Unity in Diversity :Enhancing local SME based innovation for the global supply chain

1. Unity in Diversity :Enhancing local SME based innovation for the global supply chain A trans-regional action research project in the oil and gas sector ERIMA 2007

2. Background: Benchmarking transferable problem: solution scenarios in the trans-regional supply chain • oil and gas • automotive • health

3. The U.K. and W. Australian oil and gas supply chain as a case study • Phase 1: adding value by cutting costs – the implications for SMEs • Phase 2: adding value by innovation - the implications for SMEs

4. Collaborative action research a catalyst in • identifying issues • fostering benchmarking between organisations in the UK, Western Australia • Building on UK Mexico and Germany Brazil regional collaborations in the oil and gas and automotive sector in UK, Germany, Mexico, Brazil

5. World Energy City Partnership Global network of oil capitals and regional organisations Aberdeen Da Qing Maracaibo Houston Baku Perth Villahermosa Stavanger

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

7. Value-adding partnership • shared knowledgebase • share competitive solutions • cut costs and add value of shared projects • share resources, expertise, contacts • achieve critical mass for funding • find synergies • build on diverse strengths • benchmark across sectors/regions

8. Builds on previous projects • Americas- e-learning alliance across Canada, America, Mexico, Venezuela, Brazil • Brazil- Germany - automotive supply chain competitiveness through cross regional knowledge sharing and exchange of staff

9. Enhancing SME-led Innovation in the Supply Chain • Collaborative action research with stakeholders in two reference groups • Identifying gaps, barriers and opportunities • Community building • Strategy development and benchmarking (PILOT UK videoconferencing and case studies; Automotive case studies)

10. 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

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

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

13. Previous Strategy CRINE – Competitiveness through cost-cutting • SMEs often absorbed higher levels of risk, and had to cut costs and profit margins to unsustainable levels within the supply chain • Outsourcing to other countries meant many local SMEs were excluded • Standardisation constrained innovation, and added costs for SMES in new software and hardware

14. Consequences • Many local SMEs disappeared, together with much of the local and the specialist technical knowledge associated with deep sea drilling technologies • This undermined the ability of the region to achieve a knowledge-based advantage in a very knowledge-based market where cost alone cannot ensure growth http://web.mit.edu/evhippel/www/democ1.htm

15. This was most evident in the development, adaptation and use of technology in the difficult environment of deep sea drilling, where local SMEs have a crucial role • leveraging local knowledge and expertise of people, processes and the adaptation or development of technologies for local conditions • sustaining regional employment • supporting LMEs and MLEs in the region • the attractiveness of the region as a base for large operators

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

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

18. Support Strategies for SME-based Innovation in the Regional SC? The collaborative action research process has facilitated opportunities for collaboratively identifying and sharing evidence of barriers and gaps, as well as benchmarking strategies used in other regions at different points in this process.

19. 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

20. Strategies such as • The communication of future development plans of large and medium sized operators in the region at Share Fairs • Coordination of direct contacts and support from funding agencies and knowledge transfer partnerships with regional Universities. • Good practice in contracting and payment that do not penalise SMEs • Opportunities for brokering and coordination of the efforts of education, industry and government • Opportunities for benchmarking across other clusters and other regions sharing problem: solution scenarios.

21. Sawhney and Parikh (2001) highlight the competitive advantage afforded by leveraging the knowledge and resources of local communities in distributed networks • the models of innovation and competitiveness in the supply chain utilise such a paradigm - leveraging the diversity of local knowledge in regional SMEs to enhance the competitive advantage of regional / trans-regional clusters. • The Report of the Independent Expert Group on Research, Development and Innovation to the European Community, (Aho, 2006), suggests that a paradigm change is needed in which EU values are preserved in a new social structure.

22. Innovation? Different definitions include: • the process of making improvements by introducing something new • the act of introducing something new • a new idea, method or device • the successful exploitation of new ideas (Department of Trade and Industry, UK). • change that creates a new dimension of performance Peter Drucker

24. 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)

25. Where We Started ‘Our JIT system works in Germany. Why doesn’t it work in Brazil? It’s the same technology – so what’s the difference?’ Variance in performance is not explained by measuring one system

26. Alignment examples • Software designed to standardise safety compliance procedures globally, was actually increasing risk in some local operating sites The Local-Global Case www.petrotechnics.com

27. Aligning Human and Technical Systems to Cut Cost and Risk • Separating design of fixed and locally variable systems • Leveraging local knowledge • Communities as IS that can add value

28. The Cost of Misalignment • Challenger • Iraq procurement system was deemed a success - technically • Process Management - what ISO Standards miss

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