The Value of Innovation: Is it Time to Put Price Second?
Endemol Shine Group are global trailblazers in the TV production and distribution industry, creating hundreds of titles each year.
With such a diverse output, the need for innovation in all business sectors is crucial to success. We talk to Chief Procurement Officer for the group, Paul Williams, about how the procurement sector can work to increase innovation within the supply chain, and how embedding innovation at the forefront of your procurement strategy can bring benefits for the business as a whole.
Let’s start off with what we mean by innovation, what do you see to be great innovation within procurement?
“There is a definition that I like for innovation: “The process of translating an idea or invention into a good or service that creates value or for which customers will pay”. I think that one of procurement's main goals is to drive innovation from suppliers in support of our business and customers, however, there is always an element of risk involved.
If I go back to one of my earlier projects in procurement, it really flavoured the way I’ve looked at procurement ever since. I was working for a company called NCR who make ATMs (cash machines) and retail solutions. They had a number of different types of ATMs and each one had five different plinths, depending on how they were to be situated. It meant that at any given point the warehousing team needed to have upwards of 30 different types of plinth; our engineers needed to be trained to install each type and our spare parts team needed to hold an inventory for each part. It was a logistical and commercial headache; plus, multiple plinths were normally sent to a site to ensure the device could be installed.
To find a more efficient process, the procurement lead approached different engineering specialists and eventually chose a company who made component parts for tanks. We explained the challenge to design a universal product that would cover all the ATMs and reduce the stock holdings, thus simplifying the process for the engineers. They produced a design which meant we only needed two plinths, replacing 30. We were able to not only decrease capital tied up in our stock holding but also decrease the complexities of the supply chain. The total investment and cost of change were around a third of a point on annual sales (extremely minimal), and there were huge cost savings, standardisation benefits and efficiencies. I look at that (even though it was a long time ago), as a boilerplate on how to do things better in the future.
There’s another side to innovation which I call ‘Field of Dreams’ procurement (based on the movie). This is when you understand a business and see an opportunity to do something differently, for example, when I work with our suppliers to build a solution that will drive benefits for us. This works well in unmandated environments because it means the deal must be so attractive it makes selling it to the group more straightforward. The challenge commercially is to create a solution with a supplier that is not tied to a spending commitment. This is where the Field of Dreams comes in. The famous line from the film is “If you build it they will come”. You have worked with the supplier and created a solution; then comes the fun part that many procurement people haven’t got a lot of experience in and that is Sales. If you have done your job correctly then selling the opportunity with your stakeholders becomes a “why wouldn’t you” question, instead of a mandated approach of “you have to”. In a large federal organisation, making a decision on behalf of all those entities from the centre isn’t always the best solution because it’s not going to be a fit for everyone. So, doing something more bespoke is an exceptional way to drive innovation.”
How important are the relationships with your suppliers in fostering innovation, and how does this differ from traditional relationships with suppliers?
“The relationship is paramount and both parties need to have a true understanding of the other’s business. This can be very difficult if you are bringing in a new supplier to the business, so time must be spent to understand the other’s business requirements, building trust with good open lines of communication being crucial. Both the supplier and the customer need to be able to challenge each other on findings and any specific items that come out of those discussions. In short, this needs to be a partnership approach, not a ‘shop strategy’.
Many relationships between procurement and suppliers are just based on price. You need a solid relationship to be able to say to a supplier ‘This is the business challenge that I would like you to help us solve, can you help me resolve this problem?” It is very different to saying we pay X and I now only want to pay Y. Working collaboratively with an open mind to change can drive real value to both the supplier and the customer.
Innovation can be buying a different product, making a different product, using a product in a different way, the process of actually using that product, or a mixture of all four. You can drive innovation which itself drives change for the benefit of the organisation overall.”
Do you feel there is a disconnect when discussing innovation with your suppliers if they are looking to innovate in one area and you wish to look at the whole picture?
“Communication is key here. The only way you can ensure that the big picture is the focus is by ensuring that the communication is open and transparent from both sides. There is always the possibility that there are some ulterior motives at play, but if you test and challenge the supplier and keep working as a collaborative partnership you will ensure these deterrents are managed out of the relationship. I have been in situations where the supplier was so focused on a price they missed the larger opportunity that would have given them better margins.
It’s critical to ensure the supplier relationship is solid and not just a procurement owned relationship. This is a ‘business relationship’ and procurement is a central facet of that. Having the right people in the room to have open and frank conversations will ensure the correct focus and a positive outcome. Aim for a relationship with a supplier who you can test, challenge and work through issues with.
If you always do the same thing with the same people, then you’ll always get the same results. Sometimes you need a disrupter to come in and actually challenge the status quo. Obviously, if it’s a new relationship with a business it will be more of a challenge to get everyone to understand the need for shaking things up. In the TV production industry, you have a very heavy freelance community and they do bring new suppliers in on a regular basis. Working with new suppliers isn’t something that needs to be scary, as long as you do all the due diligence necessary; from an innovation standpoint, these can be the best relationships.
Procurement has always been very good at managing (with the business), the buying of a particular thing. For innovation, this is beyond just tendering, it’s relationship management, and driving value and solving problems as opposed to being totally focused on price. The challenge for procurement specialists is that we drive innovation but have a history of focusing on cost over value. We need to embed innovation into our long-term strategies.”
What are the more difficult aspects of your role that prevent innovation within your department?
“Time is an interesting factor. When you look at complex innovation projects you’re bringing in something new, therefore you’re having to re-engineer the business and change the way in which you do things. This, of course, would include a time factor. Going back to traditional procurement, it’s very much in line with finance. We are having to bring things in line with budgets that sometimes have a very short outlook. If it’s a small innovation that you can do quickly and easily, and you can just get it done without time really being much of a factor then that’s great. I think the bigger challenges come from paradigm innovations that naturally take longer to implement.
This leads me to the cost of change. It’s important to understand the cost of change and that we do need to make investments in a process when we can see a payback. It’s about understanding the overall total cost of ownership. With a smaller change or innovation, we should be doing that anyway because the cost to change is so minimal or non-existent.
You also require a willingness to make those changes. Not every business is open to looking at something differently or taking a new approach, and sometimes you need to take a calculated risk. I have a great mentor who is the CEO of an SME and he has said to me on a number of occasions that he is glad of all the risks he has taken because the successes have more than paid for the mistakes!
One of the things we’ve done well at Endemol Shine is our Epic initiative. This was a board set up across our main markets in Europe to look at driving efficiencies. Epic in our business stands for Efficiencies, Productivity, Innovation and Collaboration. This worked as a great springboard for procurement and has helped us to develop innovative solutions that we have been able to share with the group. It sometimes feels like procurement is a little out of date as it’s quite process-heavy, but with EPIC procurement, it does exactly what we need it to do. It’s a focus change that helps us as a function, as well as the business we support. As we look to drive efficiency, productivity and innovation in our supply chains, we absolutely look for collaborative relationships both within the business and externally with our suppliers.
Having innovation at the core of what you’re doing in a business is imperative. When you take this approach you’re not saying that something is ‘broken’ or in need of ‘fixing’ but that inevitably in every business there are things which we can do better.”
Do you face challenges from other departments in terms of buy-in?
“If you don’t get challenged you are not doing your job properly. With any change or a new idea you bring to the table, it has to be tested and looked at from every angle and perspective to ensure it will work. Everybody should be able to challenge this because the solution needs to be robust and solve a problem. If you’re introducing something that doesn’t stand up to criticism or challenges, then it may not be the best thing to do. There’s obviously the need to isolate real issues so these can be worked through to ensure that everyone agrees on a way forward. There’s no point trying to bring people kicking and screaming to the table, as everyone has to be invested from the start, full stop!
From a procurement team standpoint, procurement continues to evolve in the way it supports the drive for efficiency. By better use of external resources and driving value from the supply process we can ensure that we are helping the business achieve its aspirations including growth. Having one eye on sales is vital if we are to become a structural pillar in any business, and part of that determination process is not to be fixated on overall ownership or price.”
How do you go about building a team who share your views on innovation?
“The first step is to ensure that the objectives are not just about savings and price. I’ve always been keen on hiring a balanced team with people who have been in procurement a while, alongside those who are business specialists in different areas, and buyers who are still studying towards qualifying in the profession. As an example, hire a marketer to look after the marketing category; someone who has a good grounding in a commercial background who can then develop the procurement skillset. I’ve always looked to develop a team of cross-functional experts, a term I have heard in the past is ‘journeymen/journeywomen’, as they’ll come to procurement after working in other functional areas in the business world and spend three to five years in procurement. They may then move to a different part of the business, taking their procurement skills with them.
I have always felt this team structure has enabled procurement to think more about the art of the possible and less about the price. Procurement professionals are great at delivering process, commercial negotiations and supplier management, so we need to think more about driving value and innovation. In my experience in some categories of spend, this is the best method of reducing the total cost of ownership and driving real business value.”