Innovation: everyone is talking about it, everybody wants it. It seems these days since you can’t open a newspaper or conference without falling over the word. Innovation is held up by our politicians as the key to a successful economic future, it’s on the lips on most CEOs, and it even cropped up on our annual CPO Strategy 2012 report as a priority for the future role of procurement.
In the Procurement Intelligence Unit’s recent CPO Strategy 2012 "Innovation is seen as the most valuable asset procurement can deliver to the organisation... but there is some debate as to the best method with which to facilitate this". Procurement is not alone in this debate.
Part of the innovation debate stems from how it the term is defined as it has many, and sometimes conflicting, interpretations. Geoffrey Moore, a reputable academic and consultant in the innovation field, provides some clarity; he identified eight types of innovation ranging from the more radical disruptive, application and product innovations (i.e. products and services never seen before) through to process, experiential and marketing innovations (i.e. incremental improvements to existing products and services) to business model and structural innovations (i.e. changing the company value proposition or industry relationships). Moore also used his innovation types to overlay on a market life-cycle – disruptive innovations in the early phase, marketing innovations during the mature phase, and structural innovations in the decline phase – a helpful framework for organisations to determine what type of innovation to deploy and when.
Yet Moore warns that ’differentiation-creating innovation’ cannot succeed unless coupled with ’productivity-creating deconstruction’. Innovation creates competitive advantages for the organisation through differentiation, hence functions that innovate are often perceived to have a desirable status, but equally the radical end of innovation requires a high acceptance of risk and failure that suits only the most resilient (remember the old adage ’if at first you don’t succeed, try, try again’). Deconstruction on the other hand involves removing obsolete legacy systems or making them more productive, in turn delivering efficiencies and savings to the organisation and freeing up resources to implement and support new innovations. In considering which functions are best placed to carry out innovation and deconstruction roles, all functions have a responsibility to improve productivity and should competent if not masters of deconstruction. However, given innovation’s high degree of risk and failure and consumption of resources, innovation may be more suited to functions that have demonstrable ROI and responsibility for growth (e.g. market, customer base or sales revenue growth).
Deconstruction is essential if an organisation is to be successful innovator and removing legacy systems - standardising processes, automating, outsourcing and doing more with fewer resources – is a seemingly natural fit for the procurement function. Which begs the question; should CPOs shift their thinking from procurement delivering innovation to the organisation towards how the function can support the wider organisation’s capability to innovate (i.e. by removing barriers and simplifying the legacy processes)?
With the glamour and buzz surrounding innovation it is hard to imagine procurement bowing out of the innovation stakes in order to champion deconstruction for their organisation. It is not that the procurement function cannot or should not innovate, but in the broader scheme of organisational operations where precious resources are required to deliver innovation, these resources are best deployed to functions that demonstrate the strongest ROI. However healthy internal competition is also good for innovation; if procurement really wants to pursue innovation it needs to present a compelling ROI case to the CEO and then get ready to compete with other functions for the required resources.