Increasing Supplier Driven Innovation

Topics: MIT Sloan School of Management, Innovation, Massachusetts Institute of Technology Pages: 7 (4184 words) Published: February 9, 2015

Increasing Suppl'ierDriven Innovation

When customers collaborate with suppliers they can build trust, reduce relational stress, and increase innovation-related activities. BY JOHNW. HENKE JR. AND CHUN ZHANG

MORE THAN 50 YEARS AGO, management guru Peter Drucker identified innovation as one of the basic ways in which a business builds and maintains a competitive position in the marketplace.I It wasn't until recently, however, that companies not only established internal environments conducive to innovation but also began identifying, cultivating and taking advantage of a wide variety of external sources for innovation.2

Among such sources, suppliers are recognized as having especially large innovation potential because they know what the companies - that is, their customers - are doing and need and also because mechanisms for knowledge transfer from supplier to customer are typically in place.3 But years of evaluating supplier working relations in various manufacturing and service industries reveal that it is one thing for a mechanism to be available by which suppliers may transfer innovation to customers and quite another for the suppliers actually to do the transferring.

Competitive Side Of Collaboration
Customer/supplier activities that are collaborative tend to build trust and subsequently foster supplier innovation transfer. There are, however,
competitive activities in every customer!
supplier relationship that result in distrust,
which negatively affects such transfers. For
example, a company and its supplier may
diligently and unselfishly work together
to provide the highest-quality end product, thereby strengthening their mutual trust. But when the company asks the
same supplier for price reductions, both
parties will compete to steer the negotiation to their own advantage, and stress will be created in their working relations.
It is this relational stress and its accompanying distrust that cause suppliers to limit the extent to which they will trans-


How can a
with a supplier
more, while
with it less,
to increase
the supplier's
lolnvolve the supplier
in the customer's
processes, especially product
openness and share
information with
the supplier in a
timely manner.
IPWork with the
supplier to help it
improve its competitiveness, both in
cost and quality.

fer innovations to the customer.
Three predominant competitive ac-

tivities cause such negative impact:
m Conflicting objectives among the cus-

tomer's functional areas that put the

the product development

process can reduce the
relational stress that results
from late engineering and





supplier in a compromising position, either in the
middle of a battleground with nowhere to hide or
in the distasteful role of referee.
"*Excessive and often late engineering or specification changes that the customer asks the supplier to fulfill without regard for the needed resources
or the reasonableness of the completion date.
"*Price-reduction pressures on suppliers that consider
only the customer's financial needs- not the fairness
of the demand or the supplier's own financial state.
Conflicting Objectives Conflicting objectives are
quite common in companies whose organizational
structures are chimney-like. When the customer's internal functional areas do not talk to one another or are even in competition, its suppliers get caught between
the proverbial rock and a hard place. That situation is
quite typical in manufacturing companies where the
purchasing and engineering areas do not reconcile their
differing objectives when developing new products.
Purchasing, consistent with its typical role, tries to keep
costs down....

References: 1. P Drucker, "The Practice of Management" (NewYork:
Harper & Row, 1954), 37
Review 50, no. 1 (fall 2008): 32-40.
Marketing 23, no. 5 (2008): 287-300.
Knowledge Economy," ed. C. Hecksher and PS. Adler
(Oxford: Oxford University Press, 2006).
6. See, for example, R.H. Hayes andW.J. Abernathy,
"Managing OurWay to Economic Decline: ' Harvard Business Review 58 (July-August 1980): 67-77; C.Y Baldwin
73-109; J.L. Bower and C M. Christensen, "Disruptive
Technologies: Catching the Wave: ' Harvard Business Review 73 (January-February 1995):43-53, LO
AdvancedTechnologies in the Automobile Industry" Journal of Operations Management 19, no. 2 (February 2001):
219-238; and MacDuffie and Helper, "Collaboration: '
(Reading, Massachusetts: Perseus Books, 1998);1T.
Stallkamp, "SCORE! A BetterWay to Do BusineSS. Moving from Conflict to Collaboration" (Upper Saddle River,
New Jersey: Wharton School Publishing, 2005); and J
Liker, "TheToyota Way: 14 Management Principles from
theWorld 's Greatest Manufacturer" (NewYork: McGrawHill, 2004)
Copyright © Massachusetts Institute of Technology, 2010.
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