by Beth Bacheldor

Innovation in Outsourcing: You Want It. Do You Get It?

May 07, 2010
IT Leadership

Companies put innovation high on the list of outsourcing requirements, but what does that mean?


This concept is definitely high on the list of priorities this year as companies continue to or begin to outsource their IT and business processes. In a recent Horses for Sources survey, respondents put the ability to transform processes and provide innovation as either critical or quite important attributes to consider when selecting service providers.

But the concept is fraught with complexity, misunderstanding, and confusion.

In a great article by Stephanie Overby, “IT Outsourcing: 3 Reasons Your Vendor Won’t Innovate,” experts agree that while companies expect innovation from their outsourcing providers, they don’t always get it—for several reasons. The article articulates three key reasons, including choosing the wrong outsourcing partner and failing to define and leverage metrics that measure how well innovation is occurring as a result of an outsourcing deal.

But the third reason is perhaps the most fundamental: what is innovation, and how do you and your outsourcing partner define in the context of the contract.

The definition of innovation, according to my trusty American Heritage Dictionary, it is the act of innovating, or creating or introducing something new. But in my years covering business and IT, I’d bet my trusty dictionary and a whole lot more that most CIOs and other executives expect a heck of a lot more than new from innovation. With that in mind, I’d define innovation as the creation of an idea, process, or product that has the power to revolutionizes that which it changes or replaces. Innovation shakes things up, in good ways. Innovation transforms, for the better.

I remember years ago doing a story on Vans, the shoe- and apparel-maker. In the mid-1960s, Vans began offering custom shoes to the surfers and skaters who came into their Southern California shops. With nothing more than his favorite swim trunks, a surfer could get a custom pair of shoes made from that fabric. That was innovative. Nearly four decades later, in 2004, Vans was leveraging the Internet to offer custom shoes to shoppers the world over. That too, was innovative—as made-to-order or configure-to-order retail processes were only starting to take shape (Vans still offers custom shoes on its site, by the way).

So this is the kind of innovation we’re talking about. But how do you get that, as a fundamental aspect of your outsourcing deal? Eperts told Overby organizations should understand what types of innovation is important to the various stakeholders in the company. For example, the sales group would probably tie innovation to revenue.

Once you’ve got a clear understanding—and agreement among stakeholders—of how innovation is defined within the context of an outsourcing deal, then you have concrete information you can share with a potential provider as you work the deal.

But also push potential providers to tell you (in writing is best, of course) how they define innovation within the context of the services you are seeking. For example, if they are offering you IT outsourcing services by hosting some of your data center operations, perhaps they are embarking on green IT initiatives and they can give you insight on where and how to leverage green IT within the operations you continue to run yourself. Or perhaps they are able to deduct from your monthly outsourcing fee a percentage that reflects the savings they expect to achieve with the green IT initiatives they are starting.

I’d love to hear your thoughts on innovation. How do you define it? In what ways can outsourcing vendors provide it? In what ways has your organization innovated?