Ensuring innovation in outsourcing

The recession must surely be over if all the talk about how innovation in outsourcing has climbed back to pre-2008 levels is anything to go by. Problem is, like oil and water, the two concepts are very hard to mix.

For the past two years, all the talk in the outsourcing sector has been about restructuring or renegotiating contracts in order to deliver value for money. Maybe the talk about innovation shows increasing confidence in the outsourcing market or the economy generally. Or maybe Edmund Burke was right when he said: “Those who don’t know history are destined to repeat it.”

Well, Edmund, I know at least three things about innovation in the outsourcing arena: customers routinely say that they want more of it from service providers; both sides feel that not enough innovation goes on in an outsourcing relationship; and if innovation is going to happen, you need to work hard to engineer it.

A US study revealed that 43 per cent of outsourcing customers viewed innovation as a critical element of business process outsourcing.

But outsourcing rarely leads to innovation – at least once you get past the sales pitch and into services delivery.
There are three steps firms can take that will help embed innovation into their service provider relationships:

- Companies need to select the right provider. That means making proper supplier visits and investigating service providers’ innovation track records.

- Organisations must contract for innovation.This requires a regular review of innovation strategy and projects, and governance put around organisational bodies such an innovation change board. Both parties need to agree on the relationship between service delivery, baked-in tech refresh, and future innovation. Most importantly, both sides need to commit specific resources to an innovation pool.

- Establish who is responsible for what.Innovation requires investment, so the parties need to be clear who pays, what continuous improvement is going to be baked into the existing price and what innovation will be done by specifically costed and separately paid-for initiatives.

Ultimately, innovation is not something that can be measured like a service level and read off a spreadsheet. It needs to be handled sensitively and in a partnerial manner if it’s going to happen at all.

Alistair Maughan is head of global sourcing at Morrison & Foerster

Copyright © 2010 IDG Communications, Inc.

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