agenda where digitization, talent management, more complex supply chains, daily operational issues, sustainability, driving supplier relationship management and continuing realisation of efficiency and cost reduction are already taking up so much of the resources. Today we have learnt that supplier enabled innovation deserves dedicated resources, extra efforts and cross-functional resources to work with your strategic suppliers. In addition, 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 teams need 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 real value created from supplier enabled innovation. If you are interested to discuss this further, please feel free to contact the author, using the Contact Us online form.
“The history of innovation is the story of ideas that seemed dumb at the time.” – Andy Dunn