2018

INNOVATION IMPERATIVE

Establishing Alliances

Partnerships in your supply chain provide knowledge that fuels innovation

by Peter Merrill

Often, we think of suppliers as people from whom we simply "buy stuff." Yet they can be a major source of knowledge, and knowledge is the fuel of innovation. Too often, we dismiss the reps who call—yet they can open the door to many new opportunities. We talk continuously about customer relationship management (CRM), yet we pay far less attention to supplier relationship management.

If your suppliers are plodders, think about looking for potential new suppliers that push the envelope. Trade shows are a great place to find them. If you source a new supplier from your office and ask them to come visit, they might get the feeling that they’re halfway to closing the sale. At a trade show, however, potential new suppliers are asking you to visit them, and there is a desire to try harder to win you over.

Go to the show

Shows can be a tough environment, and you need a plan. Wandering up and down the aisles just doesn’t do it. On Day 1 of a trade show, I like to do an initial scan and make notes or use a voice recorder—ideally, one that translates voice to text. I short-list the booths and decide where to focus on Day 2, then give myself 40 minutes each at the top 10 choices.

All of this assumes you know what you’re looking for, and the point about innovation is that you don’t always know. So on Day 1, stop briefly at each supplier and ask, "What’s new?" and avoid being sucked into the booth. Just tell the salesperson you’re looking around and will return.

You know where your roadblocks are in your new product development (NPD) and your questions must be phrased carefully as not to define the block at this stage. In other words, don’t give away market intelligence. Couch questions with phrases such as, "We’re having trouble with …" or "We’re wasting time doing …" Give salespeople a chance to offer solutions, but insist on a quick, concise answer. Day 2 is when you want to get into deeper discussion with your top 10.

After you see a supplier as a real option, the supplier must be evaluated. Most suppliers expect this from their better customers—and the more thorough the evaluation, the more respect you get as a customer. Taking on a new supplier is one of your biggest risks—and yet too often, we evaluate them superficially.

You are looking for both products and ideas. This means you don’t just assess the potential supplier’s product to see if it performs, you also assess how the supplier is managed. What is the structure of its management meetings? How is it layered? What is its meeting frequency? Are decisions and actions captured and executed?

Find out how the potential supplier’s R&D is structured. Is it a casual chat between a salesperson and an engineer followed by a bit of "What if?" Or is it project managed with a clear project plan containing stage gates? Use your internal audit team to do this—and if you don’t have audit capability, get an ISO 9000 registrar to do it for you.

The ultimate question is how well does the potential supplier manage knowledge, and not just by using SharePoint. If the answer is that the potential supplier manages knowledge well, you have struck gold. Here you name a supplier who will fuel your innovation process. You may be the guinea pig for a new supplier offering, but that must be explicit at the outset. After you have gone through all these hoops, you are ready for the next challenge: collaboration.

Keen on collaboration

There are many exciting stories about external collaboration. But be careful. To quote one CEO, "Having a few beers together is not collaboration." Collaboration is a discipline. The IBM CEO survey showed that external collaborators outperformed the competition in revenue growth and margin.1

Another interesting statistic in the IBM CEO survey was that public sector organizations collaborated externally to twice the extent of private sector organizations. In The Death of Competition, James Moore talked of the importance of creating a business "ecosystem."2

Since then, we have seen the concept of alliances evolve dramatically. At the same time, however, we have seen that the majority of alliances are doomed to fail. How do we overcome that problem?

A major reason for the failure of alliances is the focus on the alliance’s legal and financial aspects to the total exclusion of the relationship and resourcing aspects. Building trust is essential, and that trust builds when behavior follows expected patterns, and patterns that the other party understands.

As a result, the method of working with partners needs careful thought. Some people are comfortable with Skype, and others prefer e-mail. Some are happy with conference calls, but good collaboration usually involves periodic face-to-face meetings. These are when the bandwidth is highest and the most knowledge is transferred. Look at a comparison of documents and meetings in Table 1 in which bandwidth denotes the amount of information transferred over a period of time.

Table 1

It is far too easy to lay out generic principles in the early stages of relationship building. The principles must be specific. Avoid words like "review," "appropriate," "frequent" or "necessary." The decision-making process in each organization must be understood by each partner. At what level are decisions made? What are the steps in the decision-making process? What are the key decisions that are likely to be taken as the project moves forward?

There must be nonfinancial leading indicators for alliances. Obsession with short-term financials will kill the relationship. Using process measures such as number of opportunities, number of solutions and "speed of bug elimination," for instance, will drive progress.

An alliance is normally formed because each party brings an asset—whether it is market, intellectual property or technology. Recognize that the other partner will not understand your market nuances if that is what you bring to the table. If the other partner brings technology, you must take time to understand that.

These are only the first steps. Differences in culture are also a big issue. What might at first be seen as "attention to detail" can rapidly become "slow and bureaucratic." A behavior that at first is seen as a fast response can soon be seen as reckless.

In my own work with the International Organization for Standardization, I interact with people from cultures across the world. Europeans often seem to want to debate forever, while sometimes it seems North Americans race on with thoughtless abandon. East Asians seem to be inscrutable, and people wonder what they are thinking. Taking time to form working relationships in our meetings is a critical part of our work.

Agree how information will be shared and how problems are shared. Agree on approaches for both of these, as well as for normal work activity. Problems may well arise from within your own organization, and you have a responsibility to address them internally when that happens.

Managing your alliances

So having arrived at an alliance, there is still risk that must be managed. Chances are that if you have a new product or service, you have at least one new supplier or subcontractor, and they may not be conventional. It may be software or knowledge the supplier or subcontractor is supplying. All your other suppliers can keep their promises, but if this one fails, you fail. Always assess your supplier.

If you have four key suppliers with three of them at 90% probability of delivering, and the fourth at 40% probability, the combined probability of your supply base coming together for you is only 0.9 x 0.9 x 0.9 x 0.4 = 29%. You certainly wouldn’t move forward with an internal risk at that level without serious mitigation.

The lesson? You may well find it better to pursue a new product or service with high internal risk that you can manage, and mitigate a low external risk that you don’t have to manage.

I don’t need to say too much about risk mitigation. It has become a well-established practice. To offer a few examples, you may find a single source supplier that is slow delivering, so you manage this by holding inventory. You may be unsure about key competencies, and you invest in additional competency development.

On the other hand, do not invest in soft budgeting. Just about every risk mitigation costs money. Experience shows that tight budgeting drives resourcefulness. The one resource that is irreplaceable is time, so plan carefully and thoroughly.

Remember to partner with your suppliers. Don’t just buy from them. The performance measure for purchasing is normally price. The measure should be value. What are the suppliers' new offerings that will help you beat the competition? What is the knowledge and support you are getting from your suppliers? 


References

  1. IBM, "Capitalizing on Complexity: Insights From the Global Chief Executive Officer Study," report, 2010, http://tinyurl.com/ibm-2010-ceo-study.
  2. James Moore, The Death of Competition: Leadership and Strategy in the Age of Business Ecosystem, HarperBusiness, 1996.

Peter Merrill is president of Quest Management Inc., an innovation consultancy based in Burlington, Ontario. Merrill is the author of several ASQ Quality Press books, including Innovation Never Stops (2015), Do It Right the Second Time, second edition (2009), and Innovation Generation (2008). He is a member of ASQ, previous chair of the ASQ Innovation Division and current chair of the ASQ Innovation Think Tank.


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