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Focus On Innovation As An Engine For Growth, Not Cost Reduction.

Supplier relationship managementInnovation

In this guest post, the second in a series, Procurement Leaders invites the Innovation Garage's Jon Washington to explain why business needs to take a growth-oriented approach to innovation and look at how that affects key procurement decisions.

 

"The cure for Apple is not cost-cutting. The cure for Apple is to innovate its way out of its current predicament."

― Apple Inc., Macintosh Human Interface Guidelines

 

It may seem out for character for someone with procurement and supply chain background to say cost reduction is not the most important thing to work on, but sometimes, it is better to do the exact opposite of what was taught as best practice in business school.

 

Firms that focus solely on cost reduction as the only major initiative should be very careful. These initiatives do improve profitability - at least for a short time anyway. Simply put, cost reduction or any operational improvement/transformation initiative helps to make a company more efficient, but only to the same revenue base.

 

Over time, cost-reduction as the only initiative becomes a strong narcotic to executive leadership teams and boards of directors. It slowly extinguishes the burning platform that characterises the 'Innovate and Grow' approach; it removes positive energy from the culture and takes the focus of your teams away from creating new product, process, service, and supply chain innovations. A cost reduction-only mindset, over time, stops strategic growth and critical decision-making in its tracks, and many leaders inside those firms do not realize it's happening.

 

A first step for senior leaders to make a conscious decision to focus on innovation as the engine for growth. The goal is to figure out how to get ahead of your customer needs by creating new and divergent markets and enticing the customer to buy. Some recent studiesand infographic show that such a mindset shift is occuring within many industries. Innovators forecast they will grow 3X more than non-innovators over next 5 years. They are 3X more likely to say innovation is 'urgent' (67% versus 19%), more likely to collaborate and treat innovation like any other management process (78% versus 66%), while 79% say they need to 'innovate business models' not just products and services.

 

The conversation with innovation must always be around value. With that understanding, the question becomes: How meaningful and unique are you to your customers? Start to manage pipelines of innovation focusing on two segments: The first is CORE innovations that continue to expand your existing and profitable product or services lines. The second segment is LEAP innovations, which are ahead of your current customers, taking you to divergent markets or creating new markets.

 

In a recent pulse survey we conducted with several C-Level Executives of several major firms, trends of key performance indicators of risk, compliance, cost reduction, and innovation are in some combination always top of mind with most senior leaders.

 

Innovation mindset thinking is becoming more significant as chief procurement officers look to identify how their procurement teams should drive value for the enterprise. Forward-thinkers are looking to move their staff from the traditional buyer-planner-expediter mindset, and transition to strategic-sourcing then develop a solution-sourcing approach. The leaders that become the first movers in procurement will introduce a disruptive step change, where procurement teams become the trusted experts, not for cost reduction, but for innovation, value delivery, and long-term profitable growth across the enterprise.

 

 

Jon is Founder & Proprietor of The Innovation Garage, a business Innovation Firm driving long-term growth of companies and non-profits, from start-ups to the fortune 1000. Visit: http://www.the-innovation-garage.com email: info@the-innovation-garage.com.

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