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How procurement is using innovation platforms to access supplier expertise

With a mandate to seek out new sources of innovation, procurement functions are increasingly forging a path to supplier technology through online platforms

SEIC Digital ecosystems cover 2

 

What does it take to unearth fresh sources of innovation? Now more than ever before, buying organisations are looking to suppliers, startups and universities in their search for new technology – but few succeed in finding it through conventional means. 71% of on-the-ground innovation scouting programmes meet with little to no success, according to recent research from our Supplier-Enabled Innovation Center (SEIC).

 

It is for this reason that procurement is turning its attention to the digital economy to boost its scouting efforts – and this is best borne out in the rising use of innovation platforms.

 

These platforms are online portals where suppliers can propose an innovation to a buying organisation, thereby creating a digital access point to outside expertise. According to our upcoming SEIC report on innovation ecosystems, over 30% of companies currently have such innovation platforms, while 32% are either developing one or planning to develop one.

 

It isn’t difficult to see why. “By having a portal where suppliers and other third parties can make proposals, an organization can gain visibility of external innovation without placing scouts on-the-ground or relying on other business units,” the report notes. “It also helps develop an organization’s reputation for being ‘open’ to innovation, providing a means for suppliers and other third parties to propose ideas and be a part of a business’s project roadmap.”

 

But, while there is an accepted definition of what an innovation platform is, there are numerous types that businesses develop. Companies tend to structure these platforms in one of four ways, with the key difference being how ‘open’ or ‘targeted’ they are to external innovation.

 

The first of the four is entirely open, allowing any company to make any proposal to the business. The second is more ‘closed’, only allowing invited companies to make a proposal to a defined challenge. The remaining two combine aspects of each – the third allows only invited companies to make any proposal, and the fourth allows any company to make proposals only to specific challenges.

 

Striking the right balance

 

Functions looking for an innovation-platform type that is head-and-shoulders above the others will be disappointed. The report finds that there isn’t a standout innovation platform model between the four, with each having their own advantages and disadvantages.

 

However, there is a standout trend: those with platforms that post specific challenges to targeted suppliers are more likely to claim their platform performs well.

 

80% of functions with these platform types say they are “very successful” in delivering value to the business. Other platform users are more likely to split their answers between “moderately successful” and “not very successful”.

 

While stark, these responses are not entirely surprising. “Combining specific challenges with specific suppliers is likely to lead to a higher ‘hit rate’ for the platform,” the report says. “Presuming it meets the requirements to set up such a platform, a company will be able to articulate what its problem is and have a firm idea of which suppliers can then solve that problem.”

 

This is evidenced by some of the functions included in the report. One procurement team in a pharmaceutical company operates on this basis and has a 60% success rate on the challenges it poses. This contrasts strongly to those that have an open-invite system. The platform used by a function in the technology sector with a specific challenges and open access model, for example, has a 40% success rate.

 

The trade-off here is that an invite-only platform isn’t exposed to as diverse a range of supplier proposals, which potentially cuts it off from an important solution. This is a disadvantage that many companies find too big to accept.

 

Ultimately, a balance must be struck. If the platform operates under an invite-only model but receives low quality proposals, then the company should re-assess its segmentation method or adopt a more open invite model. Conversely, if the platform has an open approach but isn’t contributing any value to the business, then a more focused approach may be needed. The key is finding a happy medium between these different approaches to ensure a platform delivers maximum value to the business.

 

 

This content is produced by the Procurement Leaders’ Supplier-Enabled Innovation Center (SEIC). To learn more about membership to the SEIC, please email us.

 

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