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Innovation is such a wonderfully powerful word and such a wonderfully broad concept. Innovation can be complex; but, it can also be simple. Some innovations are market-driven while others are engineering-led. Innovation can create markets and innovation can create dilemmas. Whether innovation results in an industry “game-changer” or a simple, incremental improvement, innovation is generally in the eye of the beholder. Procurement-led innovation is no different.
Procurement’s Innovative Ideas
Innovation is a process, not an idea. Peter Drucker, the prolific management theory expert, defined innovation as “change that creates a new dimension of performance;” a positive change, something that creates new value or increases current value. Drucker’s definition is useful in explaining the real truth about innovations – that most are incremental in nature and build upon earlier work – most do not happen overnight. For example, despite popular belief, Thomas Edison did not invent the first light bulb in 1879; he built upon the work of Humphry Davy, the English scientist who invented the first electric light seventy years earlier. This context is important when analyzing the most popular innovative ideas of CPOs since that list looks more like a series of recommendations than a list of truly “game changing” strategies. Procurement-led innovation generally starts at the edge of current operations and strategies and builds upon it.
Innovation in a procurement context is also relative. For some CPOs, innovation is taking a TCO (“total cost of ownership”) approach with a new category like marketing and developing sophisticated models that add rigor to the sourcing and management of a very complex and high-dollar category. For other CPOs, innovation is impacting revenue by identifying suppliers for several cross-promotional marketing initiatives. For one procurement executive in higher education, innovation is helping students get internships with strategic suppliers. And, for some CPOs, innovation may mean running their first successful reverse auction or automatically classifying 98% of their spend for the first time and being able to slice and dice it. One VP of Procurement describes innovation as his company’s “lifeblood” and says that his company has a goal “to drive 50% of its innovation from external sources” including suppliers, customers, and other third-parties. Innovation may be relative, but for each enterprise, innovation is important and for most, serves as a critical path to improvement.
Collaboration is King
As noted above, CPOs understand that collaboration is a powerful strategy that can enhance savings opportunities and increase their level of influence within the enterprise and across the supply base. When it comes to innovation, collaboration is king once again. Collaboration is the bedrock of innovation because it helps accelerate the proliferation of ideas. Innovative academics and investors[1] believe that the speed in which interdisciplinary ideas can cross-pollinate is a powerful determinant to the pace of innovation within an enterprise and across a supply chain.
One director of procurement we know recently led a project designed to improve the level of collaboration between the procurement and engineering teams in the sourcing of certain parts. The thrust of the effort was to get the two groups working more closely together on projects and to start collaborating on sourcing much earlier. The project has paid off with the groups moving from a standard “three bids and a buy” approach to a more robust strategic sourcing process. The new process has helped establish a better understanding of market pricing and the best suppliers while protecting the engineering team’s budget and mitigating supply risk.
Final Thoughts
In order for procurement to take the lead on innovation, CPOs need to make procurement a collaboration and innovation hub. Collaboration is not simply the reason to call a meeting; it can become an operating principle. While innovative ideas need time to incubate but they also benefit from a collision of perspectives and expertise. With an ability to support and impact the lines of business and most business functions, procurement is uniquely positioned to bring interdisciplinary groups together on collaborative projects.
Interested in topics like this that matter to the CPO? Consider attending our CPO Rising 2016 event in Boston on March 29 & 30, 2016 where “procurement-led innovation” will be a main theme. Registration is now open.
[1] Steve Jurvetson, Managing Director of VC Firm, Draper Fisher Jurvetson, Sir Ken Robinson, author and creativity expert, and Tom Kelley, GM at Design Firm IDEO are among the experts who share this view.
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