Spend Matters welcomes a guest post from Joshua Nelson, Director, and Benjamin Werner, Consultant, at The Hackett Group.
Companies gain competitive advantage in the marketplace by filling consumer needs with differentiated products and services. Gaining competitive advantage in today's economy has become increasingly challenging due to three key market and economic factors:
- Reduced product lifecycle: Increased consumer demand for new technologies, flavors, styles, and/or specialized products has substantially reduced product lifecycles, which can lead to declining price points and narrowing the product profitability window.
- Globalization: Though globalization has increased the potential market size, it has dramatically increased competition from global competitors that are constantly updating product offerings and catering to consumer needs.
- Economic volatility: The economic volatility experienced during the past six years requires that companies expand their approach to gaining a competitive advantage. In addition to focusing on products with additional value-add features, companies must also turn their attention to offering less expensive, money driven products.
To achieve success in today's marketplace, companies must develop an innovation strategy that enables the ideation and development of new products and services over an increasingly shorter time horizon.
The Traditional Innovation Process Fails to Adapt
Creating and advocating innovation has become challenging as companies have become more risk averse and passing internal financial and operational hurdles has become increasingly difficult. The issue is compounded when companies employ traditional, internally focused innovation processes to achieve their goals, as summarized in Figure 1.
Figure 1: Traditional Innovation Model
In the quest to broaden the innovation pipeline and speed up the innovation process, companies must move beyond traditional methods and employ collaborative innovation processes with supply chain partners. Collaboration with supply chain partners delivers numerous benefits to companies, including:
- Access to knowledge, technology, or capacity that has already been developed externally
- The focus of internal resources on specific core competencies; additional core competencies can be obtained by collaborating with supply chain partners
- Leveraging pre-existing supply partner capabilities increases speed-to-market cycle times
- Reduced project risk driven by decreased knowledge building, testing, and capital requirements
While the benefits are very attractive, building the capability to successfully collaborate with supply partners requires a well-defined strategic framework, collaboration processes, and a methodology to measure success. Supply chain and procurement leaders can take a lead role in executing the collaborative innovation strategy by deploying proven, capability-building tactics, which we'll discuss in Part 2 of this series.
Joshua Nelson has over 16 years of experience managing and leading product development, operations improvement, and supply chain teams to deliver solutions to strategic problems.
Benjamin Werner has experience with spend analysis, purchase-to-pay process and technology improvement, and procurement organization design.