In order to keep up with market forces and changing consumer trends, companies must improve their innovation quotient by drawing on both internal and external knowledge. The external element can be provided by an outsourcing partner, but it must go beyond the technical domain to demonstrate the vendor’s ability to transform business processes across the value chain as well as introduce management innovations that offer flexibility and agility to the client firm.

Innovation is indeed a buzzword at the moment with Chief Innovation Officers considered key hires in an increasingly challenging market and with an ever more conspicuous discourse around innovation. In view of the volatility driven by the economy, new disruptive technologies, increasing government regulations, and continued globalisation of markets, driving innovation and building agility into businesses have become the key attributes of success.

The importance of innovation through outsourcing is underscored by recent research carried out by Cognizant in association with Warwick Business School. The study looked at the impact of innovation on businesses and highlighted the key dimensions of re-structuring innovative processes, to measure their impact on the business as a whole. Available at www.valueofinnovation.com, it revealed 70% of European C-level executives believe that innovation achieved through outsourcing contributes to their organisations’ financial performance. However, businesses are not currently getting the most of outsourcers’ innovation capabilities, with only 35% quantifying the financial value of innovation. Businesses are struggling to prove the financial worth of innovation through outsourcing and make the case for future investment, due to the inability to measure the benefits outsourcing provides.

With this in mind, and in conjunction with Warwick Business School, we have designed a six-step framework, ‘The Innovation Ladder’, to assist companies in measuring and employing the correct strategies through innovation. The ladder is designed to capture the objectives of the outsourcing project as well as align the outsourcing lifecycle and the business objectives of the client firm.

Step One: Strategise innovation, in which executives need to consider what type of innovation is expected (incremental or radical) and what the expected impact of this innovation is at the operational and strategic level;

Step Two: Design measurement instruments, in which executives are required to develop the instruments based on which the improvements achieved through either incremental or radical innovation will be assessed;

Step Three: Assess vendor’s innovative capability, in which executives are required to develop a methodology that guides them to consider the innovativeness of the vendor as part of the other vendor selection criteria;

Step Four: Design a contract for innovation, in which the contract should be crafted to include performance targets and compensations for incremental innovation and a clear roadmap to form partnership in order to achieve radical innovation;

Step Five: Build relationships, in which the client firm and the vendor invest in mechanisms that support the ongoing development and renewal of their relationships as a complementary element to the contractual approach;

Step Six: Measure innovation, in which the client firm monitors and verifies meeting performance targets in incremental innovation and the health and performance of the radical innovation network.

By following these six steps, businesses can not only benefit from innovation in their own right, but also determine the monetary value that innovation (including that delivered by your partners) brings to the business.

In the same way that innovation is all encompassing, yet hard to truly pin down, the current outsourcing trends and future predictions are truly demonstrating just how business is akin to innovation in many ways. As businesses and enterprises become increasingly comfortable using a global delivery model to execute large and complex transformational engagements, they must harness innovation effectively to enable the future of work and unlock enterprise value by leveraging and realigning people, process and technology. In turning volatility into an opportunity to create competitive advantage, businesses will help drive the economy as well.

Innovation has no barriers, whether geographical or financial. It’s about tapping into it, wherever and however it is generated. And measuring it. That’s the key to continued innovation.