28 Apr 2011  Op-Ed

While Waiting for Japan’s Recovery, Let’s Enhance Supplier Competitiveness at Home

The Obama administration and US companies do not have to wait for Japanese suppliers to recover from earthquake damage, argues Harvard Business School professor Rosabeth Moss Kanter. Action can be taken now to ensure that America invests in growing our domestic stock of world-class suppliers. Key concepts include:

  • A national campaign to enhance supply-chain partnerships could ensure that America invests in growing our domestic stock of world-class suppliers—an action that could also accelerate job creation.
  • Big companies should target high-potential small companies as suppliers, providing them training, access to domestic and international business opportunities, and lower supplier costs through pooled purchasing or insurance.
  • Because the concept does not require every company to do the same thing, and in fact simply asks companies to increase their efforts to do things already in their portfolio, it does not involve complicated coordination.

 

The devastating Japanese earthquakes sent aftershocks of another kind to the economy: the potential disruption of the flow of goods from Japanese suppliers to US high-tech manufacturers. But the Obama administration and domestic companies do not have to wait for Japanese suppliers to recover from earthquake damage. They can take action now to ensure that America invests in growing our domestic stock of world-class suppliers. A national campaign to enhance supply-chain partnerships could also accelerate job creation.

America needs another national campaign, this time to mobilize big companies to power smaller ones.

Small and midsized companies create the vast majority of jobs, but they often depend on big company purchases for their revenues and growth. Large companies, which have tended to be net job-shedders rather than job-creators, create jobs indirectly through their supply and distribution chains. Big companies also tap promising ideas for innovation through their relationships with entrepreneurial growth companies, whether as suppliers or as investment targets for corporate venture capital.

To help small businesses grow, innovate, and add jobs, big companies can expand the search for high-potential small companies; provide training and mentoring to help those companies qualify as preferred suppliers or distributors; open access to domestic and international business opportunities; and help lower supplier costs through pooled purchasing or insurance.

IBM's Supplier Connection is an example of one step in the right direction. Initiated last spring, IBM has brought together an initial consortium of seven major companies, including Caterpillar, Pfizer, Bank of America, Citibank, and AT&T, to develop an online center with a single universal process for vendor applications. This facilitates access of small business to large company purchasing while reducing the administrative burden on the smaller companies and increasing their likelihood of success. After contributing several million dollars for the technical work, IBM announced the soft launch of Supplier Connection on January 31. Other major manufacturers and retailers are soon to join, and IBM intends to find other ways to enhance small business growth.

Imagine the possibilities for a national campaign to reduce unemployment and grow the economy through supply-chain partnerships. Companies could pledge to take one additional step beyond their current activities to strengthen the capabilities and business prospects of domestic enterprises. For example, they could promise to:

  • Add a mentorship program in which executives advise smaller companies about how to strengthen their functional capabilities or prepare for growth.
  • Provide opportunities for selected small business partners to participate in in-house training programs or have access to online management tools.
  • Serve as test sites for small companies with a promising new idea.
  • Provide the use of conference rooms at international locations and introductions to potential customers.

A useful analogy comes from the Welfare-to-Work Partnership, a private initiative of large employers stimulated by the White House after the passage of the welfare reform bill in 1996. The W2W Partnership was designed to build job opportunities for those coming off welfare to avert a potentially large national problem (and a political problem for President Clinton). Intermediary organizations such as local and national nonprofits provided training and helped identify job-ready candidates. Participating companies such as United Airlines and Marriott tapped a new pool of workers that were often highly motivated. The pledges made to the W2W Partnership fit existing corporate activities and could become part of an existing business function—in the case of W2W, human resources. The national partnership was mirrored at state and local levels as officials convened events to involve companies in their region.

Today, in the aftermath of market quakes and earthquakes, America needs another national campaign, this time to mobilize big companies to power smaller ones. This idea should tap the enthusiasm of private-sector business leaders. They can take actions that demonstrate to the public how they can contribute to a better economy that creates jobs for today and innovation for tomorrow. Because the concept does not require every company to do the same thing, and in fact simply asks companies to increase their efforts to do things already in their portfolio, it does not involve complicated coordination. Some actions can bring immediate, measurable benefits—if not a chip supplier to substitute for one in Japan, then perhaps a start-up with a better idea.

The concept should enjoy widespread bipartisan support. It would be a good move for the new competitiveness council created by the White House and would give President Obama an occasion for convening the business community to request specific commitments. Governors and mayors could follow suit. No new government funding or legislation is needed. What is required is national leadership.

Rosabeth Moss Kanter's latest book is SuperCorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good (Crown Business, 2009).

Comments

    • Ken Kachi
    • HBS MBA, Harvard Business School

    I couldn't help notice that this article completely ignores the factor of supplier evaluation and selection. For example, a car company would not change (or add) a supplier from one to the other simply because that company is on a certain partnership list. One must decide if that company is worth doing business with by evaluating it with a holistic view. You must consider if that small business is capable in providing goods in the right quality, time, volume, cost, flexibility and etc. If you are not careful and simply expand your supplier base just because a company exists already, you will end up like Toyota which faced severe setbacks due to a gas pedal manufacturer in Indiana that didn't deliver gas pedals with the right quality.

    The national campaign also sounds like what Japanese companies have already in their keiretsu system. The only problem is that this program doesn't provide a long term trust and cooperation between the corporations,there aren't enough incentives for the big businesses to engage in such activity. Can we succeed in forcing big businesses to utilize small businesses that are sub par?

    The earthquake in Japan probably has set off a review to a single sourcing policy. It surely would create opportunities for new entrants to start dealing with big businesses which are willing to multi source parts. But that does not mean big businesses will start dealing with poorly performing small ones.

    Even though it may seem like a good opportunity to catch the attention of the big businesses while Japanese companies that were damaged by the earthquake and tsunami struggle to recover, a true big businesses with long term trust and cooperation would probably spend their time and effort to help these companies. Should big business simply walk away when their small businesses partners find themselves in trouble? Would you trust a company that just left you to die when you needed help the most?

    If there is to be a government action to promote small businesses to the big ones, I would say enhancing the competitiveness of the small businesses would do more than making a partnership pledge or a list. If there are good small businesses in this country, big ones would naturally choose them without having to force them to use them. Although I would agree that a platform to market small businesses would be quite helpful.

     
     
     
    • William Leduna
    • CPIM MBA, Independent

    Good point Ken on helping out small businesses to be competitive and high performing. I also agree that big businesses will naturally choose small performing companies. But without the list and leadership from the government and/or private sector it may not take off the way that it can compete. This might be one of the answers we need for our unemployment problem.

     
     
     
    • Venkat
    • Asst. Vice President

    I find it very difficult to agree with Professor Rosabeth, as suppliers directly effect the quality of the final product to be delivered to customer. Suppliers need to have where with all to be able to deliver the desired quality in the specified time frame with six sigma quality. While I appreciate that it is good idea to encourage small business with in US to step in to replace the supplies instead of waiting for Japan to recover, but the point is are we saying that we are pushing the employment cause with in US and would not mind compromising on the service or product quality deliverables.? Secondly, does the small business firms with in US have the ability to be able to mop up the resources in short notice and match the scale and operation of japanese companies.....

    Reg Venkat