About Vantage Partners

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2 About Vantage Partners Mission: Drive measurable business results by transforming the way companies negotiate with, and manage relationships with, key business partners Practice Areas: Sourcing & Supplier Management, Strategic Alliance Management, and Sales & Key Account Management Spin-off of the Harvard Negotiation Project Faculty at Harvard University, the Tuck School of Business at Dartmouth, and the US Military Academy at West Point Leaders in international conflict resolution through CMG (now part of Mercy Corps) Arias Peace Accords Post-apartheid South African constitution 1

3 Vantage Partners publications 2

4 Research highlights on supplier innovation 3

5 Increased innovation is, and will continue to be, a major strategic focus across multiple industries and regions Percentage of executives who said they are raising innovation budgets in 2011/ % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% China South America India US Japan Even in the U.S., barely half of respondents (53%) said they think U.S. companies will be the most innovative over the next five years In China, 95% of executives said innovation was the key to economic growth, while 90% and 89% of respondents in South America and India, respectively, agreed. In the U.S., only 72% said innovation was important. Source: The 50 Most Innovative Companies 2010 BusinessWeek. 4

6 Percentage of Respondents How frequently customers and suppliers work with each other on innovation projects 100% Buy-side respondents Sell-side respondents 75% 50% 25% 0% Never Rarely Periodically Regularly and often Source: Ongoing global research conducted by Vantage Partners, in partnership with IACCM, and ISM. based on over 500 responses. 5

7 Degree of untapped potential customers &suppliers for additional innovation from/with suppliers Buy-side perceptions Sell-side perceptions 6% 6% 39% 55% Little to none A significant amount A great deal 36% 58% Source: ibid. 6

8 Percentage of customer-supplier contract value actually realized during implementation Value realized through strategic sourcing initiatives (versus targeted value) Source: global research conducted by Vantage Partners, in collaboration with The Conference Board, IACCM, ISM, & SMEI (based on over 800 survey responses) 7

9 Major areas of value leakage For customers Expected innovation does not materialize Scope changes lead to additional costs Off-contract purchasing undermines expected savings Project delays due to supplier For suppliers Expected volumes do not materialize Changes in requirements lead to increased & unrecoverable costs Customer does not provide committed resources Project delays due to customer Quality problems 8

10 Significant areas of innovation focus between customers and suppliers Significant changes to business processes New or significantly improved product design Joint research and development of new technologies Development of new business models New or significantly improved packaging Buy-side respondents Sell-side respondents 0% 25% 50% 75% 100% Percentage of Respondents Source: ibid 9

11 Roughly what percentage of innovation at your company currently comes from your suppliers, or from joint collaboration with suppliers? Companies that engage in more innovation with suppliers, report higher ROI from their efforts 50% 40% 30% Average across Responses 20% 10% 0% Companies estimating ROI from innovation from/with suppliers is MUCH LOWER than internal innovation efforts Companies estimating ROI from innovation from/with their suppliers is MUCH HIGHER than internal innovation efforts Spearman s Rho: Source: ibid 10

12 Barriers to customer-supplier innovation 11

13 Customers primary (current) focus in relationships with suppliers Buy - side perceptions Sell - side perceptions Cost reduction Quality improvements Service level improvements Risk reduction Innovation 0% 25% 50% 75% 100% Percentage of Respondents 0% 25% 50% 75% 100% Percentage of Respondents Low priority Medium priority High priority Source: ibid 12

14 What should be the primary focus in companies relationships with suppliers Buy - side perceptions Sell - side perceptions Innovation Quality improvements Service level improvements Cost reduction Risk reduction 0% 25% 50% 75% 100% Percentage of Respondents 0% 25% 50% 75% 100% Percentage of Respondents Low priority Medium priority High priority Source: ibid 13

15 Supplier evaluation/selection criteria used by customers in competitive bidding situations Lowest price Prior relationship with a supplier in which supplier delivered outstanding performance Best technical solution Lowest projected total cost of ownership Degree to which supplier s solution will help our company provide differentiated value to our customers Likelihood supplier will provide continuous innovation throughout life of contract Degree to which supplier acted collaboratively & with integrity during negotiation process 0% 25% 50% 75% 100% Percentage of Respondents Very significant Significant Somewhat significant Not significant Source: ibid 14

16 Percentage of Respondents Perceptions of customer focus on price versus total value 100% Customer perception of their own motivation by price versus total value Supplier perception of customer motivation by price versus total value 75% 50% 25% 0% NOT SOMEWHAT SIGNIFICANTLY PRIMARILY Source: global research conducted by Vantage Partners, in collaboration with IACCM, SAMA, & CPO (comprising 532 survey responses from at least 250 companies) 15

17 Top barriers at customers to maximizing innovation with/from suppliers Lack of an effective process to find, evaluate, and pursue innovation opportunities with suppliers Not enough people/time to evaluate opportunities and decide which are worth pursuing Conflicting priorities across business units or functions within the customer company Lack of understanding of/respect for supplier ideas and expertise Not invented here mindset and culture Buy-side perceptions Sell-side perceptions 0% 25% 50% 75% 100% Percentage of Respondents Source: ibid 16 16

18 Common contract terms are not very innovation-friendly If any inventions, developments, improvements, art, idea, art form, or the like result from assignments hereunder or are conceived or made during the course of an assignment pursuant to this Agreement or otherwise resulting from services offered by SUPPLIER to COMPANY hereunder, SUPPLIER and its employees and agents shall without further consideration from COMPANY, assign all rights therein to COMPANY and execute any and all relevant documents necessary to vest sole and absolute title in COMPANY, and perform any and all other acts which may be necessary to assist in obtaining and enforcing patent and trade secret protection for such inventions, developments, or improvements throughout the world. Copyright 2011 by Vantage Partners, LLC. 17

19 Barriers to joint innovation in action Customer productivity savings cost productivity savings cost productivity New savings cost productivity savings cost productivity ideas, savings cost productivity savings cost please. productivity savings cost productivity savings cost productivity savings cost Great! Thanks! IP ownership? Marketing Legal Procurement External partners We have ideas!..? Product Development Timeline We share an opportunity and it seems to go into a black box. 18

20 Best practices for supplier innovation 19

21 Five key practices for enabling innovation through customer-supplier relationships 1. Focus on building and sustaining partnerships to drive innovation 2. Pursue both evolutionary, and revolutionary, innovation, 3. Implement a formal process (with defined roles and accountabilities) for evaluating and pursuing collaborative innovation opportunities 4. Define flexible gain-sharing models Review (and revise as needed) standard contract terms Shift focus on jointly developed IP from who owns it to defining use rights 5. Define and track metrics across the collaborative innovation lifecycle 20

22 P&G s perspective on relationships, and innovation He says two principles have evolved in the years he s been running the EBD. The first is that the second deal with the same company takes half as long to put together; and the third takes even less time. The other principle is that follow-on deals that are unanticipated at the beginning are often much better and dwarf the initial deal. For these reasons, Weedman is interested in building relationships with P&G s technology partners, He always seeks a sweet spot in every transaction that works for both parties, and promotes a sustainable relationship. - Jeff Weedman, P&G s Vice President for External Business Development Source: Intellectual Asset Management August/September

23 Collaborative relationships are essential to successful joint innovation Two - way Communication Mutual Trust Strategic Operational Interpersonal Mutual Understanding Competency Reliability Integrity Shared Success Mutual Respect Organizational Capabilities Individual Competencies Differences (Organizational & Individual Strategies/Plans Needs, Capabilities Systems, Cultures Identify More Innovation Opportunities Encourage Investment Improve Execution & Success Rates 22

24 Success factors for externally driven innovation & collaboration with external partners 23

25 Relationship Review Opportunities Joint innovation requires effective relationship management Annual Relationship Management Cycle Cycle Annual joint strategy review & planning with with key key suppliers Opportunity Fields Executive Quarterly top-to-top Liaison Business Quarterly Annual Strategic Business Supplier Executive top-to-top Liaison Reviews Meeting Reviews Partner Summit Annual Golf Meeting Opportunities Opportunities Outing Opportunities One-on-Ones- - Ones Joint Relationship Steering Steering Committee Committee QBR QBR QBR QBR Relationship Managers Opportunities Opportunities Decisions Decisions X Functional Collaborative Innovation Team Opportunity type-specific stagegate development processes Idea Portal Joint opportunity development Opportunity business case development Opportunity business case development Joint opportunity development Idea Portal Opportunity type-specific stagegate development processes X Functional Collaborative Innovation Innovation Team Team Decisions Decisions Opportunities 24

26 Supplier challenge methodology Activity Parties and roles 1 Stage 1: Develop Brief Identify key business questions Filter for priority needs at Sector/ Region management level Finalize Supplier Challenge Brief which describes business problem/question Business Lead (Responsible) Procurement Lead (Consulted) R&D lead (Consulted) 2 Stage 2: Engage Supplier Identify and invite suppliers Gain supplier acceptance (including NDA, IP, etc. terms) Procurement (Responsible) Business Lead (Informed) R&D lead (Consulted) 3 Stage 3: Develop Work Product Kick-off meeting Mid-way check point on status/ progress Showcase results to Senior Management R&D lead (Responsible) Business Lead (Consulted) Procurement (Informed) 4 Stage 4: Evaluate, Decide & Communicate Work product evaluated Supplier informed of Go/No go with feedback Business Lead (Responsible) R&D Lead (Consulted) Procurement (Informed) 5 Stage 5: Advance per agreed process Resources committed Tracked on dashboard Per agreed process 25

27 An example of metrics focused on supplier innovation Strategic Value # of products using supplier IP # of supplier product innovations submitted / approved Financial Value $ revenue $ profit Success rate of customer R&D projects Success rate of new product launches R&D $ ROI Marketing $ ROI Operational Performance # of steps and time elapsed for approval to share IP # of joint R&D projects Relationship Quality Degree of Mutual Understanding # of cross-company staff rotations Degree of trust Ratio of investment / marketing / strategy plans shared to not shared 26

28 Contrasting views of suppliers Traditional View of Suppliers Suppliers are companies from whom we purchase goods and services Our interactions with suppliers are fundamentally zero sum Leverage over suppliers is the key to value Contracts are the primary tool by which we manage interactions with suppliers Alternate View of Suppliers Suppliers are a source of knowledge, expertise, and assets that we can leverage to gain competitive advantage In a world of competing supply chains, our success is tied to that of our suppliers Collaboration with suppliers is the key to value Complex supplier relationships require formalized governance and relationship management 27

29 Changing the Procurement paradigm Traditional Procurement Leverage over suppliers Focus on internal stakeholder compliance Analytical skills Primary value is cost reduction/management Manage transactions Source goods and services New Procurement Paradigm Engagement with suppliers Trusted advisor to internal business partners Soft skills Primary value is competitive advantage Manage relationships Solve business problems 28

30 Vantage Partners A spin-off of the Harvard Negotiation Project, Vantage Partners helps companies achieve breakthrough business results by transforming the way they negotiate with, and manage relationships with, their suppliers, customers, and alliance partners and how they collaborate internally across business units and functions. 10 Guest Street Boston, MA USA T: F: jhughes@vantagepartners.com 29

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