In 2004, Google released their Founder’s IPO letter, launching the ‘20% Rule’ as a means to drive Google’s innovative engine – by expanding the innovative capacity of their employees:
“We encourage our employees, in addition to their regular projects, to spend 20% of their time working on what they think will most benefit Google. This empowers them to be more creative and innovative. Many of our significant advances have happened in this manner. For example, AdSense for content and Google News were both prototyped in “20% time.” Most risky projects fizzle, often teaching us something. Others succeed and become attractive businesses.“
Insightfully though, Yahoo CEO Marissa Mayer, a former Googler, said, “I’ve got to tell you the dirty little secret of Google’s 20% time. It’s really 120% time.”
The term ‘innovative capacity’, while usually applied macro economically, is the amount of time and energy available to an enterprise to explore and develop new ideas and solutions to existing problems. There is a wealth of innovation potential in the minds of every company’s employees. However, because most employees do not have the time or available energy (or access to funding) to bring their ideas to fruition, their innovative capacity is either very low – or zero.
Editors note: this is the third in a three-part series by Mark Davis, exploring the opportunities for procurement leaders to evolve into innovation enablers (Read Part 1 – Procurement Enabled Innovation – A Case Study from the Cell Therapy World and Part 2 – The Need for Speed – A Case Study from the Drug Manufacturing World. While the series shares examples from the pharmaceutical industry, the actions and learnings can be applied across sectors. PI
BUZZ WORD: S.E.I. (Supplier Enabled Innovation)
Supplier enabled innovation is a topic at the forefront of many strategies. In other words, how can procurement pull innovative solutions from their supply base?
Procurement’s execution of SEI is usually an exercise of selling a new product or solution to an internal decision maker, then marketing it across all stakeholders. In organizations where procurement is more evolved, procurement professionals are expected to have the ability to influence and negotiate internally – to convince a stakeholder to stepping outside a potential comfort zone and embrace the possibilities of such innovative products or services. Of course, procurement usually does this because the new product, service, or process is less expensive, resulting in procurement’s ruling metric – savings!
“Consumers DON’T buy products — they buy solutions. Consumers have problems and they buy things that solve these problems.”
If most innovative products fail because procurement is pulling in a product, but not a solution (statistically, only 10-15% of innovative products are successful), the change management process amplifies the barrier to successful assimilation.
PURCHASING INNOVATIVE CAPACITY
I recently wrote a case study about how a procurement team was able to reduce the cost of a cancer drug by 66% by expanding the innovative capacity of the team. While the internal development team’s primary mission was developing a drug as quickly as possible, procurement harvested the ideas and expertise of the development team and expanded their innovative capacity by acquiring the services of third party scientists.
In this case study, the internal team’s innovative capacity to affect cost (through means other than procurement negotiation) during development was restricted. However, procurement was able to purchase the innovative capacity of an external partner and use it to affect cost through targeted innovation – including the internal stakeholders in the process by positioning it as a innovation they were driving.
One of the main reasons for innovative product failure is trying to sell a solution to a non-existent or imperfectly understood problem. To reduce failure, an organization should push problem identified internally through stakeholder partnerships to the market. Procurement is perfectly positioned to facilitate this.
An added benefit to purchasing innovative capacity to enable internal stakeholder initiatives, is that the stakeholder becomes part of the journey as an integrated partner. As a result, barriers such as “not invented here” are easier to overcome since the partnership inherently breaks down the silos between operations, procurement, and external contributors.
This helps make the change management process less daunting and procurement has insider help and advocates. It’s like a body rejecting a transplanted organ from another person, the recipient’s body views the donor organ as a foreign invader and works to eliminate it. However, the recipient’s body does not reject its own organs. Innovation borne from internal ideas is like a body’s own organ.
EXPANDING INNOVATIVE CAPACITY – RATIONAL EVALUATION
In another case study, I provided an example of how Procurement secured innovative capacity from an external collaborator and secured the internal at-risk funding for the project. In this example, Procurement modeled the deal’s cost structure to facilitate between finance and the technical team, then negotiated with the external partner to make mutual economic sense (a rational evaluation), ultimately reducing the projected cost enough to make the project viable. Procurement enabled innovation delivered savings by facilitating the purchase of innovative capacity.
“An innovative employee has extraordinary skills to provide or distribute his knowledge to others.”
Procurement does not always have the capacity to understand the operations / science behind product production and the business acumen to capture the insights that should enable innovation. Many procurement organizations do not manage their talent pipelines by developing technically astute individuals with strong business acumen, negotiation, and influencing / facilitation skills. However, the combination of communication, technical, business skills, and the learning acumen to understand the stakeholder’s environment/problems is the combination most suited to utilize innovative capacity as a product.
But what if the talent is available?
Procurement organizations tend to synchronize to the annual financial and performance cycles, thereby inherently pressured and bound to capture conventional savings over shorter-terms. To really harvest the power of sourcing innovative capacity, procurement organizations need the courage to both embrace the risk of failure and develop the patience and perseverance to evolve a project.
Stakeholder partnering to externalize innovative capacity is often a longer-term game that may not produce savings in a short-term savings metric cycle. Procurement professionals, particularly professionals who have adopted an attitude of NEW procurement (partnering and advising) over OLD procurement (transactional), are ready to enable innovation.
The largest setbacks are found in the culture of a procurement organization, the training available, and the support from leadership.
Procurement professionals need to learn to see innovative capacity as a product and invest in skills to achieve supplier relationship management excellence. Procurement professionals are generally excited and ready to explore partnerships and ideas to drive cost reduction by purchasing innovative capacity, generating a return of the investment in the form of cost reductions for existing products, revenue from license/royalties resulting from funded partnerships, or both.
All they need is a little support.