As businesses scramble to make efficiency savings, outsourcing is one topic which is rarely left out of the conversation. But many outsourcing customers complain that they are not achieving the level of innovation from their suppliers that they had hoped for. In the first in a series of blogs, Gareth Thomas, managing consultant, Hudson & Yorke, examines common pitfalls and shares his views on a three-step plan to ensure that ICT outsourcing contracts deliver the necessary levels of innovation.

Part 1 – communication and strategy is key.

Why do some ICT outsourcing contracts fail to deliver on their promises? With both private and public institutions under increasing political and economic pressure to rein in costs and shift to purely cost-based success metrics, many leaders are looking for strategies which will enable a refocus on the core mission of their organisation. In ICT, this often means taking a closer look at shared service approaches or alternative sourcing strategies, and finding ways to make them work harder; more efficiently and effectively. However to remain competitive and to adapt to future change it is important that organisations do not forget that innovation is essential for success in long-term outsourcing contracts.

The term ‘outsourcing’ can sometimes be bandied around as though it’s a silver bullet, or as though outsourcing is some sort of commoditised solution for cost-cutting. In truth, it is a broad term which encompasses any number of different sourcing models. All too often, organisations subject themselves to a “one-size-fits-all” sourcing model which does not take into account the characteristics of their business and its unique strategic goals. This can result in businesses signing up to outsourcing agreements which are unsuitable for their business, and although the short-term cost objectives may be delivered the long-term strategic benefits, that can only be achieved through innovation and a properly designed model, are often sacrificed. But how does a business know which particular model is best? What makes specialised models right for certain organisations? What needs to be considered and established to ensure an ICT outsourcing contract delivers the innovation you require?

The first step is a workable strategy and constant communication. Innovation can mean different things to different organisations and to different stakeholders within those organisations; so it is essential that these expectations are communicated clearly to all stakeholders. Considering what is an acceptable level of risk is also vital. Some businesses have a natural appetite for risk, others do not, and this is often linked to business strategy. Some organisations have extraordinary levels of ambition, and will accept above average levels of risk if doing so will enable them to achieve their growth targets.

The place of innovation against other, often competing sourcing objectives needs to be considered too. In particular it is crucial to be mindful of the fact that a high priority for cost-reductions above all else could potentially conflict with innovation objectives as suppliers will seek to strip out all non-core service costs. Once an innovation strategy is defined it should be communicated clearly and consistently, both internally and to potential suppliers.

Many of these considerations boil down to a question of what the organisation wants to achieve from innovation. There are myriad different drivers behind innovation: one business may want to innovate to cut costs, while others may want to improve service quality or reduce time to market for new products. Keeping sight of the overarching objectives throughout the process will ensure that any innovation is fit-for-purpose, rather than being change for change’s sake