As the economic downturn begins to loosen its grip, many organizations are moving away from cost cutting and toward innovation and growth. The CEOs behind these strategic decisions recognize that in a business environment characterized by higher levels of uncertainty and risk, the ability to generate and sustain innovation programs will be a crucial element of long-term differentiation and growth. Despite this executive-level focus, however, Forrester has found that corporate leadership often lacks the strategy and tools to support a comprehensive innovation agenda.
A lack of active innovation management can lead to confusion — and even backlash — to CEOs' stated innovation strategies. In addition, companies are often unwilling or unable to invest in the innovation process and look to third-party service providers as a way to quickly fix their lack of formal innovation strategy. Without a robust innovation strategy supported by senior executives, employees quickly revert back to "business as usual" — business leaders go back to focusing on quarterly business goals, product managers focus on incremental product improvements, and CIOs continue to cut costs. The frustration that inevitably results from failed innovation efforts translates into an opportunity for sourcing and vendor management (SVM) professionals to play a more strategic role in their organizations.
Just as the innovation objectives of a company are not limited to a particular consulting engagement or the adoption of a single innovation management tool, neither is the market for expertise in innovation limited to a single group of thought leadership providers, entrepreneurs, bloggers, or technologists. SVM executives that understand this diverse ecosystem of innovation suppliers are in the unique position to ensure that their IT and business counterparts are working with the right innovation partners at the right time. And in this position, they establish their role as a crucial partner in the innovation process. Although managing a diverse ecosystem of innovation suppliers has not traditionally been a priority of the SVM team, this is about to change.
The ability to balance the expertise of third-party service providers with the internal needs of the organization strikes at the heart of the sourcing professional's expertise in "buy versus build versus partner" decisions — and these capabilities become more important given the rise of innovation models that area more global and more open.
Recent research from Forrester shows that many sourcing professionals are now taking an active approach to connecting IT and business professionals with the service providers that can contribute to specific innovation objectives. To stay ahead of the curve and add the most value, sourcing should work with third parties to:
Understand the Company's Innovation Focus and Key Gaps
The diversity of players in the innovation ecosystem often raises questions about which company is the "best" partner to assist with the innovation process. However, when innovation demands are so broad, and the term "innovation" is so subject to interpretation, it falls on the sourcing professional to have a disciplined and focused approach to what kind of innovation they're seeking, and which vendor is best suited to provide it.
Sourcing professionals can start by identifying which parts of the company have the greatest levels of innovation focus and which parts of the company aspire to have that focus. Interviews with these departments will help you identify key innovation gaps, and establish the SVM role as a partner in the innovation process.
Match Key Suppliers to Your Innovation Objectives
After identifying key innovation gaps, it's up to the SVM professional to play the role of matchmaker. Most likely, your company already has relationships with companies that have innovation offerings, but they're offerings you haven't leveraged. Among a diverse range of market players, the most prominent are strategy consulting organizations, technology service providers, product management firms, outsourced product development, idea management and solution generation services, and other niche software and service providers.
Keep in mind that it's not a matter of which provider is best, it's a matter of which provider is best suited to meet an individual stakeholder's innovation objectives at a particular point in the innovation process. To avoid failed client engagements and frustration, SVM professionals need to do more to explore the full breadth of the supplier's innovation offerings, understand which suppliers can play a greater role in the process, and start putting innovation clauses and programs into contracts.
Look for a Long-Term Partner, Not a Quick Fix
As most sourcing professionals know, creating a strategic relationship between a supplier and a buyer goes well beyond what can be measured on paper. Companies that want to improve their innovation potential through the use of third-party service providers will have to be patient with relationships and recognize that codeveloping innovation requires continuous investment and refinement.
Over time, sourcing can play an increasing role in making this ecosystem work — ensuring that there is alignment between the different players participating in the innovation process and managing long-term relationships. In this way, the management of the innovation landscape may become similar to the multisourcing approach used with traditional IT service providers: Sourcing will work with IT and business decision-makers to identify where innovation capabilities need to be complemented by the more specialized capabilities of external suppliers, and which supplier is best suited to serve a particular innovation stakeholder's needs. Although many of the companies in this marketplace market themselves as "one-stop shops" for innovation needs, it will ultimately be up to sourcing professionals to ensure that these innovation services are successful — and that requires active management and governance.
Chris Andrews is a senior analyst at Forrester Research where he serves sourcing & vendor management professionals. He will be speaking at Forrester's Sourcing & Vendor Management Forum in Chicago, IL on November 9-10, 2010.