To Achieve Innovation from IT Outsourcing, Ditch Old Vendor Selection Processes

CIO — IT departments say they want innovation from their outsourcing vendors, and the vendors say they want to provide it. So why is innovation in outsourcing so rare?

There are countless obstacles to achieving anything resembling innovation when outsourcing IT, including ineffective change management, toothless governance, inadequate skills, perverse incentives and powerless managers. But the biggest barrier is inertia. When it comes time to draw up an outsourcing contract, everyone reverts to the safety of the status quo.

"One of the root causes behind lack of innovation in outsourced environments is an overemphasis on stability from buyers and service providers," says Phil Fersht, founder of outsourcing analyst firm Horses for Sources. "After the contract is signed, buyer executives don't want noise because they want to avoid second-guessing. The provider's delivery executive wants all their dashboards to have green indicator lights Every action taken by both parties promotes stability, but hinders—even suppresses—innovation."

To achieve innovation in IT outsourcing, customers and suppliers have to shake things up. And that starts with the traditional IT service procurement process of gathering requirements, issuing an RFP, selecting a vendor and signing a contract—that Holy Writ of the outsourcing relationship.

Ironically, contracting for innovation has precious little to do with the contract itself, say outsourcing experts and attorneys. While the contract codifies deal doctrine, in the most successful and innovative IT outsourcing relationships, it quietly gathers dust after the ink is dry. The contract is a consequence of a much more important negotiation—one that establishes a relationship between IT outsourcing customer and provider that will produce innovation while the legal documents sit on a shelf. To achieve that ideal relationship, all parties need to throw out the old notions that govern the traditional IT services procurement process and instead take the following approach.

1. Delay the RFP

In today's world of urgent cost cutting and speed sourcing, there's a rush to get the RFP out the door. But IT outsourcing customers need to decide upon innovation goals before even thinking about soliciting proposals or structuring the vendor selection process.

"If the enterprise wants any innovation, they should understand that the cookie-cutter RFP with the price-driven negotiation is not an effective vehicle," says Bill Bierce, co-founder of technology law firm Bierce & Kenerson.

2. Define Innovation

It's easier to agree on what innovation isn't than what it is. "Innovation is not the service provider meeting or exceeding service level commitments," says Fersht. "Those service levels are a component of the contractual agreement between the provider and the buyer, and thus should be met, plain and simple."

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