Procurement is accustomed to working with big suppliers. The function has decades of practice designing processes, workflows and contractual arrangement that interface with third-parties, which has grounded the professional mindset to managing relationships through standardised frameworks.
But as discussed previously there are many factors holding back procurement from working with smaller, more innovative companies, such as start-ups. A large part of the problem relates to the structural limitation of large multinationals, but another aspect is the mindsets of those who operate as procurement professionals in such organisations. That said, never has the function been under more pressure to deliver innovation – especially in sourcing disruptive innovation.
At Procurement Leaders’ upcoming APAC Congress in Singapore we will be working to find solutions to some of the biggest challenges procurement faces around working with startups. These will include:
Innovation has come late to procurement. The function is used to managing and enforcing contracts, but co-creating value with partners is a new and very different challenge. Historically, global companies have relied on large R&D teams to work through planned incremental roadmaps of change. The new environment for business is different.
“What is important to realise is that multinationals usually own or make the market, but that they’re not able to innovate as they used to,” says Toby Ruckert, founder at UIB, an omnichannel messaging solution provider.
“A startup, on the other hand, has by definition the sole purpose of innovation in its DNA but when multinationals see the disruption potential from such innovations, they often get scared. The question then becomes: innovate, or, be disrupted.”
This burning issue requires multinationals to hone their ability to develop their ability to source disruptive innovation. This sourcing will ultimately conduit through procurement, a function which is increasingly defining its value proposal around delivering innovative new products and projects for the business.
Yet, disruption and innovation are increasingly coming from these small startups. But given the tools and compliance-focus of buyers, you need to ask whether you are equipped to take the risks that such a move requires.
The instability of the startup environment is an anathema to procurement. Ideas and businesses quickly come and go. Business strategies are torn up rapidly. Whole product-lines are transformed overnight.
This is the freedom and dynamism that allows for entrepreneurs to play with disruptive concepts. But this instability itself disqualifies startups from the consideration for corporates.
Niak Wu Koh, founder at Intelligent Warehouse, believes that the general risks tied to the term startup, is itself a major problem. Indeed, we have seen countless examples where compliance functions have intervened. But, as Koh notes, multinationals have “a non-ability to quickly sandbox projects”.
This is a deadly combination for corporates. If procurement is to extract disruptive innovation, it needs to operate with an appetite for risk, but also an understanding of the realities of the disruptive work in which startups themselves operate.
To focus on procurement exclusively, however, is unfair. Both sides need to challenge their thinking.
The realities of working with multiple stakeholders in a variety of jurisdictions, regulatory constraints and robust internal compliance functions are a fact of life for procurement executives. Yet many startups entirely overlook these constraints when pitching their products.
“Multinationals often procure not just based on product superiority,” argues Yiwen Chan, founder at Content.co, a digital talent platform. There are a plethora of factors that they need to consider beyond ‘faster, cheaper, better’. As such, Chan argues that startups need to “retool their security, support, and sales to better service larger enterprises”.
Understanding the environments that the opposite party operates in is critical to ensuring that procurement and startups can successfully work with one another. Buyers need to look to see how they can partner with smaller organisations to deliver disruptive innovation, but also to see how they can operate in a more agile way that allows startups to bring their ideas to fruition.
I hope to see you there.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.