This presentation shows the mismatch of Procurement with innovation processes, and how to change the focus of Procurement in order to successfully contribute to innovation

1. Procurement Innovation Business Model
How to organize Procurement for a strong contribution to innovation
- An IDP offering -
13 August 2010

2. As the economy emerges from recession, Innovation Leaders seek
opportunities to accelerate performance
What Innovation Leaders do
 Create unique customer experiences
 Transform business processes with partners
 Utilize new governance and management
methods
 Apply new technologies
Copyright © 2010 Capgemini. All rights reserved. 2

3. Procurement has developed towards a more value driven department, but has
major obstacles to overcome before it can contribute to innovation
Procurement developments improved … but the traditional Business Model
the focus on value… holds back a contribution to innovation
 Strong functional silos result in a translation of
 Focus moved from internal cost savings and risk
external customer targets to specific targets for
reduction targets towards the internal client
Procurement, which makes it difficult to oversee
targets
end product requirements
 More cross-functional teaming and category
 Procurement is involved in the later stages of
management has increased Procurement’s
innovation, where fixed specs only allow for
understanding of the internal client
traditional procurement savings
 Stronger separation of tasks and outsourcing of
 Procurement capabilities lag behind; they are
operational procurement has brought stronger
limited to traditional contracting, delivery of
focus on tactical and strategic procurement
savings and security of supply
The value added role of Procurement is limited to a thorough understanding of the internal
client, instead of a substantive contribution to the external client’s demands
Copyright © 2010 Capgemini. All rights reserved. 3

4. Early involvement will enable Procurement to add value when the potential
impact is greatest
Traditional Involvement
Procurement involvement in innovation
• Product Development (R&D, marketing, etc.) tends
Cost reduction to involve suppliers early on
opportunities
• Procurement is involved once specifications are
(nearly) fixed and the potential impact on costs is
limited to negotiation gains
Innovation Driven Traditional • Late involvement of Procurement may speed up
Procurement Procurement initial design phases, but will require additional effort
Involvement Involvement in later stages and it may cause conflicts
Innovation Driven Involvement
• Innovation teams including early Procurement
Supplier Involvement
involvement are critical to leverage supply market
capabilities from the start
• A shared value proposition for the external client will
Life cycle allow Procurement to focus on the right targets
value
determined • Supplier involvement is based on the full life cycle
and is a based on a strategy balancing R&D and
Concept stage Project stage Prototype stage Revision stage Product stage
Procurement interests
Copyright © 2010 Capgemini. All rights reserved. 4

5. The timing of Procurement Involvement must be matched by the appropriate
Business Model for an optimal contribution to innovation
Transactional Value added
contribution contribution
• Fit of the Procurement
Value added
Procurement Involvement
Early
• Fit for late innovation Mismatch business model with
stages contribution the early innovation
stage characteristics
• Linear process with
handovers, focus on • All team members
internal client targets focus on the external
value proposition
• Cost reduction is in
scope during early • Cost control
Transactional
Late
stages, but a core Mismatch becomes integral
Procurement target contribution target of the innovation
later on team
• Ad hoc supplier • Supplier involvement
involvement Traditional Innovation Driven strategy becomes
balanced
Procurement Business Model
Copyright © 2010 Capgemini. All rights reserved. 5

6. Early involvement of Procurement with an Innovation Driven Procurement
Business Model ensures benefits for both R&D/Marketing and Procurement
Benefits for R&D / Marketing Benefits for Procurement
• Leverage capabilities and supplier market
• Closer to the core of the requirements of
know-how of procurement
the business (R&D/Marketing); access to end
• One supplier interface: organized entry and customer demands
filtering of ideas from (potential) suppliers
• Influence policy and decision making where it
• No need to develop Procurement impacts the bottom line the most
competences such as supplier management
• More a business partner, less a police
• More efficient innovation projects, fewer officer or mere negotiator
setbacks due to conflicting procurement
• Get in control of all spend and suppliers
perspectives in later stages
• Full scope supplier involvement strategy
• Full scope supplier involvement strategy
To deliver these benefits, companies must review
the Procurement Innovation Business Model
Copyright © 2010 Capgemini. All rights reserved. 6

7. The Business Model Framework is a simplified representation of a system’s or
service’s logic, which we will apply to review Procurement in innovation
Business Model Framework
KEY KEY VALUE CUSTOMER CUSTOMER
PARTNERS ACTIVITIES PROPOSITION RELATION SEGMENTS
What key activities do What kind of relations
you need to perform do your client expect
and how easily can and which kind do you
What can partners do you do this? Which of your maintain? Who are your
to leverage your customer’s problems customers and what
business model do you solve and are your customer’s
(better, at lower cost)? KEY which needs are needs, problems,
RESOURCES satisfied? CHANNELS desires, and
ambitions?
What key resources Through which means
does your business do your clients want to
model require? be reached and which
means do you utilize?
COST REVENUE
STRUCTURE STREAMS
What is the cost structure of your What value are your customers willing to
business model and is this in line with pay for and what is the preferred
the core values of the business model? payment mechanism?
Source: Adapted from “Business Model Generation”, Alexander Osterwalder & Yves Pigneur, 2009; Capgemini Consulting Business Innovation
Copyright © 2010 Capgemini. All rights reserved. 7

8. Changing the definition of the “customer” of Procurement in innovation is the
basis of Innovation Driven Procurement
Traditional Procurement
• Procurement works for “internal clients” such as
CUSTOMER CUSTOMER
marketing
RELATION SEGMENTS
• These departments typically give targets such as a
required percentage of savings on the COGS, full
contract coverage and security of supply What kind of relations
• Procurement typically reacts to client demand in do your client expect
later stages of development and which kind do you
maintain? Who are your
customers and what
Innovation Driven Procurement are your customer’s
needs, problems,
CHANNELS desires, and
• What happens when Procurement focuses on the ambitions?
external client?
Through which means
• What kind of structures are in place to connect do your clients want to
customers with Procurement? be reached and which
• What kind of relationship can Procurement have means do you utilize?
with external customers?
Copyright © 2010 Capgemini. All rights reserved. 8

9. The changed focus broadens the product of Procurement from narrow cost-
focused achievements to a contribution to customer-focused goals
Traditional Procurement
• Procurement delivers:
VALUE PROPOSITION
• Contracted savings
• Supply secured
• Operational procurement process in place
• Supplier performance managed
Which of your
customer’s problems
do you solve and which
Innovation Driven Procurement needs are satisfied?
• Procurement, as part of a client centric team,
contributes to end customer targets such as:
• Short time-to-market
• Better quality
• New features
• Lower cost
• More customization
Copyright © 2010 Capgemini. All rights reserved. 9

10. Contributing to overall goals changes the way in which Procurement is
organized, works together with its partners and deploys its capabilities
Traditional Procurement
• Procurement conducts tactical and operational
activities to deliver contracts, savings, etc., usually
KEY KEY
in the later stages of innovation (revision / product
stage) PARTNERS ACTIVITIES
• Required skills include demand management
negotiation, contracting, basic supplier What key activities do
management
you need to perform
• Suppliers are partners required to supply the value and how easily can
proposition What can partners do you do this?
to leverage your
Innovation Driven Procurement business model
(better, at lower cost)? KEY
• What will Procurement’s contribution be in early RESOURCES
innovation stages and with different types of
innovation?
What key resources
• Who are Procurement’s partners internally and
does your business
externally?
model require?
• What kind of competences are required in the
different innovation stages and with different types
of innovation?
Copyright © 2010 Capgemini. All rights reserved. 10

11. Interested in how to go forward?
Robbert den Braber | Capgemini Consulting
Senior Consultant Procurement Transformation
Robbert.den.Braber@Capgemini.com
+31 (0) 6 15 03 09 01
@InnoProc | Innovationdrivenprocurement.blogspot.com
www.capgemini.com/consulting
Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group Copyright © 2009 Capgemini. All rights reserved.