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INNOVATIVE SUPPLIERS AND PURCHASING FUNCTION INTERACTION:

AN EXPLORATORY RESEARCH IN THE CAR RENTAL SECTOR

Fatiha Naoui-Outini, Nabil El Hilali

De Boeck Supérieur | « Journal of Innovation Economics & Management »

2019/1 n° 28 | pages 171 à 192


ISBN 9782807392816
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Innovative suppliers
and purchasing function
interaction: An exploratory
research in the car rental
sector
Fatiha NAOUI-OUTINI
La Rochelle Business School
Excelia Group, CRM, France
naouif@excelia-group.com

Nabil EL HILALI
ESCA Ecole de Management, Morocco
nelhilali@esca.ma

ABSTRACT
This research investigates the purchasing function issues that create value for
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companies and purchasers’ proactive ability to appropriate innovation in the
supplier market. The buyer represents a link between the needs of companies
and the offers made by suppliers, based on their technical expertise. The goal
of this research is to consider the purchasing strategy focused on innova-
tive suppliers and highlight the importance of this interaction. For this pur-
pose, an exploratory qualitative research was required. It was based on twelve
semi-structured interviews and six months of active observation, built on two
car rental companies. Results show the importance of an innovative culture
within purchasing departments and its implementation at the fuzzy front-end
purchasing process. As open innovation remains an important paradigm for
innovation today, it is crucial to consider the buyer-supplier innovation chal-
lenge when the performance of innovative suppliers makes an impact on the
companies.
KEYWORDS: Function Purchasing, Strategy Purchasing, Service Innovation, Supplier
Innovation, Performance, Exploratory Research
JEL CODES: O14, L62, L84, N74

n° 28 – Journal of Innovation Economics & Management 2019/1 171


DOI: 10.3917/jie.028.0165
Fatiha NAOUI-OUTINI, Nabil EL-HILALI

Since the 1990s, companies have been seeking both to outsource func-
tions and to reduce costs, which explains the growing importance of the
purchasing function or department. This trend must now reconcile another
imperative – how to intensify innovation, particularly in a context of open
innovation in which the company identifies innovative suppliers, collabo-
rates with them, and adopts their proposals (absorption capacity). Purchasing
departments are increasingly gaining more importance in the boardroom as
financial constraints on organizations grow, especially since the global finan-
cial crisis of 2007-2008, while it has long been considered an “administrative
function in the service of factories” (Trehan, 2014). If the purchasing function
was underestimated in the past, the direct impact on companies’ financial
results is well known today. With margins decreasing, the purchasing man-
ager’s capacity to reduce costs has become visible in a strategic way. Under
the metaphorical concept of “cost killing,” new financial strategies have
emerged that have transformed the purchasing manager into a “cost-killer
hero.” Indeed, as new technologies and business models emerge, being open
to innovation is seen as an imperative, sustainability is now seen as both a
challenge and an opportunity, and the Internet of Things is gaining ground.
Since the service economy is growing and customers demand better value
proposals and improved service, the innovation process is becoming essential
to providing a timely response to the market with new or improved service
solutions (Hidalgo, D’Alvano, 2014). The creation of value through innova-
tion has become increasingly important for business in a volatile global envi-
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ronment characterized by increasingly short products and consumer demand
for new knowledge, products, and services (Johannesen, Olsen, 2010; Tidd
2001). As services become more important for society and customers demand
more complex and personalized solutions, researchers are dedicating more
time to understanding their innovation processes (Hidalgo, D’Alvano, 2014).
Furthermore, an open innovation era (Chesbrough, 2006) as a new paradigm
for innovative firms underlines the fact that buyers have become the archi-
tects of industrial exchanges and have taken on the risks involved in such a
strategic role (Hatchuel, quoted by Calvi et al., 2010). While the prime focus
of purchasing is often to improve a company’s cost position, suppliers and
external partners are increasingly invited to contribute to innovation and
value creation. Under an open innovation paradigm, they are in the front
line. Supplier collaboration and strategic sourcing stimulate such innovation
(Luzzini et al., 2015). Supplier collaboration can have an effect on companies’
innovation performance, as well as the enabling characteristics of their pur-
chasing function (McMullen et al., 2014). Companies develop their ability to
innovate with existing or potential supply chain members, and the role of
purchasing is gradually adapting to this new context.

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Innovative suppliers and purchasing function interaction

Purchasing is often a primary interface between the company and its sup-
pliers, who can greatly affect the company’s innovation effort. Also, purchas-
ing knowledge is an important enabler of supplier collaboration and strategic
sourcing (McMullen et al., 2014; Luzzini et al., 2015). The study specifically
investigates suppliers and purchasing contributions to a company’s innova-
tion performance (Luzzini et al., 2015). At this point, addressing cost as the
sole criterion is no longer efficient. The purchaser’s proactive ability to absorb
innovation, or not, at the fuzzy front end of the supply market becomes cru-
cial. The choice made at this point influences the purchaser company’s inno-
vation issues. This idea fits Cohen and Levinthal’s absorptive capacity theory
as mentioned above. On the other hand, the ability to absorb external knowl-
edge has become a major driver for innovation. For large R&D-intensive
firms, the concept of open innovation in relation to absorptive capacity is
relatively well understood (Spithoven et al., 2010). As the purchaser role lies
in the limited space between his or her company’s expressed needs and sup-
pliers’ offers, it appears necessary to question a procurement strategy if the
purchaser’s focus is driven by innovation issues rather than an established
strategy that focuses only on the cost. In this paper, we aim to bring clarifica-
tion to this point on the basis of a theoretical background that focuses on the
purchasing function’s interaction with suppliers’ innovations, and the way
companies could implement a new approach to their procurement strategy
under an innovation perspective.
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These ideas raise two questions related to the purchasing department
when a company is concerned with innovation at the institutional level. First,
how is a procurement strategy, which predominantly has access to innovative
suppliers (IS), a performance driver? Second, what are the main antecedents
of its implementation? We will shed light on these questions in relation to
a theoretical context mentioned above. A theoretical review is presented in
the next section, prior to the research method. The last three sections focus
on the main findings and discussions.

Theoretical review: purchase function


and innovation interaction
The theoretical review focuses on the purchasing function and innova-
tion interaction, which is subdivided into the following two parts: 1) innova-
tion as a multiplayer game, and 2) service innovation orientation: collabora-
tion and value creation. We will review these two subtitles respectively.

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Fatiha NAOUI-OUTINI, Nabil EL-HILALI

Innovation: A Multiplayer Game


Globalization and new information and communication technologies
are pushing innovation processes to become more open, flexible, integrated,
complex, multiactor, and network-oriented, in line with the pioneering per-
spective of fifth-generation innovation models (Rothwell, 1992). Indeed,
innovation models have evolved in the past five decades. The first two
generations represent innovation as linear, with a project orientation, on
the basis of demand pull or technology push strategies. The third genera-
tion recognizes the value interaction and feedback between different stages
of the innovation process. More recently, fourth generations of innovation
models show how organizations connect upstream with key suppliers and
downstream with customers who are keen to gain an understanding of how
knowledge, ideas, and teamwork transform into success (Hidalgo, D’Alvano,
2014). As a process, innovation increasingly links organizations making use
of wider networks (Tidd, Bessant, 2009). Nevertheless, despite their will to
foster innovation through R&D departments, organizations are not achiev-
ing their potential for innovation. Cohen and Levintal’s (1991) research as
a milestone paradigm to understand what frames and catalyzes innovation,
highlights the absorptive capacity of a firm to recognize and assimilate the
value of new, external information. Four capabilities are needed: acquisition,
assimilation, transformation, and exploitation (Todorova, Durisin, 2007;
Volberda et al., 2010; Zahra, George, 2002).
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Service Innovation Orientation:
Collaboration and Value Creation
Service innovation and new service development processes are priorities
for academic research (Karniouchina et al., 2005), innovation on the basic
of network activity is an emerging theme (Tidd, Bessant, 2009), and service
theory as a discipline is evolving from good dominant logic to service domi-
nant logic, where customers cocreate value through service (Vargo, Lusch,
2004). Service literature considers innovation in similar terms; process and
resource contributions can be innovatively layered to create a new service
(Den Hertze et al., 2010, 494). Diversity in partnerships with its greater range
of processes and resources creates fertile ground for these kinds of service
innovations (Dawson et al., 2014). Service innovation has a catalytic role
in sharing new markets and creating new business opportunities. Thereby,
service innovation is a broad concept that encompasses a considerable num-
ber of distinct dimensions, discussed in the literature by Bessant and Davies
(2007), De Jong and Vermeulen (2003), Edvardsson and Olsson (1996), Tidd,

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Innovative suppliers and purchasing function interaction

Bessant and Pavitt (2005). Specific examples of innovation include service


development processes (Kindström, Kowalkowski, 2009; Song et al., 2009),
capability development (Den Hertze et al., 2010; Fisher et al., 2010), learning
(Stevens, Dimitriadis, 2004), organizational adaptation (Neu, Brown, 2008),
and culture (Gebauer, Friedli, 2005).
The globalization of markets, which intensifies competition, makes busi-
ness collaboration that contributes to innovation particularly attractive but
also more challenging (Dawson et al., 2014). As a matter of fact, the open and
collaborative innovation paradigm represents a new way to support the inno-
vation effort by accessing external resources (e.g., knowledge, technology,
human workforce) that the focal firm might lack (Chesbrough, Crowther,
2006; Pisano, Verganti, 2008). Innovative value can emerge or be driven from
outside the boundaries of an individual organization through collaborative
interaction between stakeholders including suppliers, customers (Aarikka-
Stenroos, Jaakkola, 2012), partners, and networks (Dominguez-Péry et al.,
2013). Linking services organizations through cooperative innovation activi-
ties means active participation in joint R&D, strategic alliances, and other
less formal collaborative organization arrangements, to develop innovation
projects with other organizations. Cooperative innovation through a service
network means people talking, sharing, building, and launching ideas that
then crystallize new or renewed services (Tether, 2002). It results from a cre-
ative synergy that would not occur without relational cooperation. It is also
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argued that cooperation among competitors “may turn out to be one of the
most basic impetuses for innovation and value creation” (Johannessen, Olsen,
2010, p. 509). It is further argued that the achievement of common goals
builds additional collaboration, thereby enabling increasing overlap in stra-
tegic intent (Wilkinson, Young, 2002), and with the increased individual and
joint capabilities that result, enabling enhanced performance and increased
innovation (Luo, 2002). In such diverse partnerships, the overall compatibil-
ity of partner resources (Beamish, Inkpen, 1995), balance of resource contri-
bution (Robson et al., 2002) and relevance of resources to goal achievement
(Child, Yan, 2003) have been shown to positively influence a partnership’s
performance. It is argued that is because these facilitate innovative outcomes
in which layers of competitive advantage are created. The purchase func-
tion, when framed in absorptive capacity theory, appears to be on the front
line, as it is concerned with the first capability: acquisition. However, engag-
ing suppliers into collaborative innovation is not so easy to achieve (Krause
1999; Smals, Smits, 2012). Firstly, the availability of highly skilled suppliers
is not sufficient per se; both buyer and supplier must be willing to participate
into shared new product developments projects and possess the necessary
experience and capabilities to do so (Monczka et al. 2000; Schiele, 2006).

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Fatiha NAOUI-OUTINI, Nabil EL-HILALI

Secondly, the interest in the subject by an increasing number of firms, the


concentration of supply markets, and the increasing outsourcing/offshoring
rate are shifting the bargaining power from buyers to suppliers. They become
highly selective and resistant to adapt to customers’ requests (Christiansen,
Maltz, 2002).
The purchase manager, then, plays a key role in the absorptive capacity
prior to innovation. When concerned with innovation, the purchaser needs
to understand which suppliers actually do have high potential for contribut-
ing to the innovativeness of the firm and which do not. A naturally con-
sequent stage of research investigates what role the purchasing department
plays in innovation, as it has become the common interface with the supply
base (Araujo et al., 1999; Elram, Pearson, 1993). Firms increasingly recognize
a strategic role in the purchasing department, which manages firm expendi-
tures (normally accounting for more than 50 percent of the firm’s turnover)
together with internal customer departments. Therefore, today, the goals of
the purchasing department go well beyond savings and cost reduction. While
standard and easy-to-find purchasing categories do require cost minimiza-
tion, critical categories emphasize other competitive priorities, such as qual-
ity, flexibility, and innovation (Luzzini et al., 2012). In its task of fostering
innovation, the company can, at the operational level, acquire innovations
through different techniques: mergers/acquisitions; benchmarking compa-
nies that innovate (imitation); the direct purchase of innovation (integration
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of innovative technology); or development in collaboration with suppliers
(creation or improvement of a product/service) (Schiele, 2006). Essential cri-
teria are then needed for the identification of innovative suppliers. A long-
term relationship with a supplier that is based on mutual commitment will
enable the buyer to take advantage of the innovative capacity of its supplier.
A further criterion is the existence of a plan that includes appropriate mile-
stones with the supplier based on improving the quality of the product or
service upstream and downstream. These criteria will make it possible to take
advantage of this innovative capacity over the long term (Schiele, 2006).
In conclusion, the theoretical review that we developed in order to
enhance our understanding of the innovative suppliers and purchasing func-
tion interaction consists of three main elements.
First of all, the concept of innovation has encountered several variations.
Secondly, the collaborative dynamic in the service innovation, has a posi-
tive impact on organization performance. Finally, the main antecedents of its
implementation also make business collaboration more challenging.

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Innovative suppliers and purchasing function interaction

Methodology
Here, the methodology selected for our research presents some brief com-
pany descriptions, an exploratory qualitative approach framed in the inter-
view protocol, data collection, and data analysis.

Brief Company Descriptions


Alpha company is Europe’s leading car rental company and a leading
player in the transport industry, present in more than 130 countries and
territories, with more than sixty-five years of experience and nearly 5.5 mil-
lion drivers in 2016. Beta company is a multibrand, long-term car rental
specialist; it offers companies dedicated solutions aimed at optimizing the
mobility of their employees and outsources the risks associated with vehicle
management. It too offers services in twenty-five countries with more than
four thousand employees. Its activity is focused on professionals (business to
business), and its customer pool is wide: professionals, SMEs, and large busi-
ness groups. Alpha and Beta companies were expected to have a knowledge,
ability to innovate. First, the service innovation is an important criterion for
its evolution. Second, the service innovation is integrated within purchase
policies in the two companies. Indeed, our panel of interviewees agreed that
innovation was considered crucial for business performance: it enhances cli-
ent satisfaction, allows substantial savings, creates a differentiation in the
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market, and brings internal recognition to the purchase function. However,
strong impediments to innovation remain tangible.
Alpha innovation examples: Fostering innovation with startups and the
TPE by building a simplified approach to these small structures, through the
creation of 2017, a working group on several departments. This approach was
initiated with a view to offering them a simplified package on legal aspects,
risk analysis, and IT security: “We are always more committed to providing our
customers, employees, and individuals with innovative solutions that are easy to
use and always more respectful of the environment” (CEO 2017).
Beta innovation examples: “We must see the beginnings of a new wave
in the business model of the brand. For example, we want to change this
reflex and become a company that can offer a complete alternative to car
ownership, a multimodal application that combines carsharing, VTC and
traditional rental to meet all needs. The goal is that the entire user journey is
done on our app via a single account” (marketing director of the Beta group).

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Fatiha NAOUI-OUTINI, Nabil EL-HILALI

An Exploratory Qualitative Approach


Our goal here fits the formulation of a question that articulates theo-
retical and practical objectives. To be in tune with the results quality, a data
triangulation strategy (Denzin, 1978; Lewis, Grimes, 1999; Gioia, Pitre 1990;
Gombault, Hlady-Rispal, 2004) was adopted. The researcher who has estab-
lished a relationship of trust with professionals will gather a narrative based
on a guide previously constructed after exploratory research (Imbert, 2010).
As this research focuses on the emerging nature of the challenges facing
innovating suppliers and purchase management, an exploratory qualitative
approach based on interviews conducted in two companies was adopted: “A
qualitative research does not seek to quantify or measure, it is most often to gather
verbal data allowing an interpretative approach. It is a generic term that gathers
diverse perspectives in terms of theoretical bases, methods, techniques of data col-
lection and analysis” (Aubin-Auger, Mercier, 2008).
A qualitative research design is particularly appropriate for research ques-
tions that explore purchasing experts’ points of view, experiences, and prefer-
ences. As an unstructured, exploratory research method, qualitative research
provides better understanding and insight into the problem stated (Malhotra,
2010). The analysis of the data continued a leitmotif: the search for meaning.
This approach is particularly suited to the in-depth study of an institution,
as shown by the work of Gombault (2003). The empirical data were gathered
from two companies, both well known as global players in the car rental
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industry, both dealing with diverse car brands. In addition, the main inter-
est of the Alpha and Beta companies is first to fully integrate the context
in the analysis of the phenomenon studied-that is to say, to position this
phenomenon in temporal and social circumstances (Gombault, 2006). The
interesting point here lies in the type of industry, which, as well as being a
growing sector, is one in which a large and diverse set of companies operates
as suppliers or purchasers.

Interview Protocol and Data Collection


Furthermore, innovation is essential to the companies’ development in
a highly competitive sector. Contextualizing the production of data was tri-
angulated. First, twelve semistructured interviews were conducted with pur-
chasing experts covering all the purchasing areas, such as new vehicles, tires,
fuel, short- and long-term rental, assistance, automotive glazing, car body-
work, telematics, and IT services. This was followed by six months of active
participation in the companies as purchasing assistant and the collection of

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Innovative suppliers and purchasing function interaction

many additional documents (newsletters, logbook, participation in meetings,


etc.).

Table 1 – The main interviewees per case

Case study 1 Case study 2


Procurement Manager ECI Procurement manager
Director of Procurement Procurement Manager
Shared Services ECI Uk Procurement manager - Germany
Procurement Manager ECI Procurement manager
Assistant Director of Purchasing ECI Head of Procurement - Switzerland
Procurement Manager ECI Head of Procurement - Subsidiary

Data Analysis
A thematic content analysis of all transcribed interviews was conducted
(Miles, Huberman, 1994; Wacheux, 1996; Bardin, 1993). This is a method
for analyzing organizations (Thietart, 2014), and therefore appears adequate
for our research. Our approach was inspired by typological analysis (Miles,
Huberman, 1994). We have previously defined fairly general themes from
the literature, conceptual framework, and research questions. As a result, we
have created a manual code list that we have reviewed several times, based
on the progress of our work in collecting and analyzing data. In a second
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step, we have grouped certain elements into broader categories. We coded
the formal interviews that we recorded in full and transcribed. The matrix
format seemed particularly suitable for presenting and organizing the col-
lected data. We have tried to preserve as much as possible the richness of
the data (inclusion of “typical” verbatim in the matrices), so as not to discard
a priori elements that may be important later on. The research process has
sought to satisfy validation criteria specific to qualitative and mixed methods
(Mucchielli, 1996). This author proposes an equivalence of methods, thus
establishing a parallel between internal validity and credibility, external
validity and transferability, fidelity and consistency, and, finally, between
objectivity and reliability. The internal validity is established on the level
of the data capture, by the use of the technique of the triangulation of the
sources to establish observation validity.

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Fatiha NAOUI-OUTINI, Nabil EL-HILALI

Findings and discussions


The results of the study reported here demonstrate the added value of pur-
chasing policy and innovative suppliers. Figure 1 presents purchasing strategy
as a performance driver, which predominantly has access to innovative and
identified positive impact on market differentiation, employees’ satisfaction,
and customers’ value. The exploratory approaches demonstrate some barriers
toward linking purchase management to innovation at the upstream level
and downstream level. Table 2, 3 and Figure 1 synthesizes the main research
proposals.

Purchase Policy and Innovative


Suppliers: An Added Value
A tendering management system has been adopted by the two compa-
nies under study. This tool is considered by the managers as an innovation
catalyst, allowing suppliers selection with respect to innovation. Innovation
criteria are then indexed, among other specifications, to the general evaluat-
ing grid. In expressing this idea, one manager interviewed explained that
the innovation criterion is integrated at different levels and framed in all
standardized procurement sourcing tools in reference to an RFI (request for
information), RFQ (request for quotation), and RFP (request for proposal).
By implementing innovation criteria within the tendering process, the pur-
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chase manager could be seen as a purchase function transformer by high-
lighting innovation criteria. In this manner, a signal is sent in a dual manner
to suppliers aware of innovations and to internal purchasing management.
Interview extract: “It is necessary to situate the buyer’s profession and its
level of maturity. The diversity of buyer profiles encourages this innovative
aspect in a purchasing department. Today, buyers come out of engineering
schools as well as master purchases in business school or faculty. It is neces-
sary to diversify these profiles and make them meet each buyer profile can
bring” (Procurement Manager). Therefore, the purchase manager is moving
beyond the limited perception as a cost-killer. As underlined by Tchokogué
et al., (2017), purchasing managers can develop the purchasing department’s
legitimacy within an organization. Moreover, the purchasing function brings
added value at several levels (downstream, upstream and at the strategic
level). It is a supplier management center witch the buyer-actor develops
the narrow relationships with suppliers (Naoui-Outini, Siau, 2018). Internal
legitimacy requires targeted efforts, and these, in turn, can help purchasing
become more recognized.

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Innovative suppliers and purchasing function interaction

Market Differentiation
Bringing differentiation to a competitive market is an idea that drives pur-
chase managers. Furthermore, innovation plays a key role here. A manager
interviewed expressed this idea in the following terms: “During the project,
our department asked the participants for service innovation. The Alpha company
brings a service solution tailored to pick-up and delivery. The company was then
selected for this specific issue. This specific innovation allows us to make a dif-
ference in the market.” Firms must constantly consider revising their service
offerings and service processes to survive in their markets (Carlbrog et al.,
2014; Dotzel et al., 2013, cited by Ryu, Lee, 2018). By bringing an innova-
tive service “purchased” from a supplier, the company increased the value of
its products in comparison to those of its competitors and offered a break-
through innovative service to its clients: “The procurement job is to look for
the right suppliers to respond to the needs of different departments. We buy
what our internal customer wants. Not what we want to buy. If our internal
customers need innovation so we have to search the right supplier for provid-
ing us the specific innovation” (Procurement Manager ECI). As underlined
by Legenvre and Gualandris (2018), working together with some suppliers at
the fuzzy front-end moment drives the organization to deliver a distinctive
product or service at the best possible cost:
•  “In the call of tenders, we recommend to ask questions about innova-
tions. During the RFP, we ask for several details if they have a research
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development department for example, or which innovation, they add to
the product compared to the previous model” (Procurement Manager).
•  “We always ask about their innovations and keep an eye on the mar-
ket. I always ask suppliers in meetings about the latest in their own com-
panies” (Procurement Manager).
•  “Just like that, I can know if they are planning some changes. Changes
can be operational or strategic. Just like that, I have a global overview of
the market in each procurement category” (Procurement Manager ECI).

Employee Satisfaction
Making the purchase function more legitimately as a key resource within
the firm is another central idea that emerged from the interviews. The
purchasing department’s internal legitimacy is a crucial driver of purchas-
ing practices (Tchokogué et al., 2017). From this perspective, it is important
to note that the purchase function within organizations is still perceived as
minor in comparison to other functions, such as marketing, human resources
and financial management. Interview extract: “In the purchase process, it is

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Fatiha NAOUI-OUTINI, Nabil EL-HILALI

necessary that everyone participates and that it is powerful and powerful. It is


an interesting subject today to say that the buyer’s job is involved in innovation”
(Procurement Manager). Reduced in terms of perception to a cost-killing
issue, innovation enables the function to be perceived as having more legiti-
macy. One manager highlighted how a simple project centered on printing
equipment, due to a specific innovation embedded in machines connected
in the headquarters, led to the key role played by the purchase department
being valued within the firm. Interview extract: “There is also satisfaction and
pride of doing something right and with benefit for all” (procurement manager).
According to Lee and Humphreys (2006), the traditional purchasing func-
tion in organizations seems to have evolved into a strategic one. The authors
note that purchasing is strategic when a buying firm manages the process
strategically to meet specific corporate goals, to gain competitive advantage,
or to attain some social responsible objective.

Customers’ Value
Customers value performance as a savings strategy, allowing innovative
business models distinct from cost-killing strategies, is a key idea delivered
by purchase managers. The technicity of the process is here highlighted as
a skill mastered by managers. It implies a drop in the overall cost of owner-
ship, thanks to innovation brought by the supplier and an increase in cli-
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ent satisfaction. Satisfaction measures used in the sales and service delivery
departments in this case underline the value brought by innovative services
in car rental that are acquired by purchase managers. The influence of ser-
vice innovation on competitive advantage has increased noticeably in the
past decade (Witell et al., 2016). Such innovation projects can have a posi-
tive impact on the commercial and financial performance of the company
(Legenvre, Gualandris, 2018): “The buyer thus needs to save time on monitoring
operational tools to spend more time in market discovery which drive him to detect
innovations. Also, by improving the detection of specific needs with its internal
client, we can see an innovation perspective of the customer needs and market
analysis. We can contribute to the performance of the company by highlighting
innovative purchases” (Procurement Manager International).
Interaction between purchasing strategy and innovation can, there-
fore, be seen as the creation of value through a product, process, or service
that a company would like to acquire to achieve a competitive advantage
and improve its performance. It is further argued that the achievement of
common goals builds additional collaboration, thereby enabling increasing
overlap in strategic intent (Wilkinson, Young, 2002) and with the increased
individual and joint capabilities that result enabling enhanced performance

182 Journal of Innovation Economics & Management 2019/1 – n° 28


Innovative suppliers and purchasing function interaction

and increased innovation (Luo, 2002). Therefore, strategic orientation of ser-


vice innovation has attracted considerable attention from business leaders
who aim to achieve service innovation success and enhance their firm per-
formance (Edvardsson et al., 2013). It is argued that is because these facili-
tate innovative outcomes that layers of competitive advantage are created.
Suppliers’ collaboration can have an effect on companies’ innovation per-
formance as well as the enabling characteristics of their purchasing func-
tion (McMullen et al., 2014). The study specifically investigates suppliers and
purchasing contribution to a company’s innovation performance (Luzzini
et al., 2015). Service innovation is an effective method for enhancing firm
performance and ensuring long-term survival (Ordanini, Parasuraman 2011;
Witell et al., 2016).

Barriers toward Linking Purchase


Management to Innovation
Insights from this research highlight some specific barriers that slow
innovation implementation within the purchase function, both upstream
and downstream from the purchase process.
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Figure 1 – How is a purchasing strategy, a performance driver
which predominately has access to innovative suppliers (IS)

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Fatiha NAOUI-OUTINI, Nabil EL-HILALI

At the Upstream Level


Four obstacles were identified upstream of the purchasing process. The
first obstacle is linked to an excessive focus on cost, which in turn brings
about a short-term view:
•  “Many barriers are facing us: money, time, IT…” (Procurement
Manager).
•  “Lack of resources: Time, financial resources, staffing” (International
Procurement Manager).
The second is a shortfall in the budget allocated to the procurement func-
tion when dealing with innovation: “The main obstacles for me are when you
have no budget or budget reduced. The criterion of time is also important
when it is too long to implement – for example, a company global project
with many countries involved. Another important obstacle is about some
restrictions on new technologies or IT” (Head of Procurement). The third is
a bureaucratic and/or outdated information system used to handle the pur-
chase process, which is time-consuming and reduces buyers’ focus on their
core business, particularly when they need time allocated to monitoring sup-
pliers’ innovation. The fourth is directly linked to a lack of collaborative
skills and individualistic behavior that is sometimes associated with the pur-
chase function:
•  “I think the main obstacles are: Fear of failure; lack of creativity; lack of
resources. But there are a lot of different ones” (Procurement Manager).
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•  “The cost of innovation, because it involves significant changes to
implement and maneuver and the costs are the enemies of the buyers.
Then, the fact that it does not provide a real way to differentiate itself
from the competition. This is the risk between the cost-to-value ratio
and the earned value. I will say the same for the value created for the end
customer. A higher acquisition cost will be reflected in the price of the
rent that will be paid by the end customer” (Procurement Manager ECI).
•  “In the end, we must measure the productivity and efficiency gains
generated by these innovations” (Procurement Manager).

At the Downstream Level


Insights from our panel highlight the lack of time for monitoring the
buyer-supplier relationship, as expressed here: “Due to lack of staff, buyers
cannot focus on improving relationships with their suppliers.” This specific issue
was highlighted in particular by top managers dealing with different catego-
ries of purchase products. Poor communication with suppliers slows inno-
vation recognition and the monitoring of suppliers’ product development:
“Basic cost-killing obtained directly from distributors. The lack of listening and

184 Journal of Innovation Economics & Management 2019/1 – n° 28


Innovative suppliers and purchasing function interaction

imagination, a short-term strategy” (Procurement Manager Assistant). Also,


purchaser company cost-reduction pressures add more complexity to man-
aging the purchaser-supplier relationship. When a purchaser is required to
align with a company strategy that focuses too much on cost killing and
short-term savings, communication with suppliers suffers, which reduces
the confidence that is a prerequisite for innovation identification: “Change
management issues, IT complications, suppliers’ risk” (Procurement Manager
Assistant). However, from another perspective, if a buyer is involved in a
search for innovation when dealing with a supplier, this comes with the risk
that the successful implementation of the innovation will not be guaranteed,
even if it is settled on the basis of a contract with the supplier. The innova-
tion goal would then be missed.

Table 2 – The main antecedents of purchasing strategy


innovative suppliers’ implementation

Upstream level Downstream level


Long term view Time for monitoring buyer-supplier
Budget allocated for innovation relationship
Simplification of the purchase process Communication with suppliers
Time to focus on core business
Collaborative skills

Managerial Implications
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Six research proposals were identified. The study examines a purchas-
ing strategy that has access to innovative suppliers in a business-to-business
context. From a managerial perspective, our results have several implications
for practitioners.

Table 3 – Synthesis of research proposals

Proposals Descriptions
Proposition 1 Importance of innovation culture
within purchasing departments.
Proposition 2 Integration of innovation early on the
procurement process.
Proposition 3 Automation can help buyers allocate
time more efficiently.
Proposition 4 Creation of buyer supplier innovation
performance.
Proposition 5 Monitoring of supplier innovation
performance.
Proposition 6 Supplier relationship in an interna-
tional cross-border environment.

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Fatiha NAOUI-OUTINI, Nabil EL-HILALI

Firstly, our finding supports that innovation culture within purchasing


departments appears to be an important issue. For this reason, it would help
to make purchase management aware of the impact of their choice as buyers
on the basis of innovation, especially when it’s framed in Chesbrough inno-
vation paradigm, which is well established today. This issue reinforces buy-
ers’ collaboration around innovation by promoting a type of communication
that not only expands on the cost issue, but ultimately builds a governance
mode whereby innovation is embedded upstream of any procurement pro-
cess. Leadership innovation is expected here to play a key role in achieving
innovation mind-set. Today, an open innovation paradigm helps to achieve
that. Under this idea, the purchase manager and purchase department could
be an innovator catalyst for the benefit of his or her organization.
On the other hand, the importance of thinking innovatively at the fuzzy
front-purchasing process is highlighted. The objectives here are essential,
as it involves both top-management buyers and suppliers in innovation, as
soon as they initiate a project, as well as operational buyers from other prod-
uct categories. Such innovation is underlined within organizations, as part
of the purchase process. At this level, it would help in the development of
tools for auditing and monitoring innovation, and more specifically, IT tools
emerging from the digital transformation occurring actually in disruptive
manners around the world. Automation under this perspective could help
buyers in allocating time more efficiently, enabling them to focus more on
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the strategic aspects of innovation. In addition, the standardized strategic
processes at headquarters levels could be defined, before being disseminated
at the regional or international level. In this way, buyers’ productivity could
be enhanced in an efficient manner. The idea of open innovation is crucial
here when considering the creation of buyer-supplier innovation challenges
to make suppliers more innovative. It reinforces innovation-centered goals
within the supplier-buyer relationship and helps to secure and keep suppliers
as strategic partners.
Finally, suppliers’ performance role in innovation monitoring is essential.
It establishes innovation criteria to follow up supplier performance in terms
of innovation. Underlying this idea, fitting developing monitoring tools, it
includes contractual aspects and helps to create a common working group
within major purchasing categories. In the end, the importance of buyer-
supplier relationships dealing with cross-border issues when it comes to man-
aging the supplier relationship on an international scale is sensitive, as it
embeds geopolitical uncertainties and sustainable issues in reference to near-
shoring issues. Dedicated tools for gathering international information on

186 Journal of Innovation Economics & Management 2019/1 – n° 28


Innovative suppliers and purchasing function interaction

sourcing, pricing and defining innovation suppliers emerging from neighbor-


ing countries are expected to gain value in the market.

Conclusions
Our conclusion here presents research contributions, further research,
and limitations.

Research Contributions
With a narrow focus on our empirical investigation, the link between
purchase policy, innovative suppliers, and performance of organization is
established. Our findings show that the company increased value and offered
a breakthrough innovative service to its customers. On the other hand, the
key role played by the purchase department was valued within the firm at the
human resource level. Under the open innovation paradigm, when it relates
to innovation from the open innovation perspective actors, Moslein in Huff
et al., (2013) defines three categories: “core inside innovators” as R&D employ-
ees, “peripheral inside innovators” as employees across the board, and “outside
innovators as creative customers and suppliers.” Under this classification, we
can see that the purchase manager is playing a strategic role as a strategic
interface between the three categories. Thus, one can consider the purchase
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manager as an innovator or a key resource for innovation. Finally, it appears
that the performance as a saving strategy, allowing innovative business mod-
els distinct from cost-killing strategies was a key idea delivered by purchase
managers. Indeed, the central idea is the notion that innovation is motivated
by what Hamel and Prahalad (1989), characterized as strategic “intent” (i.e.,
innovation requires recognizing and setting goals to achieve them).

Further Research and Limitations


This research has its limitations serving as stimulus for future research.
First of all, we focus on specific synergy between purchasing and innova-
tive supplier’s contributions to organizations’ performance leverage. Further
research might investigate other factors that are able to affect these results,
such as suppliers that are unaware of the way their products or services affect
the innovation potential of their clients. The second limitation is related to
the specific context selected for this research (i.e., the car rental sector). Their
development levels and the characteristics could be unique, a situation which
would make generalization to other sectors difficult. However, they allow an

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Fatiha NAOUI-OUTINI, Nabil EL-HILALI

analytical generalization, which would justify the application to other sec-


tors. Our findings can be used to initiate multiple-direction research propos-
als. An interesting axis would be to examine how to establish an innovation
culture within purchasing departments; it could also be determined how to
integrate innovation at the fuzzy front end in the procurement process. The
notion of “innovation culture within the purchasing departments” deserves
to be investigated in deep manner across different sectors, as both companies
investigated present, in reality, a mitigated innovation culture. Under this
development, our first proposition makes sense and could be a good perspec-
tive for thinking and shaping the innovation culture within the purchase
function. A second axis interesting in this context would be fitted in how to
deal with supplier innovation challenge under the well-known open innova-
tion paradigm. A third axis could be concerned with supplier relationship
in a cross- border supply environment crucial management. Finally, a fourth
axis would fit with digital transformation issues to consider automation and
software technology and even robotization when these tools are matching
purchasing supplier interaction when it deals with innovation performance.

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