12 December 2013

With a little help from my supplier friends

It is no use to develop only a little bit better product. Just adding new features is seldom the way to build company competitiveness and increase sales. Customer value is created by bringing additional benefits or pleasure. This often requires business model change.

Also Finnish companies have a lot of room for improvement. Too often business growth efforts are product-driven, with only marginal product improvements or changes.

When innovation is customer-centric, there are no more limitations to consider also skills outside the firm. Innovation can be based on building blocks originating from customers, suppliers or academia. This post focuses on the supply partners.

First we shall go through an example in which a company had a strong vision of disrupting an industry and bringing new value to customers. Because the company did not have in-house all the competences needed for the new products, it created various partnerships with technology suppliers. As a final ingredient for success, also a new, innovative business model was created.

Somewhere in California

In November 2000, I spent half a day at PortalPlayer, a company in Silicon Valley to meet their management and experts. The company was small, about 100 people; I came from a large, successful mobile communications company. The core know-how of PortalPlayer were solutions for portable music devices. The solution consisted of a dedicated music microchip, embedded software and a PC application. In addition, the company was able to provide a reference design for customers' own product concepts. In our company we were studying ways to expand our business and music-related products were also under consideration, thanks to the emergence of first MP3 players and Napster.  Although I was impressed by Portal Player´s capabilities, we did not start any cooperation with them nor were capable of developing music related businesses at that time.

Around the same time with my visit, another Silicon Valley company and their CEO envisioned creating and providing new, music-related experiences and solutions to consumers. The name of this company was Apple.

Apple had already made the decision to bring music management software for iMac computers. It was based on the SoundJamMP product, whose developer Apple acquired in July 2000. After some further development it was first launched under the name of iTunes in January 2001. But Apple wanted much more than that. The next step was supposed to be a portable MP3 player. Extremely high requirements were set for the player, with usability and value to the user raised to a whole new level compared to its competitors in the market. It was not important for Apple to design the electronics and the operating system by themselves, so they signed an agreement in early 2001 to use Portal Player reference design as the basis of the new device. iPod was launched in October 2001, and supporting iTunes music store in April 2003. The rest is indeed history.

Back in Finland: Too few ideas and too much risk avoidance

Also Finnish companies need to continuously improve their competiveness by bringing new products to market. Very different types of targets can be pursued. According to an often used breakdown, a company can expect benefits in one or more of the following areas:
  • Improved customer experience and customer engagement
  • More streamlined operations
  • New business or business model
Synergy recently published a research paper, in which it examined innovation capabilities of 50 Finnish companies. All the companies operate internationally and all have significant development activities in Finland. In addition, the results were benchmarked against corresponding international research, consisting of 200 companies. The conclusions were clear: Finnish companies' projects focus too much on marginal improvements and the companies also have a shortage of good ideas. The study has other good observations, but this post is not discussing them further.

Innovation in Finnish firms vs. global benchmarks
When the results are investigated in detail, it is found that Finnish companies avoid risk compared with international counterparts, see also the image on the left. This is reflected in the high proportion of product improvements and modifications as well as additions to existing product lines. Although a better customer experience would be a key objective, probably also lower material and personal costs are important drivers. This is not the way to build competitiveness.

Similarly, compared with the control group, the Finns invest lazily in projects that create new businesses or new, genuine innovations. And since the improvement of customer experience and retention are often outcomes of new business models, many of the companies are thus loosing the potential for higher margins.

Synergy's research also showed that many companies rely too heavily on in-house expertise and resources in generating new product ideas. There is not enough attention to understand customer needs, and the appeal of ideas is not tested with customers early enough. Similarly, if a company culture over-emphasizes technical or product-related know-how, suppliers and partners are easily left with a mere implementer role. As a consequence, new ideas and solutions, which would make it possible to take bolder development moves, are often effectively hidden.


Both the results of studies and the above example show that customer orientation and open-minded cooperation with other companies are the key to a successful business.

The great promise of seeking ideas and solutions from other companies is to have access to the best experts in each of the competence domains. The challenge is to find the right partners and to be able to create a close and trusting relationship with them. In order to partnering be truly useful, a company must be able to build through customer understanding a clear vision of the new brave world that will be available for their customers.

In addition, company processes need to support innovation with others: division of labor between own and other companies´ efforts as well as integration of the outputs. Also, there must be changes, how potential partners are discovered. The key is to keep eyes and ears open for companies that have an offering that could help to implement the targeted customer benefits. Thorough preparation of specifications for external purchasing and strict competitive tendering are well suited only for marginal product improvements and extensions. In some cases such advanced cooperation models as consortia and innovation communities might prove to be most successful.

And finally, in the development of new business models, supplier partners are - if possible - even more important. Besides ideas and solutions, these might have such kind of knowledge and insights that will help clearing up the previously insurmountable obstacles.


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