Chris Halliwell, Executive Director of the Technology Marketing Center, signing in...here's what I've been learning lately about managing an ecosystem of supply partners.
Failures in new technology commercialization are failures to deliver compelling value to a targeted set of customers. Failure to deliver sufficient value is most often the result of two fundamental problems. First, value is not well understood and clearly articulated. We refer to this as a value proposition issue, and as technology marketing professionals we are constantly striving to adopt best practices and improve our ability to craft effective propositions.
The second problem is an inability to design a cost effective network of supply chain partners that must align to deliver on the value proposition. Sometimes referred to as "value engineering." this requirement is an artifact of the last 30 years in technology marketing and is much less formalized into academic guidance or corporate best practices. This post summarizes current understanding of value engineering principles.
What is Value Anyway?
Before we go on, let's agree on a simple definition of value: it's the difference, for each supply chain participant, between the cost of incoming technologies, products, information, and service on the one hand, and the price received for outgoing goods and services on the other hand. Companies design their own value equation within the context of each "make or buy" decision they take.
We can think of "architecting" or "engineering" value as efforts to alter relationships or business models of supply chain participants in order to manage innovation, reduce risk, and increase profits. The single biggest barrier to effective value engineering is unwillingness or lack of ability to take responsibility for understanding potential value dynamics across the entire supply chain.
Goal: Deliver a Complete & Cost Effective Value Proposition
Business school literature is rife with advice on Upstream supply chain management, mostly admonishing Procurement to think more strategically than immediate price and delivery concerns. It's estimated that less than 10% of businesses practice truly strategic supply chain management.
There are two frequently mentioned strategic issues in upstream supply management that illustrate important principles no matter where we sit in the chain. First is the concept of a "bottleneck", that is a position in the chain where there are very few suppliers, where competition is not vibrant, and therefore inordinate profits tend to pool in this spot. For instance, this is where you'll see insistence on standards and "open systems" to break the bottleneck.
The second principle of strategic supply chain management is alignment on value. For instance, if the end customer value proposition is high quality at reasonable price, then the entire chain must be designed around this principle. Another example here would be branding of Corning's specialized glass technology for smartphones as tough, yet beautiful to fully support Apple's useful, yet fashionable value proposition to end users.
Technology Marketing & Ecosystem Management
Strategic engineering of the downstream supply chain is as old and venerable as the practice of setting distributor mark-ups and policies. Yet as technological innovation has driven specialization of supply, marketing has come up short on the skills to systematically manage a network of value delivery partners. Most of the business school literature here tries to glean best practices from the "WINTEL" relationship between Microsoft and Intel, and more broadly, on the platform leadership practices of these companies.
The WINTEL view just doesn't generalize to many suppliers of key technologies, or even to all suppliers of technology platforms, so here are some open-ended questions I've been developing to help business teams think through downstream supply chain strategies:
- Do you understand the "shape" of your ecosystem, each type of participant, the number of participants of each type, and the variety of current business models...how they make money?
- Have you designed your product to "drop in" to each of the downstream processes that add value to it?
- Roughly, what are the incoming costs and the outgoing prices associated with your technology for each type of participant in your ecosystem?
- Roughly, what is the value delivered to the ultimate consumer of the innovation (the end user, the patient, and so on) and what is the associated price differential justified by this value?
- What is the ideal distribution of ultimate value price differential across the supply chain?
- How might we streamline the number of supply participant types or business models to maximize profits across the entire chain (fewer mouths to feed)?
- Where specialization of supply significantly increases ultimate value (E.g. number of apps), how might we promote variety and encourage enough competition to keep costs down?
There's a lot more to learn, and to teach, in supply chain value engineering, but I hope this start gives you some useful pointers for discussion. Again, the hardest part is the mindset, the willingness to take responsibility for engineering a set of partners that will deliver on your value proposition promises.