Procurement has achieved great things with the strategic sourcing process. It provided a uniform, robust approach to sourcing which senior management and stakeholders could buy into to purchase most procurement categories inside their organisation.
Its main focus to date, however, has been on cost reduction rather than growth. As a result, it didn’t achieve an automatic invitation into the outsourcing process, which is the critical make or buy decision. For this reason procurement has struggled to make firms’ strategic agenda and the majority of CPOs are still playing catch up to secure a leading role in the outsourcing decision.
Now businesses are looking once again at the next growth phase. Key to business growth is innovation and it is here that procurement must learn from the missed opportunities of not making the connection to outsourcing.
Innovation is increasingly coming from external sources rather than from internal R&D or marketing and technology has enabled the new and rapidly growing trend of ‘crowd sourcing’. This is when a company outsources innovation to a large group of people or community (a crowd), through an open call. For example, the public may be invited to develop a new technology, carry out a design task etc.
It does not get more strategic, so it is vital that procurement owns the crowd sourcing process and starts the journey to ensure that all procurement functions in future will have an innovation procurement discipline. To achieve this aspirational goal CPOs must ensure that innovation is on their agenda now.
Here are my top five recommendations for action:
1. Recruit entrepreneurial talent and train them in:
• Your firm’s business strategy, how it competes and its competitive priorities – these factors will impact how your firm approaches innovation
• Your firm’s innovation strategy
• Monitoring markets to determine where innovation is likely to occur
2. Develop a collaboration model to engage R&D, marketing etc on innovation which:
• Translates strategy into a collaborative model
• Provides clear governance
• Assesses competency levels in procurement innovation
• Accesses appropriate skills for innovation sourcing from each party
• Set up innovation teams with clear goals and performance measures
3. Develop criteria to determine what key sourcing principles will guide decisions to select the correct sourcing strategy ie. innovate internally, partner, outsource or crowd source.
4. Start a supplier innovation process which:
• Builds an innovation map of the IP in your supply base
• Accesses appropriate suppliers for innovation initiatives
• Determines the appropriate supplier innovation relationship
5. Develop criteria to ensure that the strategic intent of your chosen partner is aligned to your own organisation.
Innovation places the skills and responsibilities of the procurement function right at the heart of its process. Helping define needs, identifying and evaluating suppliers, negotiating and managing relationships are activities that procurement understands and has a track record of delivery.
However, new skills are also needed which all but a few procurement leaders have started to develop; the ability to sense and respond to events in external markets. This is a core competency which procurement must embrace if it is to place itself at the epicentre of the innovation process.
This skill provides the necessary agility to take the first mover advantage which secures competitive advantage while competitors catch up.
If you are still not convinced, take a look at Apple and its iPad competitors. Did I hear you say ‘what competitors?’. Nuff said.