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Innovation sourcing excellence: Three purchasing capabilities for success
BUSHOR-1430; No. of Pages 12 Business Horizons (2017) xxx, xxx—xxx
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Innovation sourcing excellence: Three purchasing capabilities for success Hervé Legenvre a, Jury Gualandris b,* a b
European Institute of Purchasing Management, French Geneva Campus, Archamps, France Ivey Business School, Western University, 1255 Western Road, London, ON N6G 0N1, Canada
KEYWORDS Open innovation; Purchasing and supply management; Capability maturity model; Combinative capabilities; Sources of innovative ideas
Abstract Innovation sourcing has become more critical across many industries. As global value chains have become more fragmented, change and opportunity comes from all sides. As a result, companies need to excel at capturing innovation opportunities with existing and potential supply chain members. This article describes a simple framework with three essential innovation sourcing capabilities needed to excel in purchasing: (1) Purchasing needs to explore unmet needs and anticipate future competitive advantages by working closely with other functions and clients; (2) it needs to explore external opportunities beyond first-tier suppliers; and (3) it needs to involve suppliers in innovation projects that consistently deliver results over time. Our framework has been developed based on a combined qualitative and quantitative research methodology that took into account practices and results at the purchasing and company levels. The framework will help C-level managers and purchasing teams benchmark their progress in innovation sourcing and understand what steps need to be taken to achieve excellence. # 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
1. Innovation sourcing: A purchasing perspective Over the past 50 years, vertically integrated national champions turned into global corporations centered on a handful of core competencies. They continuously rationalized their supply base and created a multilayer ecosystem of companies and organizations. At the same time, many startups and * Corresponding author E-mail address: [email protected] (J. Gualandris)
numerous mid-size companies have demonstrated their ability to bring innovative ideas to market. They do not just bring products and new technologies to life, but they also bring new distribution channels, new processes, and new business models. They sometimes disrupt existing markets, while on other occasions they complement existing offers. The simultaneous unfolding of these two trends offers a continuous flow of opportunities that established companies struggle to capture (Linder, Jarvenpaa, & Davenport, 2003; Slowinski, Hummel, Gupta, & Gilmont, 2009).
0007-6813/$ — see front matter # 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved. https://doi.org/10.1016/j.bushor.2017.09.009
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2 New ideas, information, resources, and technological solutions emerging in the broad ecosystem can bring value to a company (Choi, Shao, & Shi, 2015; Möller & Törrönen, 2003); still, they are difficult to identify and leverage effectively. Opportunities (and threats) are often hidden in complex and opaque networks over which the company has limited visibility and control. The potential value of an idea or new technological solution is often tacit and not easy to evaluate or benchmark (Walter, Ritter, & Gemünden, 2001). The realized value of an opportunity can evolve over time and can be subject to a company’s ability to leverage and control complementary assets (Jacobides, Knudsen, & Augier, 2006), and to become the ‘best customer’ of innovative partners (Henke & Zhang, 2010). Thus, established companies still need to understand how to excel at innovation sourcing, which is the process through which innovation opportunities from existing or potential supply chain members are identified, accessed, and leveraged (Linder et al., 2003). In this article, we address this gap of knowledge by describing how purchasing can help a company to excel at this practice. Purchasing teams are in a perfect position to identify external opportunities before anyone in the company can see them. However, to achieve concrete results, they need to evolve and understand how to engage with internal functions and external partners and take the lead when needed (Knoppen & Sáenz, 2015; Lindgreen, Vanhamme, van Raaij, & Johnston, 2013). This research proposes and tests a framework that helps C-level managers and purchasing teams benchmark their innovation sourcing maturity and understand what steps should be taken to achieve excellence. The framework captures the three key capabilities purchasing teams need to master and combine: (1) explore unmet needs and anticipate future competitive advantages by working closely with other functions and clients; (2) explore external opportunities beyond first-tier suppliers to engage effectively with outsiders and new players; and (3) involve suppliers in innovation projects that consistently deliver results over time. Our framework has been developed based on literature and field interviews. We then used it to examine the actual capabilities of 95 purchasing teams in the EU and the influence of these capabilities on the innovation performance of their companies.
2. The case for change The world evolves as a complex system of feedback loops and unintended consequences. International
H. Legenvre, J. Gualandris relations, economic activities, technological developments, and social practices influence each other. Together, they act as a continuous process of mutation and selection. Business practices evolve within this web of relationships, responding to opportunities and constraints that emerge along the way as an evolutionary process. Like R&D management (Roussel, Saad, & Erickson, 1991), which has gone through a succession of business goals and practices, purchasing has been subject to a number of transformations in the past 150 years. Table 1 outlines five key periods over the past 150 years. For each, the historical, political, economic, and business contexts are described along with the approach used to perform purchasing activities in these contexts. Table 1 helps to quickly grasp the series of changes that took place over time and to figure out why companies need to rethink their practices. It shows that purchasing is currently experiencing significant changes. The recent economic downturn redirected purchasing attention toward cost issues but change is expected to continue. Innovation sourcing emerges when leaders recognize that tomorrow’s success depends on today’s ability to leverage networks of outsiders (Linder et al., 2003; Pisano & Verganti, 2008). Due to the current transformation of industry structures, no company can master change alone. When change comes from all directions, many functions can contribute to harness some of the external forces at reach; however, purchasing teams have a unique role to play due to their position within supply markets. They can play a leading role in innovating with outsiders. Open innovation is essential in a world of specialization and knowledge fragmentation. Suppliers, by allowing access to complementary assets, can contribute to create new competitive advantages. Establishing and developing relationships with disruptive or highly innovative players can also become crucial; this is even more complex as companies have suppliers that are also competitors or clients (Henke & Zhang, 2010). So, how can purchasing contribute to innovation sourcing excellence? In Section 3., we break down the vital capabilities necessary for a purchasing team to achieve innovation-sourcing excellence.
3. Three vital capabilities for innovation sourcing An innovation requires a new match between a need and a solution so that value is created and ultimately captured. The novelty brought by an innovation can be in the need itself, in the solution proposed, or in the match between the two (Terwiesch &
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Innovation sourcing excellence: Three purchasing capabilities for success Table 1.
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Evolution of purchasing practices Context
Approach to suppliers
Until 1870s
At that time, production and consumption were located as much as possible next to each other due to the limits of transportation. International trade was kept to a minimum as it meant high risks, high costs, and often limited benefits.
Entrepreneurs and small-business owners bought what they needed either from local sources or at markets located at the intersection of global trade routes.
1870s—1911
The development of transportation allowed the separation of production and sales activities. Companies standardized their activities and products. Global trade increased significantly. Large companies gained market dominance through economies of scales.
Purchasing was first established as a departmental function within the railroad industry sometimes responsible to the CEO. The focus was on cost, qualification of supply, and negotiation.
1915—1970s
After World War I, trade barriers were established. Companies focused on their national markets. Following World War II and the reconstruction effort, outstanding productivity gains helped western economies grow very fast. In the 1970s, the oil crisis brought an end to this golden age.
With vertical integration, purchasing focused on transactional activities. To cope with economic and business growth, planning and operational supply management became vital skills. During times of war and in the 1970s, the supply of raw materials gained strategic attention and was treated as critical.
1970s—2000
Transportation and logistics infrastructures kept improving. Trade barriers were lowered. In the 1980s, international competition forced companies to dedicate attention to quality issues. The search for excellence led them to focus on their core business and to outsource non-core activities. Globalization and corporate social responsibility became the focus of business attention.
Companies started to widely outsource. As restructuring activities increased, they continuously rationalized, developed and monitored their supply base across the globe. Suppliers became involved in product development activities to ensure that cost and quality targets could be achieved. In a globalizing world, low-cost country sourcing, risk management, and sustainability issues rose to the forefront of the agenda.
After 2000
While productivity is stagnating and the overall economic outlook remains uncertain, industries and supply chains are experiencing continuous transformations. New technologies and business models emerge, open innovation is seen as an imperative, sustainability is now seen as both a challenge and an opportunity, and the Internet of things is gaining ground.
While the prime focus of purchasing is often to improve the company’s cost position, suppliers and external partners are increasingly invited to contribute to innovation and value creation. Companies develop their ability to innovate with existing or potential supply chain members, The role of purchasing is gradually adapting to this new context.
Source: Adapted from Monczka, Handfield, and Giunipero (2008).
Ulrich, 2009). For innovation taking place across company boundaries, it necessary to break down the organizational capabilities a purchasing team should use in order to innovate with outsiders:
Purchasing teams need to explore, understand, and gather unmet needs by working closely with R&D, marketing, operations, and clients. They need to look beyond immediate requirements and anticipate factors that could provide future competitive advantage.
Purchasing teams need to explore external opportunities beyond first-tier suppliers in order to access or co-develop innovative solutions. Together with their colleagues, they need to: (1) gain a wider understanding of the ecosystem, (2) strengthen their business intelligence, and (3) engage effectively with outsiders and new players.
Purchasing teams need to involve suppliers in innovation projects. Such projects need to look
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H. Legenvre, J. Gualandris beyond risks, cost, and product development to offer further competitive advantages. This can require extensive collaborations and more straightforward project work.
Each of these capabilities is not an isolated island of expertise, but a fundamental piece of a collective capability to source innovation. In Sections 3.1.—3.3., we focus on each specific capability and we explore their complementarities in Section 4.
3.1. The first capability: Gathering unmet needs Unmet needs consist of expectations, constraints, and problems without identified or immediate solutions. They are experienced or foreseen within the company and by external customers. Identifying, understanding, and prioritizing such needs are of paramount importance in today’s business environment as they can lead to improvement and innovation, and signal a path toward competitive advantages. They have to be qualified and refined over time. The most valuable unmet needs are the ones that end up being clearly articulated and bring clear benefits to the business, as well as being recognized as valuable by decision makers and aligned with the strategy of some of the business units. Our research revealed three stages of maturity for companies and supplier-facing functions that intend to excel at gathering unmet needs. Today, buyers expect other functions that will provide them with a set of finalized specifications that they can attempt to challenge in order to widen their options in the supply market. In contrast, a purchasing team should seize any point of contact, Figure 1.
from strategic meetings to coffee breaks, to explain their mission and show their potential contribution to overall business performance beyond savings. Purchasing personnel can use these interactions to create bonds across departments. They can better understand how their colleagues operate and what motivates them to change. They get firsthand access to their colleagues’ goals, their obstacles, any pain points they experience, and their longterm expectations. As their understanding of what matters to the business progresses, the team needs to keep track of the value drivers that can help the business units and country organization they contribute to. We observed that the purchasing teams that have already mastered this first stage are then invited by their peers to take part in the development of technology and marketing roadmaps, which outline solutions waiting to be created. They can voice their views, building on their understanding of current and potential supply markets. Their involvement in such meetings offers them the best possible understanding of the company’s future plans and needs. Purchasing teams also need to spot and welcome internal lead users who proactively ask for assistance to solve problems and reach new levels of performance. In order to accomplish this, purchasing teams need relevant technical and business acumens and they need to master the company vocabulary without losing their ability to challenge others. They should favor the establishment of joint targets and communicate well beyond the achievement of financial objectives in order to demonstrate the value of their work and internal collaboration. Our survey (see Figure 1) shows that a small subset of companies have moved even further by
Survey results: Purchasing involvement in activities to gather unmet needs
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Innovation sourcing excellence: Three purchasing capabilities for success Figure 2.
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A maturity model for ‘gathering unmet needs’
involving purchasing teams in the analysis of customer needs, in the mapping of user experience, and in the development of long-term scenarios. To do this, purchasing teams need to have access to the people who have a transformational role in the company, those who influence decisions and build coalitions for change. Such practices provide great opportunities to act ahead of time, to deepen their understanding of what can make a real difference, and to anticipate future innovation and transformation. By knowing at a very early stage what the company might need tomorrow, purchasing teams are in the best possible position to respond to new challenges and to excel at innovation sourcing. Figure 2 summarizes the elements presented above. The left side lists how purchasing teams can strengthen internal collaboration, and the right side shows how this helps to gather unmet needs. Purchasing teams can use this dual ladder to map their progress and identify what comes next in their transformation.
3.2. The second capability: Exploring external opportunities Supply opportunities include external ideas, resources, capabilities, and solutions that can be leveraged to create and capture value for the company (Chesbrough, 2012). They can come from existing key suppliers or from new players. Our research (see Figure 3) shows that purchasing teams initially tend to focus on their existing network of suppliers to find solutions and innovation. Innovation days and roadmap-sharing activities are popular vehicles to achieve this. Some purchasing teams then look at players further down their supply networks; they regularly engage with tier-2 and tier-3 suppliers who can help enhance the long-term performance of the company. The most advanced purchasing teams are involved in building relationships with startups and new players. They also look to universities, third parties, and nonprofit organizations. However, purchasing teams scarcely leverage these networks of problem solvers.
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6 Figure 3.
H. Legenvre, J. Gualandris Survey results: Purchasing involvement in activities to explore supply opportunities parties (e.g., consultants, universities) to identify innovative suppliers
19%
Our purchasing function represents the company in networks, consortia or regional clusters
25%
Through our purchasing function, our company organizes meetings with tier-2 or -3 suppliers to scout supply opportunities
28%
In order to scout supply opportunities our purchasing function leverages supply market intelligence
51%
The purchasing function proactively attends innovation days or workshops with suppliers
51%
The purchasing function attends presentations about roadmaps and trends by suppliers to scout supply opportunities
55% 0%
20%
40%
60%
Percentage of companies in our sample that strongly agree with the above statements about their purchasing functions Note: Items were measured on a 5-point Likert scale (1 = strongly disagree 5 = strongly agree). Q sorting with practitioners, reliability scores, and exploratory factor analysis prove that the items listed above are reflective of the
As part of our survey, we asked respondents about their current and future focus in terms of supply opportunities and ecosystem exploration (see Figure 4). The overall picture is interesting. They report that in the next 3 years, they expect their teams to look for opportunities beyond existing suppliers. Today, 24% of respondents state they are establishing relationships with startups and new players, and 54% want to do so within the next 3 years. In summary, instead of looking at supply markets as a source of competition that influence prices, purchasing needs to: (1) look beyond the existing main suppliers, (2) anticipate the influence of new
Figure 4.
Intention to explore supply opportunities
players, and (3) look for collaborations that could bring benefits in the future. Looking beyond the existing main players means keeping an eye on suppliers further down in the supply chain and on companies that could play a new role in the industry. Anticipating the influence of new players means understanding the main trends across the ecosystem and foreseeing changes so opportunities can be seized at the right time. Looking for collaboration means not only looking at who competes with whom, but also at who collaborates with whom. The following metaphor of three fishing practices (see Table 2) summarizes the maturity model emerging from our research.
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Innovation sourcing excellence: Three purchasing capabilities for success Table 2.
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A maturity model for exploring external opportunities
1. Fishing in the neighborhood
At this stage, Purchasing focuses on the strategic suppliers of the company. They understand where and why they can rely on strategic fit with suppliers. They understand the suppliers’ innovation capabilities. They are able to identify and engage with the right people on the supplier side in order to bring innovation to life. Suppliers see their counterparts as competent and fair. They tend to treat this client as a customer of choice. A sense of community emerges amongst people involved in this relationship. Purchasing teams support the organization of innovation days and other workshops with suppliers. These can be designed to gather market intelligence, to ensure strategic alignment by sharing roadmaps or to find potential solutions to existing problems.
2. Shaping future fishing grounds
At this stage, the purchasing teams understand when they have to deepen collaboration with existing suppliers to secure future cost advantages and when they should look beyond to benefit from more radical innovation. They understand the major trends that might transform the industry and the key players that could play a role in this transformation. They need to foresee: Who will collaborate with whom across the value chain? Where innovation might come from? And where common interest exists? The purchasing teams organize fruitful meetings with tier-2 and tier-3 suppliers. They have access to key players who welcome their initiatives and ensure their company is perceived as a lead user or as a preferred route to market.
3. Fishing in unknown territories
Some purchasing teams are involved in the innovation ecosystem that supports the transformations of their industry. They are very effective at scouting for innovation. Productive relationships are established with start-ups and new entrants. Purchasing teams involved in such activities understand and proactively manage the risks associated with such asymmetric collaborations. They leverage open-innovation platforms and support wider collaboration initiatives.
3.3. The third capability: Involving suppliers in innovation projects Creating and capturing value requires managing a portfolio of innovation projects that involve outsiders. To describe what best companies do in this matter, we introduce five different types of innovation projects (Sawhney, Wolcott, & Arroniz, 2011). The first group of projects focuses on increased efficiency; the main goal is to achieve a positive cost impact by doing more with less. This can include but is not limited to involving suppliers in activities such as standardization and complexity reduction, open collaboration on cost models, lean six sigma, or other joint process improvement projects. The second group of projects focuses on resilience. The main objective is to prevent undesirable events from taking place and minimize risks. These projects help protect revenue and the cost position of the company. They call for implementing activities with suppliers related to the prevention, monitoring, and elimination of risks. The third group of projects aims to offer product or service differentiation. By working together with
some suppliers at very early stages of the innovation process, it is possible to deliver a distinctive product or service at the best possible cost. Such innovation projects can have a positive impact on the commercial and financial performance of the company. The fourth group of projects enables access to new markets. As a company strives to follow customers and to develop new markets across the world, it needs to align its suppliers’ footprint with its operation and sales activities. Involving suppliers in innovative projects that enable market access facilitates revenue creation and offers cost advantages. The fifth group of innovation projects focuses on business model innovation. By collaborating with suppliers on innovation projects, it is also possible to develop holistic innovation and business model transformations. This can bring to the forefront a mix of activities, including: collaboration across industries, joint R&D activities, joint branding or customer experience enhancement programs, and innovative operational models. Primary survey data (see Figure 5) suggest that purchasing teams can play multiple, active roles to help the company to
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H. Legenvre, J. Gualandris
Figure 5.
Survey results: Purchasing involvement in activities to exploit supply opportunities In order to leverage suppliers’ resources and capabilities, the purchasing function coordinates supplier participation in company’s project teams
42%
In order to leverage supply opportunities, our purchasing function manages the process through which innovative suppliers are qualified
52%
In order to leverage suppliers skills and solutions, the purchasing function coordinates co-design activities with suppliers
52%
Our purchasing function supports the new product/service development processes by coordinating the involvement of suppliers
59%
0% 10% 20% 30% 40% Percentage of companies in our sample that strongly agree with the above statements about their purchasing functions
50%
60%
Note: Items were measured on a 5-point Likert scale (1 = strongly disagree 5 = strongly agree). Q sorting with practitioners, reliability scores, and exploratory factor analysis prove that the items listed above are reflective of the ‘involving suppliers in innovation project’ capability.
exploit supply opportunities through innovation projects. The three-stage maturity model presented in Table 3 emerges from our empirical research.
4. Combining capabilities together to excel We sought to understand if the three capabilities presented above are indeed complementary,
Table 3.
meaning that doing more of one would enhance the return from the others (Moorman & Slotegraaf, 1999). First, we investigated innovation projects within a leading manufacturer of brand cheeses. We looked at three innovation projects in which the purchasing team and suppliers had been involved. More specifically, we looked at how the three innovation sourcing capabilities were leveraged in these three innovation projects. Second, we surveyed managers, asking them to rank the innovation performance of their company against industry leaders.
A maturity model of ‘involving suppliers in innovation projects’
1. The rise of collaborative work
At this stage, companies mainly initiate collaborations with existing suppliers on projects that focus on increasing efficiency and resilience. This requires a systematic process for coordinating the involvement of suppliers in improvement activities and managing problem-solving processes with them. The involvement of suppliers in innovation projects that deliver product or service differentiation or access to new markets takes place on an ad hoc basis and is not systematic.
2. Enabling business performance
At this stage, joint projects focusing on increased efficiency and resilience are now performed regularly in an organized way. Collaborative projects with a focus on product differentiation and on market access are more and more common. This requires systematic approaches to both qualify innovative suppliers and coordinate co-design activities with them. Projects focusing on business model innovation are still sporadic at this stage.
3. Toward holistic innovation
At this stage, working with suppliers to increase efficiency, resilience, market access and differentiation follows well-established routines and deliver consistent results over time. Collaborative business model and innovation projects orchestrated with suppliers become common at this stage. This requires a structured approach to the integration of innovative suppliers within the company innovation ecosystem, where purchasing works to enhance connectivity and self-coordination between multiple internal and external parties to create synergies.
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Innovation sourcing excellence: Three purchasing capabilities for success
4.1. The case of a cheese producer The following three illustrations show that innovation-sourcing excellence requires purchasing teams to master and combine the three capabilities. The more radical the innovation, the more likely it is to have all three capabilities mobilized. 4.1.1. Production equipment innovation For production equipment, the company needs a continuous stream of both incremental and radical innovation. Radical innovation in this area includes offering innovative cheese shapes. Here, the three innovation sourcing capabilities of purchasing are key. To deliver on incremental innovation, cross-functional teams collaborated regularly with 20 established key suppliers. This generated co-development projects with sound intellectual property agreements. Early involvement of both the purchasing function and suppliers in internal projects was essential to gather and clearly communicate unmet needs, which is a driver of radical innovation. To find external opportunities, the purchasing team took the following actions: it developed a living database of all tools and know-how of existing suppliers; put together a reference list of innovative companies from existing suppliers; sent requests for innovations to companies outside the existing supply base; and conducted a regular survey of adjacent industries (meat, confectionary, bakery or chocolate). In addition, when visiting fairs and trade shows, priority was given to meeting new players. 4.1.2. Packaging innovation For packaging innovation, the three capabilities were mobilized. The R&D team approached purchasing to investigate how supplier innovation ideas could be collected and seized well before launching new projects. The team conducted 20 innovation workshops with suppliers, 15 of which involved existing strategic suppliers. These suppliers proposed innovation ideas and demonstrated their creative capabilities. The company did not provide a structured brief; suppliers were free to come up with what they thought would be of value given the specific innovation goal set by the company. Five potential suppliers outside of the panel were provided a brief so they could come up with alternative innovation ideas. These sessions used prototypes, a great way to engage participants as they touch, feel, and react to the innovative idea behind the object. Following the workshop, several projects were built on the ideas proposed. Here, the purchasing team played the role of system integrator, helping to understand how to divide labor between
9
multiple organizations and exchange information and knowledge in a timely and effective manner. 4.1.3. Natural ingredient innovation In the food industry, there is a growing demand for natural products. However, solutions are not always within reach. One day, key people from one supplier approached the company with an opportunity to turn some of the waste they produced into a new ingredient that would replace one additive for which no substitute had been identified. Top executives from both sides expressed their support for the project and a joint team came up with a new product, leading to brand differentiation, new market positioning, and growth opportunities. In this case, the first capability was not mobilized, as the need was well known across the industry. The other two innovation sourcing capabilities were extensively mobilized, as other suppliers offering complementary services and products necessary to develop the ingredient innovation had to be identified and appropriately orchestrated through relational and contractual governance.
4.2. Maturity and performance impact To reveal what capabilities configurations might be particularly common, we performed a cluster analysis (described in more detail in the Appendix) to determine whether it is possible to identify meaningful groups of purchasing teams in terms of their innovation sourcing capabilities. We found three clusters (see Figure 6). One cluster (N = 15), called beginners, consists of purchasing teams that present low maturity levels for all the three capabilities. This cluster is relatively more mature in terms of gathering unmet needs rather than exploration and exploitation of opportunities with suppliers. Another cluster (N = 46) called in progress, consists of cases that present medium maturity levels for all three capabilities. Here, however, capabilities related to exploration of external opportunities and involvement of suppliers are more mature than the capability of gathering unmet needs. The last cluster (N = 34), advanced, consists of companies that have achieved high or very high maturity levels for all three capabilities. A clear pattern also emerges in terms of the path taken by purchasing teams in the development of their innovation sourcing capabilities. They start the journey by focusing their attention on supplier collaboration and on the exploration of external opportunities (moving from beginner to in progress); only then do they strengthen their ability to explore unmet needs and progress more holistically along the three capabilities (moving from in progress to advanced).
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10 Figure 6.
H. Legenvre, J. Gualandris Progressing toward innovation sourcing excellence
Our research has revealed different, progressing configurations of the three innovation sourcing capabilities that vary in levels of maturity. But does maturity reflect excellent performance? Figure 7 shows the comparison of the three clusters of companies. The latter cluster performs better than any other cluster on performance dimensions related to commercial performance and financial performance, which underscores the company’s ability Figure 7.
to create and capture value via innovation sourcing excellence.
5. Final thoughts Innovation sourcing excellence has gained importance as companies continually need to innovate with outsiders. The three capabilities presented
Differences in performance outcomes between companies
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Innovation sourcing excellence: Three purchasing capabilities for success above offer an integrated perspective on how to make this happen in a systematic way. This is not solely about changing the purchasing operating model; it is a company-wide, cultural transformation that offers opportunities as well as challenges to the purchasing team. The purchasing team should develop its capability to explore and exploit the supply ecosystem to better perform its mission. Building on this, it can start expanding internal collaboration and understanding internal needs. This provides an opportunity to be recognized as competent internal partners. Finally, we envision an expansion of supply exploration capabilities, which remain the weakest capability even in the most advanced organizations (see Figure 6). Practitioners could use our framework (see Figure 6) and its underlying reflective constructs (see Figures 1,3 and 5) as a type of scorecard. It provides a simple, easily accessible means to track and monitor the maturity of purchasing in regards to innovation sourcing; yet, practitioners could use our suggestions (see Figure 2, Tables 2 and 4) to achieve excellence. Future research should use a longitudinal design to capture the evolutionary patterns of purchasing capabilities and the different, active roles purchasing can play to enhance the effectiveness of innovation sourcing.
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Purchasing professionals were then contacted through the newsletter of the European Institute of Purchasing Management (EIPM). This survey involved purchasing functions separate from those interviewed in the first step of the research. After data collection and data cleaning, we had information from 95 purchasing functions of medium-and large-size European companies operating across six selected industry groupings (Oil & Gas, Healthcare, Materials, Consumer Goods, Consumer Services, and Industrials). We purified our measures through exploratory factor analysis and reliability analysis. We then clustered purchasing functions according to the three key capabilities studied in the article in order to identify alternative purchasing configurations. Cluster analysis followed multiple steps, from checking that the three constructs did not suffer from substantial collinearity, to hierarchical and non-hierarchical cluster analysis and concluding with a discriminant validity analysis. The identity of the respondents and their firms remains confidential, as specified in our research design. We refined the tools and frameworks for the innovation sourcing from the literature review, subsequent field interviews, workshops, and survey.
Appendix. Research methodology Our conclusions are based on a 2-year research project that involved a literature review and data collection through field interviews, workshops, and an extensive survey. First, the literature review included more than 100 articles on the topics of open innovation and purchasing. Then, to deepen the understanding of how purchasing teams can contribute to innovation sourcing, we conducted three workshops with purchasing executives, two webinars, and 55 field interviews with practitioners. We made sure that the purchasing experts were representative of functions operating within medium- and large-size firms of six industry sectors (Oil & Gas, healthcare, Materials, Consumer Goods, Consumer Services, and Industrials). Finally, empirical data were collected at the beginning of 2015 by means of an electronic survey; the questionnaire employed existing and newly developed measurements, thus independent external validation was sought via Q-sorting in order to refine our instruments and guarantee their validity and reliability.
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Available online at www.sciencedirect.com
ScienceDirect www.elsevier.com/locate/bushor
Innovation sourcing excellence: Three purchasing capabilities for success Hervé Legenvre a, Jury Gualandris b,* a b
European Institute of Purchasing Management, French Geneva Campus, Archamps, France Ivey Business School, Western University, 1255 Western Road, London, ON N6G 0N1, Canada
KEYWORDS Open innovation; Purchasing and supply management; Capability maturity model; Combinative capabilities; Sources of innovative ideas
Abstract Innovation sourcing has become more critical across many industries. As global value chains have become more fragmented, change and opportunity comes from all sides. As a result, companies need to excel at capturing innovation opportunities with existing and potential supply chain members. This article describes a simple framework with three essential innovation sourcing capabilities needed to excel in purchasing: (1) Purchasing needs to explore unmet needs and anticipate future competitive advantages by working closely with other functions and clients; (2) it needs to explore external opportunities beyond first-tier suppliers; and (3) it needs to involve suppliers in innovation projects that consistently deliver results over time. Our framework has been developed based on a combined qualitative and quantitative research methodology that took into account practices and results at the purchasing and company levels. The framework will help C-level managers and purchasing teams benchmark their progress in innovation sourcing and understand what steps need to be taken to achieve excellence. # 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.
1. Innovation sourcing: A purchasing perspective Over the past 50 years, vertically integrated national champions turned into global corporations centered on a handful of core competencies. They continuously rationalized their supply base and created a multilayer ecosystem of companies and organizations. At the same time, many startups and * Corresponding author E-mail address: [email protected] (J. Gualandris)
numerous mid-size companies have demonstrated their ability to bring innovative ideas to market. They do not just bring products and new technologies to life, but they also bring new distribution channels, new processes, and new business models. They sometimes disrupt existing markets, while on other occasions they complement existing offers. The simultaneous unfolding of these two trends offers a continuous flow of opportunities that established companies struggle to capture (Linder, Jarvenpaa, & Davenport, 2003; Slowinski, Hummel, Gupta, & Gilmont, 2009).
0007-6813/$ — see front matter # 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved. https://doi.org/10.1016/j.bushor.2017.09.009
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2 New ideas, information, resources, and technological solutions emerging in the broad ecosystem can bring value to a company (Choi, Shao, & Shi, 2015; Möller & Törrönen, 2003); still, they are difficult to identify and leverage effectively. Opportunities (and threats) are often hidden in complex and opaque networks over which the company has limited visibility and control. The potential value of an idea or new technological solution is often tacit and not easy to evaluate or benchmark (Walter, Ritter, & Gemünden, 2001). The realized value of an opportunity can evolve over time and can be subject to a company’s ability to leverage and control complementary assets (Jacobides, Knudsen, & Augier, 2006), and to become the ‘best customer’ of innovative partners (Henke & Zhang, 2010). Thus, established companies still need to understand how to excel at innovation sourcing, which is the process through which innovation opportunities from existing or potential supply chain members are identified, accessed, and leveraged (Linder et al., 2003). In this article, we address this gap of knowledge by describing how purchasing can help a company to excel at this practice. Purchasing teams are in a perfect position to identify external opportunities before anyone in the company can see them. However, to achieve concrete results, they need to evolve and understand how to engage with internal functions and external partners and take the lead when needed (Knoppen & Sáenz, 2015; Lindgreen, Vanhamme, van Raaij, & Johnston, 2013). This research proposes and tests a framework that helps C-level managers and purchasing teams benchmark their innovation sourcing maturity and understand what steps should be taken to achieve excellence. The framework captures the three key capabilities purchasing teams need to master and combine: (1) explore unmet needs and anticipate future competitive advantages by working closely with other functions and clients; (2) explore external opportunities beyond first-tier suppliers to engage effectively with outsiders and new players; and (3) involve suppliers in innovation projects that consistently deliver results over time. Our framework has been developed based on literature and field interviews. We then used it to examine the actual capabilities of 95 purchasing teams in the EU and the influence of these capabilities on the innovation performance of their companies.
2. The case for change The world evolves as a complex system of feedback loops and unintended consequences. International
H. Legenvre, J. Gualandris relations, economic activities, technological developments, and social practices influence each other. Together, they act as a continuous process of mutation and selection. Business practices evolve within this web of relationships, responding to opportunities and constraints that emerge along the way as an evolutionary process. Like R&D management (Roussel, Saad, & Erickson, 1991), which has gone through a succession of business goals and practices, purchasing has been subject to a number of transformations in the past 150 years. Table 1 outlines five key periods over the past 150 years. For each, the historical, political, economic, and business contexts are described along with the approach used to perform purchasing activities in these contexts. Table 1 helps to quickly grasp the series of changes that took place over time and to figure out why companies need to rethink their practices. It shows that purchasing is currently experiencing significant changes. The recent economic downturn redirected purchasing attention toward cost issues but change is expected to continue. Innovation sourcing emerges when leaders recognize that tomorrow’s success depends on today’s ability to leverage networks of outsiders (Linder et al., 2003; Pisano & Verganti, 2008). Due to the current transformation of industry structures, no company can master change alone. When change comes from all directions, many functions can contribute to harness some of the external forces at reach; however, purchasing teams have a unique role to play due to their position within supply markets. They can play a leading role in innovating with outsiders. Open innovation is essential in a world of specialization and knowledge fragmentation. Suppliers, by allowing access to complementary assets, can contribute to create new competitive advantages. Establishing and developing relationships with disruptive or highly innovative players can also become crucial; this is even more complex as companies have suppliers that are also competitors or clients (Henke & Zhang, 2010). So, how can purchasing contribute to innovation sourcing excellence? In Section 3., we break down the vital capabilities necessary for a purchasing team to achieve innovation-sourcing excellence.
3. Three vital capabilities for innovation sourcing An innovation requires a new match between a need and a solution so that value is created and ultimately captured. The novelty brought by an innovation can be in the need itself, in the solution proposed, or in the match between the two (Terwiesch &
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Innovation sourcing excellence: Three purchasing capabilities for success Table 1.
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Evolution of purchasing practices Context
Approach to suppliers
Until 1870s
At that time, production and consumption were located as much as possible next to each other due to the limits of transportation. International trade was kept to a minimum as it meant high risks, high costs, and often limited benefits.
Entrepreneurs and small-business owners bought what they needed either from local sources or at markets located at the intersection of global trade routes.
1870s—1911
The development of transportation allowed the separation of production and sales activities. Companies standardized their activities and products. Global trade increased significantly. Large companies gained market dominance through economies of scales.
Purchasing was first established as a departmental function within the railroad industry sometimes responsible to the CEO. The focus was on cost, qualification of supply, and negotiation.
1915—1970s
After World War I, trade barriers were established. Companies focused on their national markets. Following World War II and the reconstruction effort, outstanding productivity gains helped western economies grow very fast. In the 1970s, the oil crisis brought an end to this golden age.
With vertical integration, purchasing focused on transactional activities. To cope with economic and business growth, planning and operational supply management became vital skills. During times of war and in the 1970s, the supply of raw materials gained strategic attention and was treated as critical.
1970s—2000
Transportation and logistics infrastructures kept improving. Trade barriers were lowered. In the 1980s, international competition forced companies to dedicate attention to quality issues. The search for excellence led them to focus on their core business and to outsource non-core activities. Globalization and corporate social responsibility became the focus of business attention.
Companies started to widely outsource. As restructuring activities increased, they continuously rationalized, developed and monitored their supply base across the globe. Suppliers became involved in product development activities to ensure that cost and quality targets could be achieved. In a globalizing world, low-cost country sourcing, risk management, and sustainability issues rose to the forefront of the agenda.
After 2000
While productivity is stagnating and the overall economic outlook remains uncertain, industries and supply chains are experiencing continuous transformations. New technologies and business models emerge, open innovation is seen as an imperative, sustainability is now seen as both a challenge and an opportunity, and the Internet of things is gaining ground.
While the prime focus of purchasing is often to improve the company’s cost position, suppliers and external partners are increasingly invited to contribute to innovation and value creation. Companies develop their ability to innovate with existing or potential supply chain members, The role of purchasing is gradually adapting to this new context.
Source: Adapted from Monczka, Handfield, and Giunipero (2008).
Ulrich, 2009). For innovation taking place across company boundaries, it necessary to break down the organizational capabilities a purchasing team should use in order to innovate with outsiders:
Purchasing teams need to explore, understand, and gather unmet needs by working closely with R&D, marketing, operations, and clients. They need to look beyond immediate requirements and anticipate factors that could provide future competitive advantage.
Purchasing teams need to explore external opportunities beyond first-tier suppliers in order to access or co-develop innovative solutions. Together with their colleagues, they need to: (1) gain a wider understanding of the ecosystem, (2) strengthen their business intelligence, and (3) engage effectively with outsiders and new players.
Purchasing teams need to involve suppliers in innovation projects. Such projects need to look
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H. Legenvre, J. Gualandris beyond risks, cost, and product development to offer further competitive advantages. This can require extensive collaborations and more straightforward project work.
Each of these capabilities is not an isolated island of expertise, but a fundamental piece of a collective capability to source innovation. In Sections 3.1.—3.3., we focus on each specific capability and we explore their complementarities in Section 4.
3.1. The first capability: Gathering unmet needs Unmet needs consist of expectations, constraints, and problems without identified or immediate solutions. They are experienced or foreseen within the company and by external customers. Identifying, understanding, and prioritizing such needs are of paramount importance in today’s business environment as they can lead to improvement and innovation, and signal a path toward competitive advantages. They have to be qualified and refined over time. The most valuable unmet needs are the ones that end up being clearly articulated and bring clear benefits to the business, as well as being recognized as valuable by decision makers and aligned with the strategy of some of the business units. Our research revealed three stages of maturity for companies and supplier-facing functions that intend to excel at gathering unmet needs. Today, buyers expect other functions that will provide them with a set of finalized specifications that they can attempt to challenge in order to widen their options in the supply market. In contrast, a purchasing team should seize any point of contact, Figure 1.
from strategic meetings to coffee breaks, to explain their mission and show their potential contribution to overall business performance beyond savings. Purchasing personnel can use these interactions to create bonds across departments. They can better understand how their colleagues operate and what motivates them to change. They get firsthand access to their colleagues’ goals, their obstacles, any pain points they experience, and their longterm expectations. As their understanding of what matters to the business progresses, the team needs to keep track of the value drivers that can help the business units and country organization they contribute to. We observed that the purchasing teams that have already mastered this first stage are then invited by their peers to take part in the development of technology and marketing roadmaps, which outline solutions waiting to be created. They can voice their views, building on their understanding of current and potential supply markets. Their involvement in such meetings offers them the best possible understanding of the company’s future plans and needs. Purchasing teams also need to spot and welcome internal lead users who proactively ask for assistance to solve problems and reach new levels of performance. In order to accomplish this, purchasing teams need relevant technical and business acumens and they need to master the company vocabulary without losing their ability to challenge others. They should favor the establishment of joint targets and communicate well beyond the achievement of financial objectives in order to demonstrate the value of their work and internal collaboration. Our survey (see Figure 1) shows that a small subset of companies have moved even further by
Survey results: Purchasing involvement in activities to gather unmet needs
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Innovation sourcing excellence: Three purchasing capabilities for success Figure 2.
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A maturity model for ‘gathering unmet needs’
involving purchasing teams in the analysis of customer needs, in the mapping of user experience, and in the development of long-term scenarios. To do this, purchasing teams need to have access to the people who have a transformational role in the company, those who influence decisions and build coalitions for change. Such practices provide great opportunities to act ahead of time, to deepen their understanding of what can make a real difference, and to anticipate future innovation and transformation. By knowing at a very early stage what the company might need tomorrow, purchasing teams are in the best possible position to respond to new challenges and to excel at innovation sourcing. Figure 2 summarizes the elements presented above. The left side lists how purchasing teams can strengthen internal collaboration, and the right side shows how this helps to gather unmet needs. Purchasing teams can use this dual ladder to map their progress and identify what comes next in their transformation.
3.2. The second capability: Exploring external opportunities Supply opportunities include external ideas, resources, capabilities, and solutions that can be leveraged to create and capture value for the company (Chesbrough, 2012). They can come from existing key suppliers or from new players. Our research (see Figure 3) shows that purchasing teams initially tend to focus on their existing network of suppliers to find solutions and innovation. Innovation days and roadmap-sharing activities are popular vehicles to achieve this. Some purchasing teams then look at players further down their supply networks; they regularly engage with tier-2 and tier-3 suppliers who can help enhance the long-term performance of the company. The most advanced purchasing teams are involved in building relationships with startups and new players. They also look to universities, third parties, and nonprofit organizations. However, purchasing teams scarcely leverage these networks of problem solvers.
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6 Figure 3.
H. Legenvre, J. Gualandris Survey results: Purchasing involvement in activities to explore supply opportunities parties (e.g., consultants, universities) to identify innovative suppliers
19%
Our purchasing function represents the company in networks, consortia or regional clusters
25%
Through our purchasing function, our company organizes meetings with tier-2 or -3 suppliers to scout supply opportunities
28%
In order to scout supply opportunities our purchasing function leverages supply market intelligence
51%
The purchasing function proactively attends innovation days or workshops with suppliers
51%
The purchasing function attends presentations about roadmaps and trends by suppliers to scout supply opportunities
55% 0%
20%
40%
60%
Percentage of companies in our sample that strongly agree with the above statements about their purchasing functions Note: Items were measured on a 5-point Likert scale (1 = strongly disagree 5 = strongly agree). Q sorting with practitioners, reliability scores, and exploratory factor analysis prove that the items listed above are reflective of the
As part of our survey, we asked respondents about their current and future focus in terms of supply opportunities and ecosystem exploration (see Figure 4). The overall picture is interesting. They report that in the next 3 years, they expect their teams to look for opportunities beyond existing suppliers. Today, 24% of respondents state they are establishing relationships with startups and new players, and 54% want to do so within the next 3 years. In summary, instead of looking at supply markets as a source of competition that influence prices, purchasing needs to: (1) look beyond the existing main suppliers, (2) anticipate the influence of new
Figure 4.
Intention to explore supply opportunities
players, and (3) look for collaborations that could bring benefits in the future. Looking beyond the existing main players means keeping an eye on suppliers further down in the supply chain and on companies that could play a new role in the industry. Anticipating the influence of new players means understanding the main trends across the ecosystem and foreseeing changes so opportunities can be seized at the right time. Looking for collaboration means not only looking at who competes with whom, but also at who collaborates with whom. The following metaphor of three fishing practices (see Table 2) summarizes the maturity model emerging from our research.
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Innovation sourcing excellence: Three purchasing capabilities for success Table 2.
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A maturity model for exploring external opportunities
1. Fishing in the neighborhood
At this stage, Purchasing focuses on the strategic suppliers of the company. They understand where and why they can rely on strategic fit with suppliers. They understand the suppliers’ innovation capabilities. They are able to identify and engage with the right people on the supplier side in order to bring innovation to life. Suppliers see their counterparts as competent and fair. They tend to treat this client as a customer of choice. A sense of community emerges amongst people involved in this relationship. Purchasing teams support the organization of innovation days and other workshops with suppliers. These can be designed to gather market intelligence, to ensure strategic alignment by sharing roadmaps or to find potential solutions to existing problems.
2. Shaping future fishing grounds
At this stage, the purchasing teams understand when they have to deepen collaboration with existing suppliers to secure future cost advantages and when they should look beyond to benefit from more radical innovation. They understand the major trends that might transform the industry and the key players that could play a role in this transformation. They need to foresee: Who will collaborate with whom across the value chain? Where innovation might come from? And where common interest exists? The purchasing teams organize fruitful meetings with tier-2 and tier-3 suppliers. They have access to key players who welcome their initiatives and ensure their company is perceived as a lead user or as a preferred route to market.
3. Fishing in unknown territories
Some purchasing teams are involved in the innovation ecosystem that supports the transformations of their industry. They are very effective at scouting for innovation. Productive relationships are established with start-ups and new entrants. Purchasing teams involved in such activities understand and proactively manage the risks associated with such asymmetric collaborations. They leverage open-innovation platforms and support wider collaboration initiatives.
3.3. The third capability: Involving suppliers in innovation projects Creating and capturing value requires managing a portfolio of innovation projects that involve outsiders. To describe what best companies do in this matter, we introduce five different types of innovation projects (Sawhney, Wolcott, & Arroniz, 2011). The first group of projects focuses on increased efficiency; the main goal is to achieve a positive cost impact by doing more with less. This can include but is not limited to involving suppliers in activities such as standardization and complexity reduction, open collaboration on cost models, lean six sigma, or other joint process improvement projects. The second group of projects focuses on resilience. The main objective is to prevent undesirable events from taking place and minimize risks. These projects help protect revenue and the cost position of the company. They call for implementing activities with suppliers related to the prevention, monitoring, and elimination of risks. The third group of projects aims to offer product or service differentiation. By working together with
some suppliers at very early stages of the innovation process, it is possible to deliver a distinctive product or service at the best possible cost. Such innovation projects can have a positive impact on the commercial and financial performance of the company. The fourth group of projects enables access to new markets. As a company strives to follow customers and to develop new markets across the world, it needs to align its suppliers’ footprint with its operation and sales activities. Involving suppliers in innovative projects that enable market access facilitates revenue creation and offers cost advantages. The fifth group of innovation projects focuses on business model innovation. By collaborating with suppliers on innovation projects, it is also possible to develop holistic innovation and business model transformations. This can bring to the forefront a mix of activities, including: collaboration across industries, joint R&D activities, joint branding or customer experience enhancement programs, and innovative operational models. Primary survey data (see Figure 5) suggest that purchasing teams can play multiple, active roles to help the company to
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H. Legenvre, J. Gualandris
Figure 5.
Survey results: Purchasing involvement in activities to exploit supply opportunities In order to leverage suppliers’ resources and capabilities, the purchasing function coordinates supplier participation in company’s project teams
42%
In order to leverage supply opportunities, our purchasing function manages the process through which innovative suppliers are qualified
52%
In order to leverage suppliers skills and solutions, the purchasing function coordinates co-design activities with suppliers
52%
Our purchasing function supports the new product/service development processes by coordinating the involvement of suppliers
59%
0% 10% 20% 30% 40% Percentage of companies in our sample that strongly agree with the above statements about their purchasing functions
50%
60%
Note: Items were measured on a 5-point Likert scale (1 = strongly disagree 5 = strongly agree). Q sorting with practitioners, reliability scores, and exploratory factor analysis prove that the items listed above are reflective of the ‘involving suppliers in innovation project’ capability.
exploit supply opportunities through innovation projects. The three-stage maturity model presented in Table 3 emerges from our empirical research.
4. Combining capabilities together to excel We sought to understand if the three capabilities presented above are indeed complementary,
Table 3.
meaning that doing more of one would enhance the return from the others (Moorman & Slotegraaf, 1999). First, we investigated innovation projects within a leading manufacturer of brand cheeses. We looked at three innovation projects in which the purchasing team and suppliers had been involved. More specifically, we looked at how the three innovation sourcing capabilities were leveraged in these three innovation projects. Second, we surveyed managers, asking them to rank the innovation performance of their company against industry leaders.
A maturity model of ‘involving suppliers in innovation projects’
1. The rise of collaborative work
At this stage, companies mainly initiate collaborations with existing suppliers on projects that focus on increasing efficiency and resilience. This requires a systematic process for coordinating the involvement of suppliers in improvement activities and managing problem-solving processes with them. The involvement of suppliers in innovation projects that deliver product or service differentiation or access to new markets takes place on an ad hoc basis and is not systematic.
2. Enabling business performance
At this stage, joint projects focusing on increased efficiency and resilience are now performed regularly in an organized way. Collaborative projects with a focus on product differentiation and on market access are more and more common. This requires systematic approaches to both qualify innovative suppliers and coordinate co-design activities with them. Projects focusing on business model innovation are still sporadic at this stage.
3. Toward holistic innovation
At this stage, working with suppliers to increase efficiency, resilience, market access and differentiation follows well-established routines and deliver consistent results over time. Collaborative business model and innovation projects orchestrated with suppliers become common at this stage. This requires a structured approach to the integration of innovative suppliers within the company innovation ecosystem, where purchasing works to enhance connectivity and self-coordination between multiple internal and external parties to create synergies.
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Innovation sourcing excellence: Three purchasing capabilities for success
4.1. The case of a cheese producer The following three illustrations show that innovation-sourcing excellence requires purchasing teams to master and combine the three capabilities. The more radical the innovation, the more likely it is to have all three capabilities mobilized. 4.1.1. Production equipment innovation For production equipment, the company needs a continuous stream of both incremental and radical innovation. Radical innovation in this area includes offering innovative cheese shapes. Here, the three innovation sourcing capabilities of purchasing are key. To deliver on incremental innovation, cross-functional teams collaborated regularly with 20 established key suppliers. This generated co-development projects with sound intellectual property agreements. Early involvement of both the purchasing function and suppliers in internal projects was essential to gather and clearly communicate unmet needs, which is a driver of radical innovation. To find external opportunities, the purchasing team took the following actions: it developed a living database of all tools and know-how of existing suppliers; put together a reference list of innovative companies from existing suppliers; sent requests for innovations to companies outside the existing supply base; and conducted a regular survey of adjacent industries (meat, confectionary, bakery or chocolate). In addition, when visiting fairs and trade shows, priority was given to meeting new players. 4.1.2. Packaging innovation For packaging innovation, the three capabilities were mobilized. The R&D team approached purchasing to investigate how supplier innovation ideas could be collected and seized well before launching new projects. The team conducted 20 innovation workshops with suppliers, 15 of which involved existing strategic suppliers. These suppliers proposed innovation ideas and demonstrated their creative capabilities. The company did not provide a structured brief; suppliers were free to come up with what they thought would be of value given the specific innovation goal set by the company. Five potential suppliers outside of the panel were provided a brief so they could come up with alternative innovation ideas. These sessions used prototypes, a great way to engage participants as they touch, feel, and react to the innovative idea behind the object. Following the workshop, several projects were built on the ideas proposed. Here, the purchasing team played the role of system integrator, helping to understand how to divide labor between
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multiple organizations and exchange information and knowledge in a timely and effective manner. 4.1.3. Natural ingredient innovation In the food industry, there is a growing demand for natural products. However, solutions are not always within reach. One day, key people from one supplier approached the company with an opportunity to turn some of the waste they produced into a new ingredient that would replace one additive for which no substitute had been identified. Top executives from both sides expressed their support for the project and a joint team came up with a new product, leading to brand differentiation, new market positioning, and growth opportunities. In this case, the first capability was not mobilized, as the need was well known across the industry. The other two innovation sourcing capabilities were extensively mobilized, as other suppliers offering complementary services and products necessary to develop the ingredient innovation had to be identified and appropriately orchestrated through relational and contractual governance.
4.2. Maturity and performance impact To reveal what capabilities configurations might be particularly common, we performed a cluster analysis (described in more detail in the Appendix) to determine whether it is possible to identify meaningful groups of purchasing teams in terms of their innovation sourcing capabilities. We found three clusters (see Figure 6). One cluster (N = 15), called beginners, consists of purchasing teams that present low maturity levels for all the three capabilities. This cluster is relatively more mature in terms of gathering unmet needs rather than exploration and exploitation of opportunities with suppliers. Another cluster (N = 46) called in progress, consists of cases that present medium maturity levels for all three capabilities. Here, however, capabilities related to exploration of external opportunities and involvement of suppliers are more mature than the capability of gathering unmet needs. The last cluster (N = 34), advanced, consists of companies that have achieved high or very high maturity levels for all three capabilities. A clear pattern also emerges in terms of the path taken by purchasing teams in the development of their innovation sourcing capabilities. They start the journey by focusing their attention on supplier collaboration and on the exploration of external opportunities (moving from beginner to in progress); only then do they strengthen their ability to explore unmet needs and progress more holistically along the three capabilities (moving from in progress to advanced).
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10 Figure 6.
H. Legenvre, J. Gualandris Progressing toward innovation sourcing excellence
Our research has revealed different, progressing configurations of the three innovation sourcing capabilities that vary in levels of maturity. But does maturity reflect excellent performance? Figure 7 shows the comparison of the three clusters of companies. The latter cluster performs better than any other cluster on performance dimensions related to commercial performance and financial performance, which underscores the company’s ability Figure 7.
to create and capture value via innovation sourcing excellence.
5. Final thoughts Innovation sourcing excellence has gained importance as companies continually need to innovate with outsiders. The three capabilities presented
Differences in performance outcomes between companies
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Innovation sourcing excellence: Three purchasing capabilities for success above offer an integrated perspective on how to make this happen in a systematic way. This is not solely about changing the purchasing operating model; it is a company-wide, cultural transformation that offers opportunities as well as challenges to the purchasing team. The purchasing team should develop its capability to explore and exploit the supply ecosystem to better perform its mission. Building on this, it can start expanding internal collaboration and understanding internal needs. This provides an opportunity to be recognized as competent internal partners. Finally, we envision an expansion of supply exploration capabilities, which remain the weakest capability even in the most advanced organizations (see Figure 6). Practitioners could use our framework (see Figure 6) and its underlying reflective constructs (see Figures 1,3 and 5) as a type of scorecard. It provides a simple, easily accessible means to track and monitor the maturity of purchasing in regards to innovation sourcing; yet, practitioners could use our suggestions (see Figure 2, Tables 2 and 4) to achieve excellence. Future research should use a longitudinal design to capture the evolutionary patterns of purchasing capabilities and the different, active roles purchasing can play to enhance the effectiveness of innovation sourcing.
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Purchasing professionals were then contacted through the newsletter of the European Institute of Purchasing Management (EIPM). This survey involved purchasing functions separate from those interviewed in the first step of the research. After data collection and data cleaning, we had information from 95 purchasing functions of medium-and large-size European companies operating across six selected industry groupings (Oil & Gas, Healthcare, Materials, Consumer Goods, Consumer Services, and Industrials). We purified our measures through exploratory factor analysis and reliability analysis. We then clustered purchasing functions according to the three key capabilities studied in the article in order to identify alternative purchasing configurations. Cluster analysis followed multiple steps, from checking that the three constructs did not suffer from substantial collinearity, to hierarchical and non-hierarchical cluster analysis and concluding with a discriminant validity analysis. The identity of the respondents and their firms remains confidential, as specified in our research design. We refined the tools and frameworks for the innovation sourcing from the literature review, subsequent field interviews, workshops, and survey.
Appendix. Research methodology Our conclusions are based on a 2-year research project that involved a literature review and data collection through field interviews, workshops, and an extensive survey. First, the literature review included more than 100 articles on the topics of open innovation and purchasing. Then, to deepen the understanding of how purchasing teams can contribute to innovation sourcing, we conducted three workshops with purchasing executives, two webinars, and 55 field interviews with practitioners. We made sure that the purchasing experts were representative of functions operating within medium- and large-size firms of six industry sectors (Oil & Gas, healthcare, Materials, Consumer Goods, Consumer Services, and Industrials). Finally, empirical data were collected at the beginning of 2015 by means of an electronic survey; the questionnaire employed existing and newly developed measurements, thus independent external validation was sought via Q-sorting in order to refine our instruments and guarantee their validity and reliability.
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