Innovation as an investment

January 10, 2012 / By  

Michael Schrage, research fellow at MIT Sloan School, wrote on Harvard Business Review’s blog last month: “Every single innovation conversation I have had recently with business unit leaders, product managers and/or marketing executives invariably focuses on the importance of partnership and collaboration with their best suppliers and vendors. If anything, they wish their suppliers came forward with even more actionable and innovative ideas.”

This is exactly what our clients are telling us. Corporate real estate (CRE) executives regard innovation as a key contributor to productivity, competitiveness and performance. As the global head of property at a major Australian bank cited: “I would like to see paradigm shifts and step change, (…not just) incremental improvement.” Similarly, 74% of Jones Lang LaSalle’s Global CRE Survey 2011 respondents were likely to turn to service providers for innovative solutions to challenges emerging out of the global financial crisis, with a further 15% expecting to do so within the next three years.

The journey toward supplier-driven innovation starts with crafting outsourcing agreements that leave space for and prompt creative offers, as is explored in Jones Lang LaSalle’s Corporate Solutions’ latest research paper, Corporate Real Estate Procurement: Taking the pain out of the process. Until a few years ago, purchasing real estate services was the sole responsibility of CRE executives. The function is now increasingly undertaken with the involvement of procurement teams.

Procurers have historically been accountable for harvesting savings rather than enabling innovation. Yet a recent trend empowers procurers to facilitate, foster and even champion innovation. Roland Berger’s ‘Purchasing Excellence Study 2011’ confirms that “leading companies involve suppliers in the innovation process early on and use specific supplier KPIs to evaluate them.”

Procurement mindsets that are open to inventive solutions play an integral role in shaping productive CRE partnerships. Innovation can also be greatly hindered by procurers who favour a commodity-type procurement process. This type of approach elicits standard solutions that result in a price-based vendor management model and fail to secure satisfactory real estate services.

A 2011 ‘Innovation in Outsourcing’ survey by Cognizant and Warwick Business School acknowledges innovation achieved through outsourcing contributes to organisational financial performance. “Half of [European] CIOs said they would be willing to pay extra for an outsourced service which enables them to formalise, repeat and maintain innovation within their industry,” claim the survey authors.

My guess is that a comparable proportion of CRE leaders would be willing to invest in innovation. Under significant pressure to show greater innovation, 82% of banking and finance CRE heads are turning to their partners for innovative solutions (read more of the discussion in Jones Lang LaSalle’s Trends in the Banking and Finance Sector), but not for the sake of innovation alone. Innovative ideas are really only recognised if they drive costs down or revenues up.

No longer a buzz word, innovation is an investment.

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