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Everyone loves to talk about innovation. What people mean by it is quite another matter. In our research, we find organisations rarely have well-defined terms for innovation and use the slippery nature of the word to avoid measuring impact or demonstrating value. To prevent the definition becoming a constant caveat when analysing evidence of innovation, we asked respondents what they mean by the term.
We found 34% of companies define innovation as truly transformational change and improvement, but a larger proportion (40%) believe it also encompasses continuous improvement. A smaller group (24%) see innovation as only continuous improvement.
Supplier innovation – how good are we?
In this years research we asked companies to assess their current approach and capability on a scale of 1 to 10 ( 1 = very poor and 10 = very good). The largest proportion of respondents (65%) rate themselves at 5 or lower, indicating very low confidence in their ability. Only 6% rated themselves as good (8 or above).
Barriers to innovation
It is clear from the feedback that organisations struggle with supplier innovation and despite the opportunity it represents are faced with a number of barriers. The two most commonly reported relate to people and process. Almost half of companies say they do not have sufficient time and resources to engage with suppliers properly, and just over 40% blame not having an innovation management process.
Other barriers include organisational complexity and other business priorities both mentioned by around 40% of respondents. Despite the perceived barriers, supplier innovation remains a top three business driver for investing in an SRM programme for over one in four companies. More than eight in ten companies that have created a value proposition for SRM (47% in total) have made specific mention of supplier innovation.
Supplier innovation is also used to segment suppliers by 29% of organisations and over 50% of SRM leaders. Of those companies that have developed treatment strategies aligned to their segmentation (67% in total) 69% have included specific reference to supplier innovation.
Do organisations benefit from supplier innovation?
Overall most organisations say they do not benefit from supplier innovation. Only just over 12% of companies report more supplier innovation as being one of the benefits they receive from SRM. While the picture is different for SRM leaders, still only just over 26% say they benefit from supplier innovation. There is much room for improvement.
Innovation metrics
With so few organisations reporting that they have effective supplier innovation management processes in place, it is not surprising that few organisations have meaningful metrics. One in every three organisations report having metrics for supplier and those tend to measure outputs. Only 37 out of 402 companies report having effective measurement of the end-to-end process covering inputs, in-process and outputs.
Executive support
Support for supplier innovation amongst executives almost exactly mirrors that for SRM overall at close to 60%. The two ideas are closely linked and can feed off each other. SRM can gather more support via its value proposition, which should include a strong element of supplier innovation – a concept high up the corporate agenda.
Innovation strategy
Evidence of innovation strategies is sadly lacking. Only 24% of companies have a supplier innovation strategy. However the figure for SRM leaders is more encouraging at 61% and for fast followers, the figure is 40%. Those getting the best returns from SRM are investing in a supplier innovation strategy.
What’s in an innovation strategy?
Where an innovation strategy exists, most companies include a common set of best practice features. Innovation should be aligned to business growth and improvement goals: 73% of companies with an innovation strategy ensure this is the case. It is important that people understand what you mean by innovation in the context of the company’s approach. Around 67% of respondents say they include their innovation definition in their strategy document. It should have senior leadership endorsement and ownership: 62% of respondents say they have such support.
Enablers and incentives
Despite the relative immaturity of supplier innovation management processes, we were keen to discover what enablers and incentives organisations have put in place to help with innovation and to engage suppliers positively. The most frequent approach is to insert a requirement in an RFP requiring the supplier to either offer innovation as part of a proposal or to lock them into innovation as part of the contract. Almost 58% of companies include it in RFPs, and 41% make it a contractual clause. The popularity of using RFPs and contracts in this way reflects the relatively unambitious approach adopted by many companies.
While neither is without merit, these approaches alone will not stimulate the collaborative approach to innovation required to maximise its impact.
More effective approaches to creating incentives for supplier innovation include provision to protect supplier intellectual property rights. Evident in 53% of companies. Other measures that are more likely to be effective are adopted by fewer companies, for example having a mechanism in place to share benefits (28%) and setting up an innovation incubator or similar (26%).
Innovation process
Bright sparks of inspiration are often seen as the source of innovation. It seems like a natural phenomenon that does not sit well with a disciplined and structured process. But that’s a misunderstanding of what it take to benefit from innovation. The idea is only part of it.
Developing ideas into something that creates value for customers and stakeholders:
that requires a process. Just 15% of companies believe they have an effective process in place to simulate and manage supplier innovation. Looking at the propensity for SRM leaders to have an innovation management process, we see a markedly different picture. Leaders are twice as likely to have an innovation process compared to fast followers and five times more likely than followers. Again, the leaders are also the organisations getting the most value from SRM.
Resources and skills
When we looked at barriers to successful SRM, we found resources and skills were chief among them. Just 33% of respondents said they had sufficient resources and skills, nearly half said they did not, and 18% were unsure. We find similar problems in technology support. Less than 6% of companies have an IT system that helps them manage supplier innovation. Even where this is the case, it is often only a supplier portal that acts as little more than an electronic suggestion box.
Working collaboratively with suppliers on innovation
It’s encouraging that more companies are reporting increased collaborative working with suppliers (over 66%), it seems that not much of this is focused on innovation. Just 20% report increasing collaborative work on innovation. SRM leaders perform better, but still, only 30% say that supplier innovation is one of their collaborative gains. Even leaders are missing many opportunities.
Conclusion
Despite widespread acknowledgement that organisations will increasingly rely on suppliers for innovation, only a minority of companies have a plan to ensure they maximise suppliers’ brightest ideas for improving products, processes and services.
The pitfalls are common. Because innovation is poorly defined, it is difficult for organisations to know if they are getting what they want. They seldom apply the right metrics, so they are unlikely to know if they have succeeded. Incentives to involve suppliers are crude and fail to understand the supplier’s perspective. Organisations tend not to put the skills, resources or technology behind supplier innovation.
Lastly, too few companies have a process for supplier innovation. Naively, they think it can be forced via contract and performance management. But those who develop a method to harvest innovation from suppliers will get the most value from them, as SRM leaders’ performance demonstrates.
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