Does have Purchasing a role to Play in the success of Innovation?

In many organizations Innovation is the domain of Research and Development or Marketing. How come that Purchasing is almost not on the radar screen of innovation? And what may be the impact of this?

In the Master Thesis Strategic Purchasing and Innovation, written by Casper ten Cate from the University of Utrecht (Science & Innovation Management) in collaboration with Capgemini Consulting, an answer on the questions are given. In his survey, he handles 12 case studies of Purchasing Functions in organization of different market sectors. He shows a significant correlation between three factors regarding Purchasing and the impact of the success of innovation:

• Level of Strategic Purchasing
• Supplier Involvement
• Purchasing Integration
  

De hypothesis is validated that if all three factors applied in the organisation, contribution to the success of innovation is significantly.

In respect to this he describes four different patterns in the relation of Purchasing and Innovation:

Pattern 1: Achieving a contribution to innovation by purchasing:
Pattern 1 comprises those companies that have obtained high scores for ‘level of strategic
purchasing’ and high/medium scores for ‘supplier involvement’ and ‘purchasing integration’, as well
as a medium/high score for the dependent variable ‘purchasing & innovation’.

Pattern 2: No innovation via purchasing:
Pattern 2 includes the companies that have low or very low scores for the three independent
variables, as well as for the dependent variable. This applies to both of the Maritime and Harbour
Services companies. Contributing to firm innovation is not within reach.
These companies are currently busy defining the purchasing function and its position in their firm.
The majority of purchasing activities are operationally oriented, there is little room for long-term
issues or carrying out a purchasing strategy.

Pattern 3: Entrepreneurial purchasing:
Pattern 3 comprises the companies that have a medium/low score for the ‘level of strategic
purchasing’, but generally high scores for ‘purchasing integration’ and ‘supplier involvement’, and
also an above average score for ‘purchasing & innovation’. These companies – while large on a national scale – are relatively small compared to the other
companies in the case study and correspondingly have a relatively small purchasing staff. While this
means that the level of strategic purchasing is medium or low for these companies, it does mean that purchasing is inherently closer to the rest of the organization: purchasing is well integrated in both companies.

Pattern 4: Stuck in the middle:
Pattern 4 includes the companies that are typically in between the companies in pattern 1 and the
companies in pattern 2 in all the variables. They have medium scores for the ‘level of strategic
purchasing’ and medium/low scores for ‘supplier involvement’ and ‘purchasing integration’.
Furthermore, they have little contribution to firm innovation by purchasing. These are companies which do have a clearly defined purchasing function in place – albeit not on the
highest strategic level. Furthermore these companies involve suppliers to a certain extent and there
is some purchasing integration in the company. They have thus far been unable to achieve a
contribution to firm innovation by purchasing.

Another conclusion of this survey is the fact that the key bottle neck for Purchasing to contribute to the success of Innovation is the Purchaser him or herself!!! I wrote already that the business community is desperately looking for the New Generation Innovators, this is also very truth for Purchasing.

I like to invite you to watch our vision on slideshare:

Innovation Driven Procurement

Freedom of speech, transparency of information and new web technology: minimum basis for Open Innovative Society

In December Capgemini organized a round table session for clients in corporation with the Center for Inquiry of the United Nations and Mint Consultancy. The topic of the event was: “An more active role for companies in creating an open innovate society is vital for solving global social issues”

Several trends and developments describe the rise of an open innovative society. In this kind of society, there will be no differences between people and their role in the classic way of producer, consumer, owner, civilians and patients. Now the can play each role simultaneously. Key indicators for success are freedom of speech, transparency of information and the availability of new web technology.

Up to now this theme is mainly discussed in the academic world and global governmental organizations. The (global) business community is relative not active participating in the discussions and needed action to create an open society.
We organized this event to invite some of our clients like DSM and Friesland Foods to take their share in the process.

Our keynote speaker of the event was Austin Dacey. He is a philosopher who works as a United Nations representative for the Center for Inquiry, a think tank concerned with the secular, scientific outlook. He is also the author of the book: “The Secular Conscience”.

The key message of his speech is the power of the new concept Open Society: mobilizing the individual capabilities of people to create innovative solutions for social problems in the world. This new concept is also described by other new thinkers such as Charles Leadbeater in his book “We-thinking”. How to create an open society?

1. Create the core of a basic idea for a social problem: enough to work on, but with enough possibilities for additions.
2. Motivate and entice participants: treat the participants as ‘peers’ and not as employees, civilians or suppliers. Participants see their contribution as representing personal development and status. They are looking for concrete and practical benefits. Besides this, low entry barriers and user-friendly tools are essential.
3. The need for (virtual) meeting places: a place where people can work together interactively and where clear rules of ownership (getting, using and returning) are established, based on new web technology.
4. Self-distribution of work: an open working method based on high acceleration of the peer-to-peer review process that quickly identifies the good ideas and that can be elaborated upon.
5. Think LEGO: innovations are split into a series of modules that fit together and can be integrated. The integration is regulated on the basis of clear, simple and centrally created design rules. These rules and protocols make it possible to allow mass innovation.
6. A new form of leadership: these are no traditional corporate chief executives ore political party chief, but leaders with characteristics such as modesty, willingness to remain in the background, self-confidence, strong norms and values, passion and attachment. Their specifically top-down style of leadership makes large-scale, decentralized, bottom-up innovation initiatives possible.

Based on the ideas of Austin the participants discussed the role and responsibilities of business organizations. There are many road blocks ahead:

• Large companies have already great difficulty to create this concept within the boundaries of their own organization, let alone to organize this beyond their boundaries.
• Companies have to accept the paradox of interest: short term profit based on constrains in transparency versus long term value based on openness.
• Many employees fighting the paradox of Security versus Freedom. People give up (personal) freedom to Executives, Financers, Governments in order to take key decisions and accept the consequences. In a lot of places in the world there are still many firm constraints to speak up freely without severe personal consequences.

All participants believe strongly in the new concept en the need for their active participation. Not only for their own business innovation capabilities to create short term profit but also to participate in enduring openness of the society in solving global issues. The key question still is how to begin and to endorse the initiatives?

Capgemini and the Center of Inquiry of the United Nations together will take further initiatives to play an active role en bring concrete solutions to clients and stakeholders.

How do you know that your Innovation Strategy is the right one?

Many strategy knowledge centers like Insead, Havard Business School and McKinsey Global Institute are publishing many white papers on how to design (Innovation) Strategies. Yes, it is good stuff, but the key hurdle for a successful Innovation Strategy is the implementation of the design.
During implementation you will face the daily hurdles of Business Transformation. When the ambition level of Innovation is high (like Blue Oceans or New Business Models) implementation will be harder proportionally.

During implementation of an Innovation Strategy you also will experience the speed of changes in the assumptions you made in the design phase of the strategy. You need to go for a Strategic Scenario Thinking approach. This approach enables you to translate different trends and business drivers into you Innovation Strategy.
If significant changes occur you have already alternative scenarios in hand. Each scenario will indicate the need for adaption of your Innovation Portfolio as well.
Together with Daan Giessen, I build an approach to challenge your Innovation Strategy and the way you can adapt your Innovation Portfolio:

Challenge The Innovation Strategy

View SlideShare presentation or Upload your own. (tags: innovation strategy)

What impact will have the Financial Crisis on Business Innovation?

So far we have seen Innovation as a luxury in growing economy. What will happen if we are facing with severe down scaling of the real economy? Do the current innovations methodologies like Blue Ocean Strategy, Open Innovation, Co-Cration, Brand Building helps companies to Innovate without having money for investments available?

I think this will be the time to change significantly our vision on Business Innovation. The financial sector has created a virus of so called Phantom Innovation. These innovations are focus on one-sided and short term enrichment for a small group of Robbers (hedge fund owners, specific group of CXOs). Of course they played with the less smarter but not less greedy consumer and small private investors. The Phantom Innovation creates only Phantom Value.

The good thing about the crisis is that there is a global burning platform to change from Phantom Innovation to Sustainable Innovation. We need to develop global real value with accessibility for everyone.
We saw different people speaking up against the legal robbers in politics and the economy. People like Charles Leadbeater but also Noreena Hertz: "I realised that economics is not about models, graphs and curves, but about people, politics and society, about history and culture; that these are all legitimate things to be concerned about as an economist. In fact, you would be a much better economist if you did understand these things."

I believe we will face a new generation of global leaders showing us the way to more Sustainable Social Innovations. I see it already emerging in different companies and the flow is with them. The future history will refer to this last decennia as the NEO- middle-ages in politics and economy.

Why are Business Innovation Managers more successful than others?

In many different Innovation Management Surveys the key issue still is successful implementation. The theories will promise outstanding results but the hardness of reality faces us with tough hurdles to cross.

The theory “Blue Ocean Strategy” is one of the examples which supplies managers with a perfect model to change market boundaries. In my opinion the implementation part is still very academically and lacks concrete practical keys for implementation.

Techniques for idea generation like SIT (systematic Inventive Thinking) en TRIZ (Theory of Inventive Problem Solving) are too complex to incorporate in our organization of today. These systematic techniques ask for structural new ways of working and organizing the innovation process. This isn’t something an Innovation Manager with a project portfolio to manage can fixed at the same time.

A Innovation Manager faces quite some hurdles to be successful in implementing innovation projects:

- A manager per definition lacks the time to master complex models and even to endorse it in his organization.
- The Innovation Manager’s task is to integrate the so called “golden triangle”: R&D, Marketing & Sales, Operations. Each business function has its own objective and targets. This lead in many cases to a Political Arena. The Innovation Manager becomes suddenly a Gladiator.
- In order to get budget for the innovation project, many project managers create a Social Accepted Business Case. Their Sales Funnel looks like a perfect Hockey Stick. Of course, during the implementation reality it looks like a flat horizontal line.
- An innovation project is seen as one of the many projects instead as a business project (focus on capturing new business value: money!)

Together with top innovation managers tried and tested (special thanks to Mr. Remco van Es, DSM) we defined some Innovation Project Characteristics of successful implementation:

- Projects with focus on one unique product versus more than one product.
- Projects with clear focus on one unique positioning in the market versus a product with more interpretations on the benefits for the client.
- Projects with just one partner versus more than one or non partners.
- Projects managed by a Manager with an entrepreneurial Business Profile versus a managerial Marketing, R&D or Operations profile.
- Projects with a stable core dedicated team players versus changing team settings.
- Projects with specific cross functional design events (high pressure cooker approach) versus just separate project streams.
- Projects with implementation scenarios versus one “best” way.

The characteristics of Innovation Projects seems to be a little trivial but in real-life situations we see hardly any manager able to endorse it.

It seems to be that Innovation Manager prefer to go down as a Gladiator in the Political Arena rather than being the successful Outsider of the company!

Business Model Innovation Archetypes

In the engagements with our client we face that business model innovation is a complex issue. Many aspects are involved and these are also intertwined. As I wrote in articles earlier we use a Business Model Innovation Framework based on Oosterwalder. We use this framework to facilitate the in depth discussion with our clients according to the systematic approach to create more business value. In these discussion sometimes we end up into an academic dilemma if we can speak about a new business model or just an improvement of the current business model. In concrete terms: how many of the building blocks of the framework have to change in order to speak of a real new business model. Personally I think that it is not a key discussion but I looked for some interesting peer views on the web. I found an interesting paper of MIT Sloan: Do some business models perform better than others? The authors defined a Basic Business Model Archetypes. They use two key criteria:
1. What rights are being sold?
2. What type of asset is involved?

In the first criteria they defined different rights: ownership, use, matching. In the situation of ownership they distinguish an ownership of asset with significant or limited transformation.
The second criteria they came also with four different types: Financial, Physical, Intangible and Human assets. If you combine these two sets of criteria you get theoretical 16 possible archetypes. The good news is that in the study of the largest 1000 US companies they discovered only seven types in practice. As I work a lot with high tech companies and manufacturers I am interested in the physical assets with gives three archetypes:
1.Manufacturer: creates and sells physical assets. Buys raw materials or components from suppliers and then transform or assembles the asset to create a product sold to buyers. (example: General Motors)
2.Wholesaler/Retailer: buys and sells physical assets. Buys a product and resells essential the same product to someone else an may provide additional value by transport, repackaging and customer service. (example: Wall marts)
3.Physical Landlord: sells the right to use a physical asset. The asset may be a location or equipment or even complete production plants (example: Marriot, Hertz).

We see that a lot of our Business to Business Clients are willing to move from one to type two or event to type three. We start to analyze the different archetypes in terms of differentiation of the Business Model Innovation Framework. As expected we see some logical differences in dominancy of the buildings blocks within the framework.
We use the outcome in two parallel ways. The first way (insight out) is we analyze the impact on the current business model of a running innovation project and see if it will lead to a new Business Model archetype and what kind of transformation is needed. In the second way (outside in) we use the Business Model Archetypes to challenge the current Innovation Portfolio in order to change the projects to boost the value creation.

The conclusion is that Business Model Archetypes can indeed help clients to improve the discussion of the current Innovation Portfolio and how to boost there business value. But only if the archetypes are in detailed analyzed by the Business Model Innovation Framework value can be captured.

Business Model Innovation: Rational versus Emotional value performance

In my Innovation Team we work with clients on innovation and the influence on their current business model. We analyze the current business model using a framework based on the ideas of Alexander Osterwalder. We focus on the business model impact of the innovation portfolio of the client. In addition to the financial (Rational) performance of the business model we analyze the emotional side of the performance as well. We find out that two value performance indicators can be measured and managed on the emotional side of the business model: Reputation and Experience.

Reputation is the way stakeholders think of, speak about and act upon the image of your company. If you can create a company that people identify with, that is responsive to their sense of values, justice, fairness, ethics, compassion and appreciation, they will help you to be successful [Walter Haas, Jr., Chairman of Levi-Strauss].Reputation can be measured and managed. Good examples and cases can be tracked from the Reputation Institute. RI is the leading international organization devoted to advancing knowledge about corporate reputations and to providing professional assistance to companies interested in measuring and managing their reputations proactively.

Experience is a well known term in marketing for many years. In relation to innovation a new term is out: Experience Innovation. Clients and customers choose products and services more and more for emotional reasons. The get a first idea of what Experience means look at Wikepedia: Value can be placed on a continuum from undifferentiated (referred to as commodities) to highly differentiated. A possible classification for each stage in the evolution of value is:
- If you charge for undifferentiated stuff, then you are in the commodity business.
- If you charge for distinctive tangible things, then you are in the goods business.
- If you charge for the activities you perform, then you are in the service business.
- If you charge for the feeling customers have because of engaging you, then you are in the experience business.
- If you charge for the benefit customers (or "guests") receive as a result of spending that time, you are in the transformation business.
Experience can also be measured and managed. In 2005 Thomas Thijssen, director of research of the European Centre for the Experience Economy developed, together with Ed Peelen (Nyenrode Business School) and Susan Bink (University of Amsterdam), a new tool to measure the impact of meaningful experiences.

To become successful in business model innovation is is vital to include the two additional building blocks in the business model framework: REPUTATION and EXPERIENCE.

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