Supplier leveraged innovation


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One of the greatest tools to accelerate your competetive differentiation - supplier-leveraged innovation.

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Supplier leveraged innovation

  1. 1. Executive SummaryIn 2008, the global economy was close to a total meltdown Banks went bust, stock prices and home valuesplummeted, and the auto industry was begging for a bailout. Uncertainty was persuasive and decision-making cametemporarily to a standstill.Fast forward a year, and things are starting to look up. The general consensus is that the worst is over, althoughwe’re not out of the woods yet. Customers are, cautiously, beginning to spend again, and the overall economicoutlook is trending into positive territory.For the past year, major projects and spend items were put on the backburner. That approach made perfect sense,and in some cases, it still does. However, companies cannot avoid strategic investments and improvements forever.In today’s fast changing business environment, those Companies that want to remain competitive must also beinnovative. Innovation, after all, transforms the useful seeds of invention or ideas into solutions valued above everyexisting alternative.Companies should now focus on three key areas: When the Downturn Hit What to consider now Strategic  Focus on survival  Focus on the future portfolio  Programs were cut back or cancelled or put on  Understand and align activities with the company’s alignment with life support emerging strategy for capitalizing on the recovery business  Priority on protecting programs that best aligned  Prioritize the portfolio for growth, focusing on projects that with business strategy, while limiting exposure have a direct and visible impact on customers to medium and long-term operating cost commitments that could be avoided or deferred Innovation  Reduction is assignment of resources to  Rigorous focus on alignment of innovation with resourcing, innovation activities portfolios, strategic objectives, trending, competitive  “ad-hoc” and lackluster effort due to a lack of initiatives, consumer demand and internal process resources, funding and risk apetite optimization (perhaps at the fringe of the enterprise ecosystem – work smarter and better with suppliers and partners) Operational and  Razor-sharp focus on spend discipline to control  Loosen control mechanisms and focus on creating win/win procurement costs and make the operating environment more solutions with suppliers and partners discipline predictable  Resolve supply chain and product (demand management)  Emphasis on streamlining suppliers and partners issues and driving hard bargains without destroying  Continue to focus on discipline in effectively managing important commercial relationships suppliers and partners across the value chainInnovation is not just simply developing new technologies into new products and services, but in many cases findingnew models for doing business in the face of change. It often entails changing the rules of the game.The primary objectives continue to be on how to gain a strategic, competitive advantage using innovation, and howto compete in a world with rapidly changing technologies and globalization.Effective execution of innovation initiatives often overturn the way value is created and appropriated. This raisessome interesting questions. What exactly is an effective innovation strategy? Which innovation project is likely tocreate the most profit and gives a Company competitive advantage? If resources and effective utilization ofresources are truly the cornerstones of competitive advantage, what are the roles of resources during the innovationcycle? How to tie innovation with corporate strategy? Competitive reaction? Trending? Consumer demand?
  2. 2. Innovation: Taking care of the Fuzzy BitsSince the word innovation entered the business lexicon, it’s come to mean different things to different people.There’s a tendency to speak of innovation in the context of advanced technologies, futuristic product developmentand the development of new “game-changing” strategies. At the root, however, innovation is fundamentally aboutdoing something differently to deliver demonstrable business value, at the top line, bottom line or both. Against thatstandard, the successful application of new ideas to reduce costs clearly constitutes innovation—at least in theory.For a company wishing to tap into the knowledge within the enterprise, having an adequate supply of ideas isn’tusually the problem. In fact, the paradox is that too many ideas can swamp a company’s ability to develop andimplement effective cost reduction initiatives. Hans, a pioneer in helping companies manage their ideation process,predicates its business on the philosophy that collective intelligence tools—for all their merits—are only as valuableas their ability to produce practical results. Imagine ideas as a series of light bulbs. While adding more bulbs makesthings brighter, the diffuse, non-harmonized nature of their light makes it impossible to channel that light toward afocused goal.I also know the importance of reflecting each company’s uniqueness. It’s seen in the way my professional servicesstaff works with each customer to build the environment that is most likely to leverage the culture andorganizational dynamics and produce the most successful cost reduction ideas. Procurion, through its IdeaMarketplace solution, professional services capability and unparalleled track record, has emerged as the clear leaderin this space—and has the results to prove it.We based these conclusions on a series of interviews that we conducted at the end of 2012 with some of our clients1. When it comes to innovation, what is the biggest challenge that you see organizations facing?Organizations don’t fully understand the term innovation. They think about it as some kind of monolithic term. Butthe fundamental challenge that organizations face with innovation is something most of them aren’t really aware of.That’s the fact that there are really two kinds of innovation — innovation to sustain the core and innovation forcreating new business platforms in the long term. The two couldn’t be more different. They play different roles instrategy. They need to be developed according to different timetables, with different levels of resources and differentpeople, rewarded in different ways.Innovations meant to sustain the core are developed within a company’s current business model and so fit verycomfortably within its existing processes. These are generally short- and medium-term projects. The companydevotes large teams and substantial funding to and then rightly expects large revenue payoffs pretty soon in return.But innovations meant to fuel the future – need to operate more like start-ups do, starting as small projects overseenfull-time by a small group of people given a small amount of funding. And, critically, they need to be understood aslong-term seeds for growth. They need to be given enough time – five to seven years in many cases — to find theirpath to fulfilling their potential before demands are made on them to contribute significantly to the top line.All too often, companies fail to distinguish between the two and treat all innovation efforts as short-term, coreinitiatives. So as a practical matter, the people chartered with fueling the company’s future end up having to splittheir time over too many projects both short and long term. Worse, they subject both kinds of projects to a singletime scale and are rewarded with the same incentives. In my view, that’s the critical problem that companies tryingto innovate need to confront.
  3. 3. 2. What can organizations do to get smarter about failure and to tolerate the long lead times that innovation oftenrequires?Say a $40 billion company wants to grow 10% a year. That means it has to come up with an additional $4 billion inrevenues every year — $4 billion is a lot of growth to get. Companies want to innovate to fill that annual gap, buthere’s the problem: The biggest opportunities for transformational growth need to start small and take time todevelop. You can’t use transformational growth innovations to keep growing your core year to year.The only way you can use innovation projects to generate sustained revenue growth from year to year is to managethem as you would, say, a Christmas tree farm. The trees you harvest each year were planted years ago. Successiverevenue gains are the result of seedlings planted in successive years and nurtured appropriately as they grow larger.Some companies understand this and build new growth year after year. But that growth is not the result of asuccession of $4 billion innovation projects they produce every year—it’s the result of long-term investmentsthey’ve made in the past. This requires innovation to be in synch with risk management and risk tolerance criteriawithin the EnterpriseThere is a business rhythm to developing new-growth initiatives, and that business rhythm requires patience forgrowth. The only way to tolerate the long lead times is to set expectations correctly—internally and with WallStreet. If you set the expectations that you are engaging in a tree-harvesting process that will grow to maturity in thefuture, if you have built up a portfolio of innovation projects that includes both long-term transformationalinnovation projects and more near-term sustaining innovations – and you properly distinguish between the two inthe way you manage them, then you can overcome that impatience for growth in your new-growth businesses andresist the temptation to apply near-term success metrics to the wrong projects. You can develop them in the rightway so that the future revenue will arrive.If you don’t do it, some other company will. Five to seven years from now, the future will be the present, and if youdid what you should have done correctly now, you will be able to use new-growth initiatives to close your growthgaps. But there are simply no shortcuts and no substitute for good planning.3. Are companies better served by moving into the “Unknown” or by licensing their IP to someone for whom theactivity is core (or pursuing some other type of external collaboration)?What you’re basically doing is getting value for the nugget. That’s helpful, and you’ll get some money for it – aquick hit to your bottom line, since it’s pretty much 100% profit. But what you’re giving up with that is real growth.So the question is, when should you pursue that kind of growth, when is it an innovation too far?There are two broad ways to structure that choice. One is in terms of your stage of growth:  If your business is booming in the core, and you have more growth than you know what to do with, I probably would support licensing. You don’t have time to develop this thing but could get some money for it, so you might as well get that.  But if your business is starting to show a growth gap, you may want to seriously consider whether there’s some real opportunity to close that gap with some of these technologies. You could actually incubate a business around the technology and generate growth that adds to the top line and the bottom line in a very real way.The other way to look at it is the question of how far are you from the core:
  4. 4.  If you’ve come up with some technology whose application isn’t remotely connected to any kind of assets you could bring to bear, then you might say, “This is just too far out of our wheelhouse and forget about it.”  But if the technology connects to your basic customer mission in some way, then that’s a different story. As If there’s a real customer here who has a real problem that we actually should consider addressing, and it actually helps enhance our strategy, then regardless of what you have to learn to do differently, you better go get good at it.4. What are some of the biggest barriers to innovation that you’ve seen in organizations?Some of them I’ve already mentioned:  Failing to distinguish between the two types of innovation and as a result failing to embark on enough — or any — disruptive, new-growth projects  Splitting up innovators’ time among new-growth and incremental innovation projects  Being impatient for revenue growth  Using the wrong metrics to measure success for new-growth innovation projects and otherwise trying to shoehorn new-growth initiatives into your existing business model.  A disconnect between corporate risk tolerance and an acceptance of inherent innovation failure ratesThe most important barrier is created by the most fundamental mistake – when companies don’t have an explicitstrategy for innovation in which they develop a balanced portfolio of incremental and new-growth initiatives. Toomany companies really just run with an ad-hoc set of projects, and they don’t even think about which ones areincremental and which ones are fundamentally new. Among those incremental projects too often are simply effortsto make existing offerings better when those offerings are already as good as they can be in terms of what peoplewill pay for. You can improve them, but that won’t allow you to raise prices.5. What skills do you believe managers need to acquire to succeed in an innovation-led organization?The primary skill leaders need is to understand that sustained growth arises from a “create, operate, trade,” dynamic.Companies that grow sustainably create businesses, operate them, plant the seeds of the new growth that willeventually supplant the current growth, and — when the time comes — trade off the businesses that have reachedthe limits of growth. That means leaders have to operate the core and think about what will replace it at the sametime. To do that, of course, requires that they recognize the difference between the two kinds of innovation efforts.But beyond that, leaders have to take an active role – they have to embrace, support, and sponsor both kinds ofinnovation efforts, and adjudicate, protect, and nurture the needs of each in different ways. Very often they have toprevent the creative efforts of the new-growth projects from getting squashed by the engine of the core, especiallywhen the company gets in trouble and the core is demanding resources. That requires two sets of skills: Leadershave to be able to coach and nurture the seedlings as well as to oversee current operations and expect the numbers.
  5. 5. 6. If you were to change one thing about our educational system to better prepare students to contribute in theinnovation workforce of tomorrow, what would it be?Innovation is really about having a passion for continually learning. How do we get students be curious, to bewilling to ask questions — “Why is that?” “How does that work?” — and get those questions answered in context ofthe educational system?The question for educators is, How do you get students to think not just about one subject at a time – about history,then English, then math, then science — but about how those ways of thinking relate to one another? I guess that’s apitch for interdisciplinary, theme-based approaches to education that help children integrate different kinds ofknowledge.
  6. 6. CONCLUSIONThe messages are clear. Companies need to foster an innovation culture, tolerate failure, assess risk andleverage every brain available. Get the fuzzy stuff in order before the business of innovation creates wealth.#1 - Include the Most Important Member of Your Innovation Team - The End UserThe customer is king. All innovation efforts will fail eventually if the end user is not driven to use your new productor service. Make sure everything you do starts with: "Who is the end user and why do they want this?"#2 - Challenge an Orthodoxy (The Way Things Are)The point of innovation is to come up with new ideas that can be turned into tangible outcomes (most measure interms of profit or other quantitative metrics). However, some of the best ideas are not new ideas but are insteadchallenges to existing assumptions (think of Apple challenging the way music was sold or Dell challenging the waycomputer were purchased and assembled). However, those kinds of insights require all employees to be comfortablechallenging the "way things are" around them. The further out in the organization you can instill this mentality, themore impact it will have on your culture. What benefit could come from your line workers feeling like it was theirjob to suggest new ways of doing things?#3 - Get Someone "Up Top" InterestedThe majority of innovation teams start when a CEO or CIO says that it will be so. Those struggling to improvethings from the bottom up without initial support will need to work to get the attention of someone up top. Withouttop level support, you may never gain the resources needed to really move the dial and impact the entireorganization.#4 - Take a Diagonal Slice across the OrganizationWhen assembling a new innovation team, it is best to take a cross functional/diagonal cut through the organization.Many companies start with something that looks like a country club meeting with top level executives gettingtogether to discuss how to improve the performance of the common employee.Instead of limiting the innovation team to top level strategic thinkers, make sure you include some middle levelmanagers and some low level individual contributors. On top of getting suggestions from various levels throughoutthe organization, you will also be adding team members who are willing to put in extra effort to take advantage ofthe exciting opportunity.#5 - Dont Forget Your Managers - Their Brains Still WorkMost managers were once the lower lever employees who went to college, dreamed of making the world a betterplace, and happily moved away from concentrated individual work to manage a team towards bigger objectives.Managing a team doesnt allow for many individual contributions, but managers brains are still working (most ofthem anyway). When you are looking to implement a company-wide innovation process, make sure you createsystems that allow and encourage managers to give quick bursts of energy and submit their individual ideas.
  7. 7. Keep the Momentum Going:#6 - Stick to the Vision at All Costs - Do the Coin TestWhen innovation deviates from the initial founding vision, the space between you and your current consumer isincreased. dilute Resources are diluted, focus reduced, and most importantly employees lose their passion. Ideas arecheap. Many paths end with increase profits. Make sure your path lines up with your vision so that all employeeswill passionately follow. Follow Medtronics example and carry a physical reminder of the corporate vision on acoin. When you have a tough decision to make, review the vision on the coin to help set your path. If you dont havea clear vision that links to a consumer benefit, then that is the first place to start.#7 - Demonstrate the BenefitAll innovation efforts should be tracked and measured. While is not always easy to quantify the impact of improvingthe culture or the benefit in increased communication, you can track things like the geographical diversity of ideacontributors (put stars on a world map), the number of unique idea contributors, and the total number of ideasgenerated. When you do get a solid win, make sure you take the time to communicate it across the company.#8 - Expect 96% Failure RateCompany executives are surprised by the finding that 96% of innovation efforts fail. Based on personal experience,I would have guessed that failure was near 90%. Whatever the number is for your industry, failure is part of theinnovation process. Your goal is to create a process that allows you to fail quickly and avoid wasting resources. Howare you set up to learn from your mistakes and keep moving with renewed passion?#9 - Develop an Innovation "Pressure Cooker"New ideas cant get off the ground relying only on 15 minute blocks of time between meetings or other project work.From time to time you need to grab a team of people, rent a space off site, and commit days at a time to uncoveringnew consumer insights and product ideas. Make sure enough time is allowed to get from the discovery phase all theway to the creation of a full action plan and timeline. When possible, bring in some of your end users to the session.Recognize what Success Looks Like#10 - Increase Human ConnectionsWhen reviewing your innovation efforts, make sure to determine if you connected people and increased dialog. Ifyou got people talking, then you were successful. If no new conversations have started, you need to rethink yourapproach.I can be reached at +1-416-931-5241 or