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What Does It Take to Get IT Outsourcers to Innovate?

IT leaders say they want outsourcing providers to go beyond traditional services. And the providers want to market themselves as partners in innovation. So why isn't it happening?

By Stephanie Overby

October 08, 2007 — CIO —

John Smith had high hopes when Science Applications International Corp. (SAIC) took over Entergy’s IT. Before the New Orleans–based utility signed the five-year, $400 million contract in 2000, SAIC’s sales team described a rosy future in which it would lower Entergy’s IT costs and improve service levels on everything from application development and maintenance to data center management to desktop and infrastructure support. And more than that, SAIC said it could become Entergy’s partner in IT innovation.

“A partner in innovation”—those were magic words for Smith, then IT director for Entergy’s Southern Nuclear fleet.

“We were looking for a company that would do more than just manage our IT service delivery,” says Smith. “One that would not just provide best practices and run IT like a railroad but could also provide some vision about where IT was going.” Smith, currently in a temporary role assisting in the reorganization of Entergy Nuclear, was particularly interested in SAIC’s nuclear domain experience and its ability to apply that knowledge to the introduction of new business-specific systems.

But as the relationship with SAIC matured, Smith’s disappointment grew. “Innovation was an expectation that wasn’t delivered on,” he says. SAIC met its service-level agreements (SLAs) and kept Entergy’s IT costs under control, but there were no new ideas coming from the outsourcer, no guidance about emerging technologies Entergy should pursue. In short, no partnership in innovation.

The Innovation Promise vs. the Innovation Reality
When it comes to why SAIC failed to meet Smith’s expectations, there’s plenty of blame to go around. Smith suspects SAIC overstated its ability to move beyond the traditional provider’s role of managing IT as a utility. He also admits that Entergy’s leadership was unable to figure out how to manage the relationship with SAIC in a way that would encourage that kind of strategic involvement. Perhaps most important, despite what both sides said, innovation was never officially part of the deal.

“When we were all sitting in the room, there was all kinds of talk about what might be possible,” says Smith. “And what was possible got sold a lot harder than what actually went into the contract.” (SAIC declined comment on its relationship with Entergy.)

Smith is not alone in his frustration. Forrester Research reports that 42 percent of buyers are dissatisfied with the innovation provided by their primary outsourcer. According to a recent CIO survey, 44 percent of respondents were unhappy with the innovation provided by offshore outsourcers. (Twenty-one percent were dissatisfied with the level of innovation provided by domestic providers.) Of course, these numbers don’t take into account IT leaders who are entering their deals with limited expectations or who are looking for more straightforward relationships with providers.

 

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