Platt Perspective on Business and Technology

Considering a cost and benefits analysis of innovation 5: determining what to retain in-house and what to outsource to supply chain and other business to business partners 2

Posted in macroeconomics by Timothy Platt on May 19, 2014

This is my fifth installment in a series on the costs and benefits of innovation as it is tracked and measured through a complete innovation manufacturing cycle – as that is measured and understood from both the supply and demand sides (see Macroeconomics and Business, postings 162 and loosely following for Parts 1-4.)

I began to explicitly discuss innovation development and diffusion in a supply chain and business to business collaboration context in Part 4, with a briefly sketched outline of a wide range of issues. I then stated at the end of that posting that I would dig more deeply into the issues and details of one aspect of this larger narrative that I touched upon in that orienting survey: single business sourced innovation that would shape and improve business to business interaction and collaboration and improve supply chain functioning – and the pros and cons of innovation use and sharing, and of innovation diffusion through supply chain and other business to business partnership systems.

• When an innovation originates essentially entirely within one business that participates in at least one supply chain,
• And where use of that innovation would shape overall supply chain functioning and efficiency,
• Its value-creating use there, of necessity means diffusing out word of that innovation’s existence and even many of its details, and even if it is an otherwise hidden back-office process improvement that competitors and others would not readily learn of with any certainty, by any other means.

Elucidating some of the core details and consequences of that set of points is my primary topic of focus for this series installment. And after that, I will consider collaboratively developed supply chain-improving innovations. But I begin this posting’s discussion with single business sourced innovation, and from the fundamentals:

• I have noted many times in the course of this blog that ultimately, business innovations hold value from their capacity to increase a business’ effectiveness and its competitive strength in its marketplaces. And this applies when an innovation is developed and implemented that specifically shapes and improves product line or service offerings that are sent to market for direct consumer and end-user use. This applies when an innovation is made in more internal business processes or systems or in back office operations – where they create efficiencies that make that business at least incrementally more agile or efficient and in ways that improve its capacity to meet marketplace needs, better and more cost-effectively.
• I have also noted on a number of occasions now how effective, stable supply chain collaborations offer explicit value and increased competitive strength and effectiveness to all of their partner businesses as they work together through them.
• Both the individual businesses participating in these collaborations, and these collaborative systems themselves compete directly in their marketplaces as distinguishable business enterprises. Supply chain collaborations directly compete with other supply chain systems that seek the same market audiences and customers, as well as with stand-alone businesses that would offer competing goods and services to the same customer demographics.
• Innovations can and do arise that offer value at the supply chain level in this, and for some significant forms of innovation, their value can only really arise at this collaborative level, with those innovations exercised in business to business exchanges and with value obtained from them flowing into all participating businesses.

One distinction that I am drawing here can at least potentially be very significant. A business can devise and source a value creating and even disruptively novel source of innovation and directly benefit from its use even when this is a business process innovation – not an end-user product or service innovation, and when this innovation itself would be equally used by other businesses, and even by several or many others.

• This serves to draw a line of separation between innovation creation and its profitable use, and even when the business creating this innovation benefits and sometimes only does so as a result of business intelligence sharing.
• And this at least challenges any simply expectation that exclusivity of access and use is essential if a business is to gain optimal, or even just significant new value from a business process innovation that it devises.
• The key here is in which other businesses get to access and use this innovation and in what contexts, and when working with what other businesses, and with what immediate usage restrictions where such restrictions would be expected to include limitations on further business intelligence transfer to third parties without prior innovation source-company approval.

I noted above that I would at least briefly discuss collaborative innovation development as well as single sourced innovation development, as coming from specific single businesses and their creative personnel. I begin that here, and by noting essentially all of the points and details that I outlined above in my second, four point bullet point list would apply to both innovation sourcing scenarios. So some significant aspects of how innovation diffuses through business to business collaborations arise in essentially the same way regardless of how an innovation is sourced in such a collaborative business network. I have also, of course raised points that would apply more to a single inventing-source scenario with an innovation coming from one supply chain participating business. I will come back to this for further discussion, but I am going to turn first to at least briefly discuss collaborative, multiple business sourced innovation: business to business innovations that are collaboratively, multiple source developed by several or even many businesses in a supply chain or other business to business collaboration system. And that is going to be my topic area for my next installment in this series.

Meanwhile, you can find this and related postings at Macroeconomics and Business.

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