Supplier Innovation Value Chain Assessment
September 28, 2015
Alex Short
2 minutes

Supplier innovation offers a huge opportunity for companies who are looking to both become more agile, and to bolster their growth.  However, the supplier innovation process in many companies seems to be broken and/or not providing a return on investment.  Sadly this isn’t surprising when we realise that few companies have well-defined processes, or the measures to support and improve their idea flow.

As your company looks to boost its supplier innovation capacity, you should be wary of simply trying to implement another company’s best practices. Each company has it’s own unique challenges across the three phases of the Supplier Innovation Value Chain: Idea generation, Idea Conversion and Idea Diffusion, and one company’s best practices won’t suit your company.

So how should you boost your supplier innovation capacity?  In this blog I will look at the process of pinpointing your weakest links by using the Supplier Innovation Value Chain Assessment.

In a 2007 Harvard Business Review paper, “The Innovation Value Chain”, Morten T. Hasen and Julian Birkinshaw shared their thoughts on the problems with a one size fits all approach to increasing supplier innovation and, as a solution, they introduced the Innovation Value Chain.  Hansen and Birkinshaw recommended viewing innovation as a value chain comprising of three phases: idea generation, conversion and diffusion to help focus pinpointing weakness and strengthening deficiencies. They pointed to the example of:

“One firm—convinced that intensive idea generation would revive its ailing innovation efforts—established formal brainstorming sessions. But the company, already skilled at surfacing ideas, was inept at evaluating them—so ideas languished. Brainstorming only overloaded an already broken innovation process.”

By viewing innovation not as one process but as a series of processes you can begin to lock down exactly where your company excels, or drags behind.  You can create solutions which are bespoke to your individual company.
So, how do we do this?  Below I’ve created a table of the three phases of the supplier innovation value chain and their corresponding weaknesses.  So let’s dig in:

PhaseThe linkIt's weak if...
Idea GenerationCollaboration with suppliers Your company does not source enough good ideas from suppliers.
Customer of ChoiceYour company is not seen as a Customer of Choice by its suppliers.
Relationship ApproachYour company does not share enough information with its suppliers.
Price focused Your procurement team are focused on price, not innovation.
Idea GenerationCapturing ideas Your supplier management team are not skilled at recognising new ideas.
Internal alignment The procurement function is not aligned enough to drive supplier innovation.
Screening of new ideasScreening criteria is either so strict that it does not allow new ideas, or so loose that there are too many irrelevant projects.
Idea development Your ideas languish in parts of your company which are too busy to deal with them.
Not invented here syndromeIdeas from suppliers are not seen as important as internal ideas.
Idea diffusionSpreading developed ideas within and outside of the company Developed ideas don't get buy-in from customers, internal constituencies, distribution channels, or desirable geographic locations.

If any of those weakness sounds familiar then the tip is to identify them, and then strategise on ways to overcome them.  For example, if you recognised that your company may not be being seen as a Customer of Choice, then perhaps think about the reasons why this might not be happening.  Why are your suppliers hesitant to select you as a Customer of Choice? Sometimes it’s all to do with becoming a better customer.

Or, perhaps you’ve fostered a closed culture, where suppliers are left out of information sharing.  Maybe there’s a sharp divide between the supplier and the buyer, and there is little or no cross-over.  I know I’ve covered it before, but open collaboration is the key to supplier enabled innovation.  If both parties aren’t talking, then there probably isn’t going to be a sharing of ideas.

From lack of collaboration, to barriers of idea diffusion, whatever’s the weakest link in your Supplier Innovation Value Chain our questionnaire can help. The best way to combat the weaknesses in your Supplier Innovation Value Chain is to properly identify them, something our questionnaire will help with, freeing you up to begin strategising on how to strengthen your weaknesses.

Download the Supplier Innovation Assessment

Alex Short is Founder of Old St Labs he is passionate about building the next generation of business software. He is recognised as one of procurements thought leaders.
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