Suppliers as Innovation Partners for Next Generation CXOs

By GH Rao, President, Engineering Services, HCL

GH Rao, President, Engineering Services, HCL

As the global economy shifts from more traditional business models to newer innovative ones, growing in complexities and spreading across geographies, executives across all industries face increasing pressures in this challenging environment. Chief Experience Officers (CXOs) need to catch up with business priorities, balance innovation with productivity and sustain high levels of top-line growth. The most pressing concern is to accelerate time-to-market while continuously innovating and keeping an eye on cost-efficiency. CXOs must play the difficult role of being the next generation catalyst helping businesses adapt to this accelerating pace of change.

“It is critical to channelize and optimize business processes by adopting a collaborative approach and crowd sourcing to solve critical business problems and gain a competitive edge”

The need to innovate requires significant development costs that can easily outstrip the benefits generated by sales. The R&D productivity of companies is leveling off and the advent of disruptive technologies is putting enormous pressure on the R&D budgets of even the most aggressive engineering spenders. Instead of shouldering all the risks and investments internally, enterprises are looking at an entirely new approach to innovation that is likely to involve a fraction of costs with a shared risk model. In their competition for market share, companies realize that they can’t solely rely on the internal R&D efforts to drive the kind of growth desired. Collaborative innovation is the key to sustaining high levels of top-line growth. While it is imperative to capitalize on changing trends and emerging opportunities, it is also critical to channelize and optimize business processes by adopting a collaborative approach and crowd sourcing to solve critical business problems and gain a competitive edge. Companies are reshuffling their internal capabilities by partnering with various suppliers to leverage their expertise and pursue value-driven growth.

Vendors typically assist in integration and customization of services, and their roles in optimizing customers ‘innovation portfolios will only increase in importance in the years to come.

They accelerate innovation efficiency by sharing development costs and reducing time to profit. Collaborative supplier innovation also paves the way for capturing a price premium through product and service differentiation. By bringing in fresh perspective to reveal new insights, suppliers can jointly co-innovate. To become an innovation partner, the supplier must move from being a technology enabler to a strategic partner by understanding the needs of the customer’s customer and translating their business strategy to operational reality. It is therefore imperative to effectively align the supplier’s objectives with the customer’s business strategy. It is essential to first classify business priorities into core and non-core activities, based on competence level and capabilities of the company internally and those of the suppliers. A clear consensus on this will resolve intellectual property issues and help in managing time and quality well.

An AT Kearney research note revealed that 90 percent of leading companies have a structured process for collaborating with the suppliers, but only 54 percent of them are actually able to implement it successfully. The entire company has to work cross-functionally to enforce collaborative supplier innovation. Managing a complex supplier network to generate value also demands support. The procurement has to go beyond typical vendor relationship management, incorporating stringent measures for supplier innovation performance to select and manage suppliers effectively. Another responsibility includes charting out a path for future development and managing the overall innovation lifecycle. Each innovation-led success goes a long way in motivating suppliers to position themselves favorably in the value chain.

Companies are seeking suppliers ‘support for platform development to devise standardized solutions catering to more than one business need, spanning across different functions within the organization. An integrated development platform can simplify the development process in the long run. These product or technology platforms aid in scaling innovation through different stages and across different businesses. This also provides a higher ROI to the suppliers and helps them expand their capabilities to newer areas. This partnership model results in unprecedented success for both the partnering companies.

Most CXOs are working hard to bring business goals to reality and suppliers act as key contributors in driving growth through an open innovation strategy. The increasing breadth of businesses that companies are dealing with creates unprecedented opportunities to connect capabilities with technology across all functions in unforeseen ways to create game-changing breakthroughs. This often compels big organizations to maintain a less diverse but strong supplier portfolio to strengthen their capabilities, achieve greater cost efficiency and foster continual innovation to deliver leading-edge products. Many customers are going through a vendor consolidation cycle to mature to this level.

Suppliers can contribute in various areas including market research, technology research, design, development, packaging, sales and distribution, and more. The percentage of organic net revenues coming from supplier contribution is rising over the years in large organizations. With increasing pressure from emerging technologies and amidst shrinking innovation budgets, suppliers that deliver value through meaningful and intelligent engagement will be in an advantageous position in the market. Suppliers’ abilities to reshape business operations by leveraging technology to improve innovation performance would be the biggest differentiator.

Co-creating innovation is the new business mantra for the next-gen CXOs and the dire need for suppliers is to metamorphose into innovation partners.