In terms of people, processes and technologies, Toyota and Google's YouTube have little in common. As global innovators, however, they share a remarkable core value and best practice: they invest in the innovative capabilities of their suppliers. They don't just partner; they provide resources that add value.
USA Today ran an excellent — if over-flattering — profile of YouTube's splashy but serious effort to provide a high-tech incubator for content and channel creators. The Google unit calls its 41,000-square-foot state-of-the-digital-art playpen the Space. To start, a specially selected class of 25 artists — each with between 10,000 and 300,000 YouTube channel subscribers — was given the run of the Space.
"I just tell them, 'Please make something great,'" says Liam Collins, who oversees the Los Angeles facility, told the paper. "We provide the space, equipment and expertise. They provide the talent."
By sheer happenstance, I had just gotten a copy of Gemba Walks, a collection of essays by James Womack, a co-author of the automotive classic The Machine That Changed The World and a pioneering importer of Toyota-inspired lean production insights and methodologies to America. Because he and I have taught executive education classes together, I thought I should read his book.
The more deeply Jim's essays discussed the nature of supplier relationships, work-flow and value creation in lean enterprise, the keener the connection with YouTube's Space. While lean production has almost nothing to do with video production, the clear message was that genuinely lean enterprise craved innovation that made their suppliers more innovative. Toyota wasn't just looking for superior quality and just-in-time inventory management from suppliers, they were vested in helping suppliers become more innovative and creative. Toyota was prepared to educate and train its suppliers to embrace lean production and lean experimentation techniques and insights. (Toyota's successful relationship with high-tech sensor supplier Tamagawa Seiki beautifully illuminates that innovation investment theme.) Toyota was prepared to help its best suppliers scale.
That's exactly the investment YouTube is making: helping its suppliers creatively scale. Organizations don't — and shouldn't — accomplish that by dangling financial incentives and lures. These investments are more about the development of human capital than finance. Access to innovation resources and skills matter far more than money. I recently wrote an ebook asking Who Do You Want Your Customers To Become? The strategic/ cultural question here is "What kind of innovators do you want your suppliers to be?" The answers will determine if and how (much) you invest.
For a YouTube and a Toyota, it's blindingly clear and obvious what investing in a supplier's innovation capabilities can mean. What does it mean for your company and industry? What should it mean?
For one marketing services firm, it meant being exposed to their biggest client's development teams and sitting through technical tests and focus groups to better appreciate and understand how its products were actually designed and built. For stock exchange personnel, it meant sitting through demos and simulations from a high-frequency, algorithmic trading firm intent on communicating how technology could improve efficiencies and liquidity. For a materials company, it meant going out on maintenance calls with a huge public utility. In each case, the client was intent on giving its vendor access, software and/or other resources that put the vendor in a better position to come up with better innovations.
Obviously, innovation investments shouldn't make it easier for suppliers to compete with or disintermediate their customers. Building a supplier's innovation capability is not to undermine your own. The goal is creating healthier and more vibrant innovation eco-systems — ones where suppliers feel clients are genuinely interested in making them better and stronger.
Who knows if the Space will — God forbid! — facilitate the next Gangnam style video. Or whether Toyota's ongoing efforts to create more "environmentally correct" vehicles will lead to meaningful breakthroughs in fuel cells or "natural gas" powered cars. But there's no avoiding the cultural fact that these organizations are prepared to invest in making their suppliers more innovative. (Does Apple similarly invest in its suppliers? Half the people I know at that secretive innovation icon say, "Of course — but on our terms". And the rest won't talk....)
"Open architecture" and "open innovation" approaches are wonderful. But whether they offer the best possible investments you can — or should — be making in your suppliers is probably unclear. Reading the YouTube story and Jim's essays reinforces my belief that there's a very thin line between investing in "continuous improvement" and "continual innovation". Smart firms invest in both. Innovative firms innovatively invest in their suppliers.
This blog first appeared in HBR on Jan. 8, 2013