Unity in Diversity :Enhancing local Unity in Diversity :Enhancing local SME based innovation for the SME based innovation for the

global supply chainglobal supply chain

A trans-regional action research project A trans-regional action research project in the oil and gas sectorin the oil and gas sector

ERIMA 2007

Background:Background:

Benchmarking transferable problem: Benchmarking transferable problem: solution scenarios in the trans-solution scenarios in the trans-regional supply chainregional supply chain

• oil and gasoil and gas

• automotiveautomotive

• healthhealth

The U.K. and W. Australian oil The U.K. and W. Australian oil and gas supply chain as a case and gas supply chain as a case studystudy• Phase 1: adding value by cutting costs Phase 1: adding value by cutting costs

– the implications for SMEs– the implications for SMEs

• Phase 2: adding value by innovationPhase 2: adding value by innovation

- the implications for SMEs- the implications for SMEs

Collaborative action Collaborative action researchresearcha catalyst in a catalyst in • identifying issuesidentifying issues• fostering benchmarking between fostering benchmarking between

organisations in the UK, Western organisations in the UK, Western Australia Australia

• Building on UK Mexico and Germany Building on UK Mexico and Germany Brazil regional collaborations in the oil Brazil regional collaborations in the oil and gas and automotive sector in UK, and gas and automotive sector in UK, Germany, Mexico, BrazilGermany, Mexico, Brazil

World Energy City World Energy City PartnershipPartnership

Global network of oil capitalsGlobal network of oil capitals

and regional organisationsand regional organisations

Aberdeen

Stavanger

BakuHouston

Villahermosa

MaracaiboDa Qing

Perth

WECP Mission StatementWECP Mission Statement

““In a world where countries are becoming more and In a world where countries are becoming more and more dependent on each other, and where all more dependent on each other, and where all desire economic growth, it is our goal to encourage desire economic growth, it is our goal to encourage business development and the exchange of business development and the exchange of knowledge and support services. For the cities that knowledge and support services. For the cities that are involved in the WECP, their natural primary are involved in the WECP, their natural primary market sectors are energy and environment-market sectors are energy and environment-related technology.”related technology.”

Value-adding partnershipValue-adding partnership

• shared knowledgebaseshared knowledgebase• share competitive solutionsshare competitive solutions• cut costs and add value of shared projectscut costs and add value of shared projects• share resources, expertise, contactsshare resources, expertise, contacts• achieve critical mass for fundingachieve critical mass for funding• find synergiesfind synergies• build on diverse strengthsbuild on diverse strengths• benchmark across sectors/regionsbenchmark across sectors/regions

Builds on previous projectsBuilds on previous projects

1.1. Americas- e-learning alliance across Americas- e-learning alliance across Canada, America, Mexico, Canada, America, Mexico, Venezuela, BrazilVenezuela, Brazil

2.2. Brazil- Germany - automotive Brazil- Germany - automotive supply chain competitiveness supply chain competitiveness through cross regional knowledge through cross regional knowledge sharing and exchange of staffsharing and exchange of staff

Enhancing SME-led Innovation Enhancing SME-led Innovation in the Supply Chainin the Supply Chain

• Collaborative action research with Collaborative action research with stakeholders in two reference groupsstakeholders in two reference groups

• Identifying gaps, barriers and Identifying gaps, barriers and opportunitiesopportunities

• Community buildingCommunity building• Strategy development and Strategy development and

benchmarkingbenchmarking (PILOT UK videoconferencing and case (PILOT UK videoconferencing and case

studies; Automotive case studies)studies; Automotive case studies)

There are two main sources of innovation. The traditionally recognized source is manufacturer innovation. This is where an agent (person or business) innovates in order to sell the innovation. The other source of innovation, only now becoming widely recognized, is end-user innovation.

Eric von Hippel

SMEs and local innovation associated with niche knowledge and agency within an established local network

1. Background1. Background 55

Technology Diffusion ProcessTechnology Diffusion Process

Concept Feasibility Research Development Field Test Market Implement

Uncertainty about how to proceed

Missed strategic partnering opportunities

Unable to develop and test locally

Unable to secure funding

Difficulty securing first client

GAP

Fig. 1 Final Report Tabara S. (2006) Identifying Barriers in the WA Oil and Gas Supply Chain

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Fig. 2 Final Report Tabara S. (2006) Identifying Gaps in the WA Oil and Gas Supply Chain)

Previous Strategy CRINE – Previous Strategy CRINE – Competitiveness through cost-Competitiveness through cost-

cuttingcutting• SMEs often absorbed higher levels of risk, SMEs often absorbed higher levels of risk,

and had to cut costs and profit margins to and had to cut costs and profit margins to unsustainable levels within the supply unsustainable levels within the supply chainchain

• Outsourcing to other countries meant Outsourcing to other countries meant many local SMEs were excludedmany local SMEs were excluded

• Standardisation constrained innovation, Standardisation constrained innovation, and added costs for SMES in new software and added costs for SMES in new software and hardwareand hardware

ConsequencesConsequences

• Many local SMEs disappeared, together Many local SMEs disappeared, together with much of the local and the specialist with much of the local and the specialist technical knowledge associated with technical knowledge associated with deep sea drilling technologiesdeep sea drilling technologies

• This undermined the ability of the region This undermined the ability of the region to achieve a knowledge-based to achieve a knowledge-based advantage in a very knowledge-based advantage in a very knowledge-based market where cost alone cannot ensure market where cost alone cannot ensure growthgrowth

http://web.mit.edu/evhippel/www/democ1.htm

This was most evident in the development, adaptation This was most evident in the development, adaptation and use of technology in the difficult environment of and use of technology in the difficult environment of deep sea drilling, where local SMEs have a crucial roledeep sea drilling, where local SMEs have a crucial role

• leveraging local knowledge and expertise of people, leveraging local knowledge and expertise of people, processes and the adaptation or development of processes and the adaptation or development of technologies for local conditionstechnologies for local conditions

• sustaining regional employmentsustaining regional employment

• supporting LMEs and MLEs in the regionsupporting LMEs and MLEs in the region

• the attractiveness of the region as a base for large the attractiveness of the region as a base for large operators operators

Current Strategy : PILOT & ITFCurrent Strategy : PILOT & ITFCompetitiveness through Competitiveness through

InnovationInnovation• The PILOT initiative The PILOT initiative

http://www.pilottaskforce.co.uk/ moved http://www.pilottaskforce.co.uk/ moved the emphasis to adding value through the emphasis to adding value through SME led innovation when cost-SME led innovation when cost-efficiencies and standardisation efforts efficiencies and standardisation efforts had progressed far enough to mean had progressed far enough to mean that other factors such as innovation that other factors such as innovation were becoming more significant were becoming more significant differentiators.differentiators.

The percentage of local SMEs now in the The percentage of local SMEs now in the regional supply chain is around 80:20, regional supply chain is around 80:20, compared with a low of 20:80 in the CRINE compared with a low of 20:80 in the CRINE era. The PILOT organisation itself also acts era. The PILOT organisation itself also acts as a high level broker for negotiating as a high level broker for negotiating agreements on shared practices that can agreements on shared practices that can facilitate fairness as well as efficiency, such facilitate fairness as well as efficiency, such as contracting practices and the speedy as contracting practices and the speedy payments of invoices, both of which payments of invoices, both of which penalised SMEs heavily in the past.penalised SMEs heavily in the past.

Support Strategies for SME-Support Strategies for SME-based Innovation in the based Innovation in the Regional SC?Regional SC?

The collaborative action research The collaborative action research process has facilitated opportunities process has facilitated opportunities for collaboratively identifying and for collaboratively identifying and sharing evidence of barriers and sharing evidence of barriers and gaps, as well as benchmarking gaps, as well as benchmarking strategies used in other regions at strategies used in other regions at different points in this process. different points in this process.

Key Strategies: Aligning technical and human networks to support innovation by end users through•Shared Spaces for exchange - SHARE Fairs – PILOT UK / Norway / Australia

•Partnering– LME SME Mentoring

•Targeting jointly agreed needs

•Alignment of stakeholder resources to common ends

•Supportive practices for regional SMEs as innovators – fair contractul and payment practices

•Brokerage and representation - PILOT

Strategies such asStrategies such as

• The communication of future development plans The communication of future development plans of large and medium sized operators in the region of large and medium sized operators in the region at Share Fairsat Share Fairs

• Coordination of direct contacts and support from Coordination of direct contacts and support from funding agencies and knowledge transfer funding agencies and knowledge transfer partnerships with regional Universities.partnerships with regional Universities.

• Good practice in contracting and payment that do Good practice in contracting and payment that do not penalise SMEsnot penalise SMEs

• Opportunities for brokering and coordination of Opportunities for brokering and coordination of the efforts of education, industry and governmentthe efforts of education, industry and government

• Opportunities for benchmarking across other Opportunities for benchmarking across other clusters and other regions sharing problem: clusters and other regions sharing problem: solution scenariossolution scenarios..

• Sawhney and Parikh (2001) highlight the competitive advantage Sawhney and Parikh (2001) highlight the competitive advantage afforded by leveraging the knowledge and resources of local afforded by leveraging the knowledge and resources of local communities in distributed networkscommunities in distributed networks

• the models of innovation and competitiveness in the supply chain the models of innovation and competitiveness in the supply chain utilise such a paradigm - leveraging the diversity of local utilise such a paradigm - leveraging the diversity of local knowledge in regional SMEs to enhance the competitive advantage knowledge in regional SMEs to enhance the competitive advantage of regional / trans-regional clusters.of regional / trans-regional clusters.

• The Report of the Independent Expert Group on Research, The Report of the Independent Expert Group on Research, Development and Innovation to the European Community, (Aho, Development and Innovation to the European Community, (Aho, 2006), suggests that a paradigm change is needed in which EU 2006), suggests that a paradigm change is needed in which EU values are preserved in a new social structure.values are preserved in a new social structure.

Innovation?Innovation?

Different definitions include:Different definitions include:

• the process of making improvements by the process of making improvements by introducing something new introducing something new

• the act of introducing something newthe act of introducing something new• a new idea, method or devicea new idea, method or device• the successful exploitation of new ideas the successful exploitation of new ideas

(Department of Trade and Industry, UK). (Department of Trade and Industry, UK). • change that creates a new dimension of change that creates a new dimension of

performance Peter Drucker performance Peter Drucker

Type of innovationType of innovation Type of SupportType of Support

• Innovation as new technologyInnovation as new technology • Communication of LMEs Communication of LMEs development plans to SMEs for development plans to SMEs for advance planning. advance planning.

• Coordination of this with R&D Coordination of this with R&D funding targeted on regional needs. funding targeted on regional needs.

• Coordination with Univ. Training and Coordination with Univ. Training and KTP coordinators. KTP coordinators.

• Regional strategies for coordinating Regional strategies for coordinating tri-partite working between tri-partite working between education, industry and governmenteducation, industry and government

• Innovation as adaptation of Innovation as adaptation of existing technology to new existing technology to new contexts or problemscontexts or problems

• Recognition of essential importance Recognition of essential importance of local knowledge in implementing of local knowledge in implementing ‘standard’ software and procedures ‘standard’ software and procedures in local contexts – especially in in local contexts – especially in relation to safety, quality.relation to safety, quality.

• Innovation as a process arising Innovation as a process arising from the negotiated exchange of from the negotiated exchange of capital of different kinds across capital of different kinds across clustersclusters

• Shared Spaces for coordinationShared Spaces for coordination• BenchmarkingBenchmarking• Training placements and KTPTraining placements and KTP

Davila et al (2006)"Companies cannot grow through cost reduction and reengineering alone . . . Innovation is the key element in providing aggressive top-line growth, and for increasing bottom-line results" (p.6)

Where We StartedWhere We Started

‘‘Our JIT system works in Germany. Our JIT system works in Germany. Why doesnWhy doesn’’t it work in Brazil? t it work in Brazil?

ItIt’’s the same technology s the same technology –– so so whatwhat’’s the difference?s the difference?’’

Variance in performance is not Variance in performance is not explained by measuring one explained by measuring one systemsystem

Alignment examplesAlignment examples

• Software designed Software designed to standardise to standardise safety compliance safety compliance procedures globally, procedures globally, was actually was actually increasing risk in increasing risk in some local operating some local operating sitessites

www.petrotechnics.com

The Local-Global Case

Aligning Human and Aligning Human and Technical Systems to Cut Technical Systems to Cut Cost and RiskCost and Risk

• Separating design Separating design of fixed and locally of fixed and locally variable systemsvariable systems

• Leveraging local Leveraging local knowledgeknowledge

• Communities as IS Communities as IS that can add valuethat can add value

The Cost of MisalignmentThe Cost of Misalignment

• Challenger Challenger

• Iraq procurement Iraq procurement system was deemed system was deemed a success - a success - technicallytechnically

• Process Process Management - what Management - what ISO Standards missISO Standards miss

Examples from eBusiness, eHealth,eLearning in heterogeneous and distributed systems