TOP FLEVY AUTHOR [?] Innovation-driven Procurement

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Framework Primer
Innovation-driven Procurement
Presentation created by
Company DNA Role of procurement Type of innovation
PROCUREMENT STRATEGY

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Contents
Templates
Procurement Operating Model Dimension: Culture
Overview
Procurement Operating Model Dimension: Strategy
Procurement Operating Model Dimension: Organization
Procurement Operating Model Dimension: Processes
Procurement Operating Model Dimension: People
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This framework discusses how to become an Innovation-driven
Procurement organization by examining the 5 dimensions of Procurement
Presentation Overview
About 10% of mature Procurement organizations have already contributed significantly to
their companies’ growth.
Procurement is shifting from a traditional cost-cutting role towards a more strategic
function, whereby it actively contributes to growth. With this shift, Innovation is beginning
to play a more important role within Procurement.
This framework focuses on how to transform Procurement into an Innovation-driven
organization. In order for Procurement to truly embrace Innovation and support the
Innovation Strategy, the Procurement Operating Model must be examined and adjusted
accordingly. We examine each of the 5 key dimensions in the Procurement function:
Other topics discussed include Company DNA, Organizational Patterns, Agile Processes,
the Supplier Selection Matrix, among other topics. This deck also includes a set of slide
templates for you to use in your own business presentations.
1
2
Strategy
Organization
Processes3
People4
5 Culture

There are 5 practices to adopt for Procurement to foster Innovation within
its organization
Procurement Innovation Practices
In the organization’s Innovation Journey, Procurement plays an impactful role.
For our organization to truly embrace and foster Innovation, there are several practices the Procurement
function can adopt:
Outcome-oriented Goals
without Constraints
Provide opportunities to our suppliers to test ideas without constraints and reward
good ideas without judging other suppliers.
Innovation Tour
Organize visits to regions advanced in specific areas and encourage the Procurement
teams to attend industry forums
− Some leading companies do this by organizing regular visits to emerging markets,
like Asia and South America
Innovation Forums
Organize forums, where we invite suppliers to propose ideas, commit to investments,
and provide spend visibility for winning ideas.
CEO Partnership
Encourage CEOs to share their Innovation Strategy and Vision; and lead joint R&D
efforts with Procurement.
Become our Suppliers’
Favorite Customer
Build long term mutually beneficial relationships with a few suppliers.
Ensure first hand access to “small” innovations with these suppliers.

The Procurement Operating Model consists of 5 key dimensions—
we must examine and adjust each to drive Innovation
Procurement Operating Model – 5 Key Dimensions
The crux of the Operating Model is the Procurement Strategy, which should seek
to enhance the Procurement value proposition
In order for Procurement to support the Innovation Strategy, the Procurement Operating Model must be
examined and adjusted accordingly. There are 5 key dimensions to the Procurement function.
Source: Open Innovation: How Can Procurement Contribute Effectively, Oliver Wyman, 2017
Strategy
Organization Processes
Culture People

Contents
Templates
Overview

The role of Procurement Strategy is to enhance the Procurement
value proposition
1. Strategy – Overview
If Procurement is given a clear mandate with explicit objectives, it can operate in “push”
mode—i.e. selling the innovation model to internal and external stakeholders
The first major change to the Procurement Operating Model is the
strategy, as Innovation can dramatically enhance Procurement’s value
proposition.
Procurement Strategy is driven by 3 primary components:
− Company DNA
− Type of innovation (e.g., more disruptive vs. more
incremental)
− Role of procurement
OBJECTIVE Enhance the Procurement value proposition
KEY QUESTIONS
What is our type of
innovation DNA?
What’s the balance
agreed upon with R&D
between internal vs.
external Innovation?
How do we incentivize
partners to participate
in “Open Innovation?”

Procurement Strategy is driven by 3 levers—Company DNA, type of
Innovation, and role of Procurement
1. Strategy – 3 Components of Procurement Strategy
Although company DNA is more of an input than an actionable lever, it is an essential input
for Procurement in defining its role and vision for the Organization’s Innovation Strategy.
PROCUREMENT STRATEGY
Open innovation as an
additional resource
Procurement is leading open
innovation initiatives
More disruptive
Open innovation at the core of
the company’s strategy
Open innovation function has
the lead and is leveraging
procurement for process and
contract matters
More incremental

Contents
Templates
Overview

Next, with the Strategy set, we need to adapt the Procurement team’s
structure
2. Organization – Overview
Over time, most organizations focus Innovation resources on short-term innovations and
leave long-term innovation initiatives to be handled by the category manager.
Once the new Strategy is established, we must adopt the internal
organization that is most appropriate to the new value proposition.
One of the key decisions is whether Innovation should be part of overall
category management and have dedicated resources. There are 3
possible organizational patterns to address this:
− Organizational Pattern 1: Category Management
− Organizational Pattern 2: Innovation Buyers
− Organizational Pattern 3: Hybrid Approach
Organizations typically start with the first pattern, where they test and
learn (and repeat). They typically aren’t successful in the beginning and
stages and consequently migrate to the preferable second pattern, where
they dedicate specific resources to Innovation.
OBJECTIVE Adapt the Procurement team’s structure
KEY QUESTIONS
Should dedicated
teams be structure or
should they be part of
the category
management work?
How do we structure
teams—e.g. per
category, per product,
per technology, per
geography/region,
etc.?

There ae 3 possible organizational patterns for an Innovation-driven
Procurement organization
2. Organization – Organizational Patterns
Category strategy
Mid term action plan
Supplier panel and market share
targets
Scouting
Scouting and development of new
suppliers
Innovation
Supplier Innovation leveraging
Key deals
Management of strategic deals
with key suppliers
Frame contract mgt
Expertise
Market knowledge
Cost modelling
Benchmarking
SRM
Mid term action plan
Supplier panel and market share
targets
INNOVATION BUYER
Category manager
Category manager
Innovation buyer
HYBRID APPROACH
Category manager
Category manager
Long term
innovation
Short term
innovation
Innovation
buyer
CATEGORY MANAGER
Category manager
ACTIVITIES

The 3 organizational patterns are Category Management, Innovation
Buyers, and a Hybrid Approach of both
2. Organization – Organizational Patterns Descriptions
Organizations adopting Innovation in Procurement typically evolve from the first
organization pattern to the second, ultimately reaching the hybrid model.
PATTERN 1
Category Management
PATTERN 2
Innovation Buyers
PATTERN 3
Hybrid Approach
Innovation is embedded in
category management
This model often falls short, as
category managers tend to be too
focused on category strategy
This second pattern requires
additional resources and
seamless communication with
category managers
It has proven to typically work out
overall
In this hybrid model, innovation
buyers lead short-term
innovation, whereas category
managers are in charge of long
term and disruptive innovation

Contents
Templates
Overview

We must also evolve our Procurement processes to be more agile and
inclusive
3. Processes – Overview
We also have much to gain by becoming the “favorite customer” of a handful of key,
strategically selected suppliers.
Many Procurement organizations have developed clear, rigid processes to
be more efficient internally or to respond to regulatory requirements.
However, these processes are counterproductive to capturing Innovation
from highly Agile organizations, such as startups.
Adjusted and Accelerated processes offer a path towards greater agility,
which allows for capturing more Innovation from suppliers.
− Adjusted and Accelerated processes shorten the Sourcing,
Negotiation, and Contracting phases of the Procurement cycle
To maximize supplier benefits, we should embed Innovation into our
approach to SRM. SRM targets both existing and new suppliers.
OBJECTIVE Implement Agile and inclusive processes
KEY QUESTIONS
How do we adapt the
Procurement process
to small, Agile, and
innovative startups?
What Supplier
Relationship
Management (SRM)
mechanisms can
stimulate our suppliers
and make us become
their “favorite client?”

In selecting key suppliers to develop closer relationships with,
we can use the Supplier Selection Matrix
3. Processes – Key Supplier Selection
Developing closer ties with suppliers allows us to negotiate valuable benefits, such as first
hand exclusive access to their latest innovations.
To determine which suppliers to develop privileged relationships with, we can leverage the Supplier Selection
Matrix.
Supplier potential
Existing capabilities
Future capabilities
Star
Capable today and in the future
Dilemma
Capable or not today and may
be capable in the future
Laggard
Capable or not today and not
capable in the future
Develop
Low Medium High
No specific SRM (SPM only
Innovation
thanks to
SRM
Partners

Contents
Templates
Overview

As with any transformational effort, we need the right talent in place to
execute upon the changes
4. People – Overview
Some CPOs have set a 20% annual turnover objective to encourage profile diversity.
KEY QUESTIONS
What employee
profiles and new skills
do we require?
What’s the career
path?
How can we source
the kind of talent we
desire?
Of course, with the changes we tend to make, we must ensure we have
the right talent in place to execute upon the changes.
In addition to core Procurement expertise, we should seek employees that
exhibit the following attributes:
− Strong business acumen: to better understand business
expectations, competitive positioning, and what role Innovation
plays within the broader organization.
− International background: to better understand and work within
global Innovation networks.
− Influence and leadership: to sell and engage on Innovation visions
with internal and external stakeholders.
− Communication skills: to collaborative expediently with internal
stakeholders and suppliers
We should also embed Innovation objectives into compensation schemes.
OBJECTIVE Grow Procurement talentsThe content on this page has been partially hidden.

Contents
Templates
Overview

Lastly, we must create an open culture supportive of Innovation
5. Culture - Overview
We must develop the right set of tools to foster internal collaboration, interact seamlessly
with suppliers, and ensure visibility of interactions with suppliers across the organization.
To truly develop, foster, and sustain Innovation, we must also develop a
corporate culture of Innovation.
Oftentimes, middle managers will learn of outside innovations, but discard
them in favor of the status quo
− Organizations need to accept they cannot master all of the patents
in their products. Thus, they not have the “not invented here”
mentality, which causes them to reject outside advancements
We need to lead employees to think of Innovation as part of everyone’s
jobs—everyone is responsible for Innovation, even if the word isn’t in the
job title
OBJECTIVE Create an open culture
KEY QUESTIONS
How do we foster a
collaborative culture?
What is the right set of
tools to manage a
culture of Innovation

Contents
Templates
Overview

Insert headline
5 Key Dimensions of Procurement Operating Model – TEMPLATE
Insert bumper.
Strategy
Organization Processes
Culture People
• Filler text, filler text, filler
text, filler text
text, filler text
text, filler text
text, filler text

Insert headline
3 Components of Procurement Strategy – TEMPLATE
Insert bumper.
PROCUREMENT
STRATEGY
Open innovation as an
additional resource
Procurement is leading open
innovation initiatives
More disruptive
Open innovation at the core of
the company’s strategy
Open innovation function has
the lead and is leveraging
procurement for process and
contract matters
More incremental

Insert headline
Organizational Patterns – TEMPLATE
INNOVATION BUYER HYBRID APPROACH
Long term
innovation
Short term
innovation
CATEGORY MANAGERACTIVITIES
Category manager
Category manager
Innovation buyer
Category manager
Category manager
Innovation
buyer
Category manager
Expertise
Category Strategy
Scouting
Innovation
Key Deals
Supplier Relationship
Management (SRM)
Insert bumper.

Insert headline
Key Supplier Selection Matrix – TEMPLATE
Insert bumper.
Supplier potential
Existing capabilities
Future capabilities
Star
Capable today and in the future
Dilemma
Capable or not today and may
be capable in the future
Laggard
Capable or not today and not
capable in the future
Develop
Low Medium High
No specific SRM (SPM only
Innovation
thanks to
SRM
Partners

This presentation was created by LearnPPT. We are a team of
management consultants trained by top tier global consulting firms
with a collective experience of several decades. Our documents
consist of business templates, business frameworks &
methodologies, and PowerPoint templates.
View our available presentations on Flevy here:
https://flevy.com/author/LearnPPT

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1
Flevy (www.flevy.com) is the marketplace
for premium documents. These
documents can range from Business
Frameworks to Financial Models to
PowerPoint Templates.
Flevy was founded under the principle that
companies waste a lot of time and money
recreating the same foundational business
documents. Our vision is for Flevy to
become a comprehensive knowledge base
of business documents. All organizations,
from startups to large enterprises, can use
Flevy— whether it's to jumpstart projects, to
find reference or comparison materials, or
just to learn.
Contact Us
Please contact us with any questions you may have
about our company.
• General Inquiries
support@flevy.com
• Media/PR
press@flevy.com
• Billing
billing@flevy.com

TOP FLEVY AUTHOR [?] Innovation-driven Procurement

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