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. Given the level of organizational maturity, it is no surprise that most procurement-led innovation today focuses on the incremental; but, the reality is that many of the enterprise’s larger, longer-term opportunities will depend on how well procurement identifies and drives innovation within the enterprise and across the supply chain.
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.
Procurement-led Innovation: How do You Define it?
Procurement-led innovation generally starts at the edge of current operations and strategies and builds upon it. It is also relative. For one Chief Procurement Officer (CPO), innovation is taking a total cost of ownership (TCO) 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 another CPO, innovation is impacting revenue by identifying suppliers for several cross-promotional marketing initiatives. For another, innovation is helping students get internships with strategic suppliers. And, for other 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 prominent CPO describes innovation as his company’s “lifeblood” and says that their organization 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. For most CPOs, innovation serves as a critical path to improvement.
Innovation Doesn’t Happen in a Vacuum
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. It is the bedrock of innovation because it helps accelerate the proliferation of ideas. Innovative academics and investors 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. Moreover, no enterprise has cornered the market on innovation. If enterprises believe that innovation can occur beyond their four walls, suppliers should be viewed as a source of knowledge and expertise that can be leveraged to competitive advantage and mutual gain. But the typical buyer-supplier relationship paradigm must evolve if innovation is to have a chance of developing.
Final Thoughts
Procurement-led innovation can take many forms and can be brilliantly interpreted many ways. Above all else, it is critical to not accept the status quo; there is almost always room for improvement, even in high-performing procurement organizations. After all, even the finest-tuned machines still need to be regularly tuned and re-tuned in order to maintain their cutting edges. CPOs looking for ways to improve their organization can look at people, processes, technologies, strategies, and stakeholders as prime targets for procurement innovation. All are fair game for innovation. Innovate or stagnate.
