Innovation strategy

Logistics service providers should innovate more,’ is a commonly heard complaint by shippers. This innovation-related discrepancy reared its head once again following an international study by Supply Chain Digest published earlier this year. 69 percent of the shippers surveyed said it was very important for logistics service providers to be innovative. However, they seem to be disappointed in logistics service providers’ process innovation abilities, with 26 percent of the shippers rating them as ‘low’ and 48 percent as ‘average’. But the logistics service providers are not the only cause of the innovation problem.

First of all, shippers need to make it clear which strategy they are pursuing per product category: Product Leadership (best product, e.g. Apple), Customer Intimacy (best total solution, e.g. Cisco) or Operational Excellence (best total costs, e.g. Walmart), based on the model by Michael Treacy and Fred Wiersema. Many companies seem afraid to make a clear choice, whether for the entire organization or per division. A focus on Operational Excellence revolves around the costs, so the logistics service provider must continuously innovate its processes in order to improve efficiency. The Product Leadership strategy is focused on (product) quality and requires the logistics service provider to be able to cope with unexpected volume fluctuations caused by product launches and marketing campaigns. And if the shipper is pursuing a Customer Intimacy strategy, the logistics service provider must offer outstanding service by installing complex, configured products on customers’ premises at the right time.

I was pleasantly surprised to witness a commercial director of a large logistics service provider presenting these insights during a supply chain conference in Helsinki at the start of this year. He provided a clear overview of the specific innovations his company was implementing for three different customers, each with a different business strategy. In his book Clockspeed (1998), Professor Charles Fine from MIT in Boston states that there are three separate drivers for disruptive innovation: performance push, customer pull and organizational competencies. These three drivers can be paired with the three strategic approaches in the Treacy and Wiersema model. Logistics service providers should make more of an effort to ask their customers which strategy they are pursuing, so that they know where to innovate.