Although much of the talk in the outsourcing sector does tend to focus around structuring contracts and delivering the best value for money, customers are now routinely saying they want more innovation. But if innovation is going to happen, it requires hard work to engineer it.

In Parts 1 and 2 we looked at the importance of communications and effective contracts. Underpinning them both is good governance. Although there are still many obstacles to achieving innovation in outsourcing, the biggest barrier can often be inertia. Defining a clear governance structure is critical to ensure both parties deliver on the commitments in the contract, work well together, and pave the way for innovation during the contract term.

It is important to define innovation from the outset so that both parties have a common goal. True innovation might mean continuous process improvement, emerging technology implementation, or new best practices. A clear definition allows the contract to reflect the appropriate business areas and terms associated with it. Customers will then be free to work towards achieving their innovation ambitions in a proactive way.

While the ICT supplier community on the whole has reasonable processes around innovation, suppliers tend to be reactive and thus need to be driven. For example, they often rely on the outsourcer to define innovation for them, which puts the vendor in a difficult position. A joint innovation steering committee supported by an agreed innovation charter and senior sponsorship – from both the business and ICT communities – should be established from the start of the contract and not left until after an initial transformation period when ways of working are already established. Innovation must not be ring fenced within the ICT departments, suppliers must learn to live and breathe their customer’s business. A service provider can't be expected to deliver significant innovation without knowing what types of innovation would help its client attain its strategic objectives from the very beginning.

Care should be exercised in appointing the right people on both sides, and empowering them to lead the innovation agenda. The level of joint investment needs to be established as well as a clear process for assessing and progressing with promising initiatives. Careful thought should be given to metrics used to measure innovation: input based metrics are only useful to measure the amount of effort being expended, whereas output-based metrics should track the business value generated.

In conclusion, a clear innovation strategy needs to be agreed up-front, which sets realistic expectations and considers the nature of the organisation and maturity of supplier relationships. The greater the innovation ambition, the more focus is required on ensuring the right collaborative environment. Innovation objectives, measures and incentives should be as specific as possible in the contract.

Active governance is required by both parties throughout the contract to ensure the innovation objectives and obligations are met. There is no silver bullet to solve the issue of how to ensure innovation through an ICT contract. The right framework and environment is crucial but ultimately, it is the ongoing commitment from both the supplier and customer that is most important to get the best return from innovation.

Innovation in outsourcing part 1

Innovation in Outsourcing part 2: The importance of contracts