Using Value Chains to Enhance Innovation

Past research (along with our experience) suggests that a firm’s supply chain (i.e., value chain) plays an integral role in its ability to not only reduce cost via process innovation, but also in its ability to develop new products and services. Evidence suggests the value chain is playing an ever-more-important role, with greater prevalence of distributed product development (spanning geographic, organizational, or firm boundaries) and open innovation (performed outside the firm). We discuss some of the trends with regard to supplier and customer involvement in the innovation process, and summarize some of the research exploring the rationale behind those trends and the research offering advice on how firms can use external resources to further improve their innovation performance. We present a number of examples that illustrate some best practices.