Purchasing Innovation Commentary: Dave Stephens on Procurement, Open Source, and Doing What You Love

Today ESF brings you commentary from Dave Stephens, author of Procurement Central, co-founder of Coupa, and overall procurement technology guru (with over ten years of experience at Oracle who had one of the few early offerings and alternatives to SAP). This month, along with co-founder Noah Eisner, David is launching Coupa, an open source e-Procurement platform that is set to revolutionize the industry by giving small and large companies alike without extensive platform needs a cost-effective alternative to the extensive, and often expensive, offerings of the three hundred pound gorillas.

I was flattered that Michael asked me to write a post for his series on Purchasing Innovation. I like to think of it as a little like speaking at a business conference — but without all the slides, the clip-on microphone, an audience to look in the eyes, and that awkward moment when, after you’ve flubbed a key line, you try to figure out if folks are laughing at you and whether you should sprint off stage and call it a day.

Okay, maybe it’s not actually that much like speaking after all …

I have spent a fair amount of time reflecting on invention over the years. Like many of you, I’ve spent nights making lists of new business ideas, following trends, and trying to anticipate the path of progress in fields that intrigued me. Sometimes I was right, sometimes I was way, way off. And up until I co-founded Coupa, I always watched from the safety of the sidelines.

But even as a longtime Monday-morning quarterback I came to hold a few beliefs on innovation and its context within the purview of Procurement. You may be surprised to find them ordinary. And because they are ordinary they just might stand out. So let’s get to it.

I subscribe to the view that very little “invention” or “innovation” is actually new. I believe ideas progress incrementally. I believe that solving a problem most often involves failing a few times at it first. Innovation is about experimenting & about finding a path towards incremental progress.

Take Open Source for instance. It’s been a buzzword a while now. And if I were in the venture community every entrepreneur who pitched to me would call it “discontinuous innovation”. So Open Source must be a “new” thing, right?

No, surely not. Open Source is the simple idea of collaboration and teamwork sponsored by an organizing force to collectively provide goods and services. A co-operative if you will. It’s based on ideas that go back hundreds, if not thousands, of years. It’s not revolutionary, and in fact it’s barely evolutionary. Open Source takes a concept that has worked in a different context and applies it to software and to software development. It’s incremental. (For more information, see The Myths of Open Source by Malcolm Wheatley in CIO Magazine, March 2004.)

But just because Open Source is incremental doesn’t make it minor. That’s why a November 2003 article in Wired Magazine stated: “Open source is doing for mass innovation what the assembly line did for mass production. Get ready for the era when collaboration replaces the corporation.” So what’s going on?

Most of you know the story of Thomas Edison. Was he an inventor or an entrepreneur? His gift, or at least what we remember of it, was to take ideas discovered by others and make them practical. To make them useful. Did he discover the electric light bulb? No, he did not. Did he figure out how to make it inexpensive enough for mass production and consumption? Yes, he sure did. And that made all the difference.

Now, through the arc of progress in the 20th century invention and innovation seemed a lot different than it does now. With massive “basic research” laboratories sponsored by the world’s biggest companies, progress may not have been overnight but it was amazing. And naturally you can trace innovation back so much further. And what you discover when you do is that innovation is not often restricted to the isolated work of a single genius but instead borne from an infrastructure of collaboration and sharing that supports a “genius collective.”

Now I certainly believe each of us has the power to do great things. But as is said so often it’s become cliche, we stand on the shoulders of giants.

But something does feel different now. Over the last few hundred years and through today our ability to communicate with each other and receive feedback has increased exponentially. This has affected our lives in a profound way. It wasn’t that long ago when people didn’t expect to be able to reach each other anytime, anywhere. It wasn’t that long ago when you were unplugged. (Or when you could unplug.)

There are positives and negatives associated with our new digital world. But for innovation, for invention, it has fostered an ability to aggregate “ronin” and destroy barriers. (Editors note: in feudal Japan, ronin were masterless samurai.) Ronin is a term I use to mean individuals who are highly skilled, who possess shared passion and knowledge, but prefer to call no company their “master.” They can collaborate easily, virtually, and with great success. They might be independent consultants, they might be full-time researchers. They could be anywhere in the world.

Ronin collaborate to introduce collective inventions and innovation in an increasingly digital world. Their digital works can be distributed worldwide immediately. And even when their digital innovation takes physical form (microelectronics, etc) the speed with which progress can be made is breathtaking. Remember the Wendy’s commercial with the older woman complaining “Where’s the beef?” – well, with Ronin, it’s ALL BEEF. All meat, no bun. No overhead. No bureaucracy.

And when published works are available for worldwide review and criticism, as in Open Source, economic efficiency is achieved. What is found useful is recognized and grows. What is not is ignored and discarded. It’s the democratic process applied to progress, but compressed into a New York minute. And the Ronin like it that way. They are having fun & enjoy doing useful work. And so their numbers will continue to grow. (For example, What Business Can Learn From Open Source by Paul Graham from August 2005.)

There is certainly still room for innovation sponsored by corporations. For instance, I’m not suggesting IBM has closed up shop on invention. In fact, they are still doing extraordinary things. But the days of the mini-inventor, the micro- supra-differentiated businesses are arriving. Or perhaps they have been here but are increasing in number. For as I’ve said in the beginning, and as I’ll say for a 3rd time at the end, there is nothing new.

Now I’ve cast the forward march of speed and transparency in communication in very personal terms thus far. But it’s true that these changes have affected the way businesses operate and compete just as much as its affected our daily lives. Supply chains can form and dissolve faster. Competition is fierce, and grows fiercer.

As I’ve posted on previously, enabling your organization to handle rapid changes in your supply base can be very difficult and often counter-intuitive. Procurement executives risk taking on unpopular positions in managing their programs. Yet industry by industry, procurement category by procurement category, Procurement must assess the velocity of intrinsic innovation and place a value on it. Then for key areas they should take on increased risk and exposure to reduce time to value generation.

Procurement managers wield a lot of power in today’s economic climate, and sometimes do so without realizing it. They have the ability to tap into innovation or kill it. The key question is to determine where innovation will drive operational improvements and competitive advantage, and when to stick to the traditional, old methods.

It wasn’t that long ago when GE was a vertical behemoth, mining their own raw materials all the way through selling to customers. And back then, that was best practice. In the 1990’s there was Dell, essentially a hardware design firm that assembled to order. They could rapidly shift their supply chain – and moreover, their supply chain was a source of their competitive advantage.

What firms will stand out in the 2000’s? What model will they use to tap into innovation and invention that their competitors miss until it’s too late? Will a collective and democratic approach to innovation and invention such as Open Source begin to pull away as a clear alternative to “bunkered, not-invented-here” mentalities? It sure will be interesting to see. My belief is that open, transparent innovation will move faster & further in the next few years. Time will tell. Procurement executives that tune in early, may just be able to find the type of strategic advantage for their company that early use of reverse auctions provided in 2000 and 2001.

But calm yourself as you bet on innovative new suppliers in key categories important to your business. Their ideas are probably not that radical, and also not that revolutionary. For as I’ll say one last time & in closing – when it comes to invention and innovation, its about incremental progress. After all, as Harry Truman once said, “There is nothing new in the world except the history you do not know.”

For more of Dave Stephens’ thoughts, check out Procurement Central, and for more on Coupa, you can start by checking out Michael Lamoureux’s post on Sourcing Innovation and stay tuned to ESF for more deep dives into Coupa in the near future. Thanks again Dave!

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