4.4.3.1
The advantages and challenges of suppliers‟ Open Innovation
contributions
Whereas organisations have relied solely on the internal development of products, partially outsourcing manufacturing, the concept of Open Innovation suggests a different modus operandi. The influence and potential source of innovation that come from wider in the supply chain cannot be ignored.
Organisations, especially in the manufacturing industry (original equipment manufacturers) have in the past made use of a vertically integrated silo approach to design, development and manufacturing. Product designs and specifications were created internally, after which the design in question was expected to be manufactured either through internal or outsourced manufacturing.
Lacking communication between designers (clients) and the actual supplying manufacturers is a common occurrence, with suppliers always having to follow the requirements set out by their clients. The clients, in turn, have very limited or no knowledge of the inner workings or capabilities of the supplier and/or manufacturer. This results in the higher supply chain link in various instances having to research and design, or even outsource, the capability to produce the parts in question.
Open Innovation, in contrast, promotes inter-supplier and client communication, and aims to foster an environment where client and supplier/manufacturer are equal-level peers in the design process. Instead of the client being the party who sets out rigid specifications, a collaborative, horizontally orientated environment is recommended.
Increasing the participatory involvement from suppliers will increase the efficiency of the design and delivery processes. Instead of clients creating all the specifications on their own, the inclusion of supplier and manufacturer input produces faster achievable results, since the capabilities of the supplier/manufacturer can now be discussed and the efficient sharing of knowledge will promote the production of the part in question in a cheaper, faster manner.
The greatest advantage of exploiting the suppliers’ and manufacturers’ input lies in the increase in innovation speed and the potential improvements of the efficiency of the supply chain. Also, the decrease in cost offers an advantage to Open Innovation practices towards supply chain integration. A study done by INSEAD and Booze, Allen and Hamilton on the globalisation of R&D (Doz et al., 2006), found that the advantages of integrating and optimising an organisation’s R&D department with a network of R&D centres increases the speed of innovation and also the quantity thereof (see Figure 32)
| Page 72 The definition and development of Open Innovation models
Figure 32 -Potential innovation improvements
The potential increase in efficiency will be discussed in the examples of supplier contributions to Open Innovation following Figure 33.
Another illustration of the importance organisations are placing on collaboration comes from PWC’s 11th annual CEO survey (titled “Compete and Collaborate”), which reveals the importance CEOs are placing on networks to succeed in the modern-day enterprise. The responses of the 1 150 CEOs interviewed for this survey clearly show that networking as a business competence is reaching a new level of importance (PWC, 2008). Figure 33 depicts the importance organisations are placing on networking, as well as the benefits they are experiencing from this effort.
The survey also revealed that currently, organisational networks are primarily orientated towards sharing best practices, and “creating innovation”. Although CEOs are grasping the concept of networking, it is not yet fully adopted in practice.
The concept of supplier integration is further explained through the case example of Boeing.
37% 32% 24% 33% 31% 23% 0% 5% 10% 15% 20% 25% 30% 35% 40%
Speed of Innovation Quantity of Innovations Innovation Process Cost Saving Configuration of R&D Network Integration of R&D Network
| Page 73 The definition and development of Open Innovation models
Figure 33 - PWC CEO Survey Results
[PWC, 2008] 21% 25% 26% 11% 17%
Networks will be a defining organisational principle for businesses
Disagree strongly Disagree Agree Agree strongly Not Applicable 21% 25% 26% 11% 17%
Establishing networks remains a secondary busines activity for my company today Disagree strongly Disagree Agree Agree Strongly Not Applicable 19% 40% 13% 4% 24%
To date, the costs and risks of networks outweigh the benefits
Disagree strongly Disagree
Agree
Agree Strongly Not Applicable
| Page 74 The definition and development of Open Innovation models
(i) Case example: The Boeing 7X7
Boeing started development of the 7X7 project during the latter half of the 1990s. At the initiation of the project, Boeing assembled a team of more than 1 000 personnel from their various suppliers to assist in the development of the vision and goal of the project.
The objective was to design a passenger aircraft that is more fuel efficient per passenger, and can thus fly longer distances on less fuel.
In the past, Boeing would design and develop the specifications for all the parts, and then only have the suppliers develop the fully specified part. The 7X7 project introduced the new role Boeing would fulfil in the global supply chain – that of systems orchestrator.
Boeing then proceeded to create the platform for over 100 suppliers from six different continents to collaborate in a truly horizontal manner to share information, knowledge and various designs. On the previous models, Boeing specified that all supplied parts be sent to their assembly plant in Everett (US) to be assembled by the Boeing employees, for which the assembly process would take up to 17 days.
The goal of the new 7X7 design was to create a more modular approach to the design and assembly, with the responsibility of specifications of various subassemblies being given to contractual peers/suppliers. This approach has reduced the assembly time from 17 days (Boeing 777) to three days on the 7X7 design.
The responsibility for the design of the various subassemblies was given to the supplying manufacturers – Boeing merely gave the overall outcomes expected from each component or assembly, with the remainder of the design specifications being the onus of the suppliers. In comparison, the electronic design specification document for the 777 was 2 500 pages long, while the document describing the similar requirements for the 7X7 project was a mere 20 pages (Tapscott & Williams, 2008).
The involvement of the suppliers as peer designers has obviously increased the speed of the design and development process, which results in an increase in design efficiency. Instead of Boeing giving design orders without knowing the inner workings of the supplier’s organisations, the designs themselves are done by the suppliers, while Boeing fulfils the role of ensuring the compatibility of the various subcomponents and subassemblies.
To ensure successful integration, Boeing partnered with Dassault Systems to create the “Global Collaborative Environment” – the real-time collaboration system of which all suppliers and non- technical members are a part. The system allows the peers to review, assess and revise all designs from all other parties in a centralised portal, while saving precious time and expenses during the design phase.
| Page 75 The definition and development of Open Innovation models
The inclusion of suppliers as designers also ensures that the contributing parties are accountable for their designs and contributions – more so than would have been the case if Boeing were carrying the responsibility of all component designs. This ensures that the peers approach the design in a more responsible way.
It is estimated that 80% of the 7X7 design will be done by suppliers (Tapscott & Williams, 2008). The difficulty for Boeing lies in managing a project on this global scale without intervening in the design and manufacturing processes of the contributing peers. Also, the sharing of proprietary knowledge between suppliers (and from Boeing) is proving a difficult obstacle to overcome, because the suppliers want to protect their own Intellectual Property, but also want to share knowledge to a certain extent to improve the project.
4.4.3.2
Harnessing suppliers‟ Open Innovation
Tapscott and Williams (2008) recommend the following lessons from supplier-introduced Open Innovation:
Focus on the critical value drivers. It is essential for organisations to emphasise and focus on their core capabilities and create partnerships and collaboration for all other tasks.
Add value through orchestration. Organisations that are in the position to orchestrate supply chain collaboration should strive towards a collaborative peer-produced environment.
Instil rapid, iterative design processes. Decentralisation and collaboration lead to rapid, iterative design processes where each supplier can optimise their contributions through trial and error without limiting the speed of the entire project.
Harness modular architectures. Organisations should strive to provide the requirements of components (not specifications) and only focus on specifying the component interfaces. The detail design should be done by the supplier.
Create a transparent and egalitarian ecosystem. Share the costs and risks.
The greatest realisation concerning supplier integration in an Open Innovation context is that it requires a different approach to customer inclusion in the innovation process. Whereas the intended goal of customer immersion is to gain as much input as possible, supplier inclusion will mostly occur on a one-to-one basis.
Therefore, supplier integration is more suited for a business-to-business environment (B2B). These relationships will require extensive effort, and each should be handled individually.
| Page 76 The definition and development of Open Innovation models