22 May 2007
Buyers need to look beyond traditional supplier relationships if they are to find true innovation.
And if purchasers wish to beat their competitors, they must look for innovation in less obvious places.
Professor Richard Lamming, director of the school of management at the University of Southampton, told delegates at a seminar in London this month: "If you are only looking for innovation in collaborative relationships, you are not looking for disruptive innovation."
He said if companies see their rivals being innovative, they would be able to follow and compete with them. Disruptive innovation is where competitors do not register new ideas as a threat until it is too late.
Lamming cited digital cameras and budget airlines as examples. Traditional market leaders were not concerned by these innovations when they were first suggested, because they did not threaten their business. But innovation and investment in these ideas quickly allowed them to become serious competitors.
He said the prime goal of innovation was often destruction, either of your competitors or changes to your own processes and behaviour. "Innovation is dirty work, and people get hurt," he said.
But he added although buyers now recognise they have a role to play in fostering innovation, many do not understand what is required. "You can't just be the same and do innovation," he said.
He recommended buyers look for new ideas from suppliers outside their sector, introducing expertise and innovation from different environments. He said they should not only know their own supplier markets, but also those of other industries.
Professor John Bessant, chair in innovation management at Tanaka Business School at Imperial College London, agreed with the need to look beyond the organisation for fresh ideas.
Addressing a business forum in the capital, he said: "Not all the smart people work for us - they never could. Unless you're going to take over the world and integrate it all, the argument would be to strike a balance with external innovators."
He referred to Procter and Gamble's policy of seeking 50 per cent of its innovations from outside the company as a successful business model with lessons for procurement.
As well as collaborating with suppliers and customers to improve processes, a procurement department should use its sources and information to inform other parts of the organisation.
Bessant said business is an increasingly network-based "multi-player game" and product or service innovation is too important to leave to R&D or marketing.
He concluded: "Quality is all of our responsibility and there is key potential for procurement to use resources out there to innovate and improve our products and offerings."