As companies struggle through the current austere times, many are investing in processes that will be cost-effective and beneficial in the long-term. Modern outsourcing relationships now offer and deliver much more than just cost savings. Businesses are often transformed through innovation to achieve far greater efficiency and productivity.
Innovation is perhaps the most mis-interpreted term in outsourcing. It seems everyone wants a slice of the pie, but many are unsure of what the pie actually consists of..
Defining Innovation
It is extremely hard to narrow down one definition of innovation in outsourcing. One man’s innovation is another man’s day-to-day activity.
The following points were raised at the NOA’s end user forum:
• To avoid misunderstanding, definitions and expectations of innovation should be agreed upon with each service provider
• Innovation is not applicable to all service provider relationships. For example no innovation expectations may exist for smaller or commodity relationships.
• Innovation can be both incremental and radical. Innovation is not continuous improvement.
• Innovation is new ideas or ways of working to drive commercial gain and or competitive advantage.
According to Tony Morgan, Chief Innovation Officer at IBM: “The definition of innovation is flexible - it changes and evolves. From an outsourcing point of view, the supplier and the end-user need to work through, develop and agree a working definition of innovation to make sure their objectives are achieved.”
The NOA innovation steering committee meets on a regular basis to discuss potential research into innovation, share best practice and work together to produce a NOA innovation framework. At the last steering committee on the 13th April, the following discussion points were raised:
• Innovation has to be flexible and is not needed for every project and collaboration. The management of innovation is critical
• Who sets innovation vision? A consistent definition is needed
• Innovation in multisourcing is more prevalent
• Getting suppliers to work together to maintain delivery of innovative services is crucial
• Contractual obligation for suppliers to attend ‘innovation workshops’ can be seen as best practice.
• Theme of ‘collaboration’ is ongoing and essential in innovation
• Cloud gives opportunities but it needs to mature before it becomes viable for corporate use
• Suppliers are driving the way forward with innovation through best practice
• Increase Cloud innovation. Cloud without governance
Innovation Framework
There has been much talk about the development of an innovation framework. To date, thinking has been that this framework is comprised of two distinct areas:
1) The hygiene factors for innovation: essentially the processes, the way in which a problem is approached, which can be included in contracts.
2) The Governance structures, which are used to manage and progress innovation. The innovation management process itself provides the operational governance framework and a structured approach to fast track projects through idea generation and selection, development, confirmation of sponsorship and business case validation and on into hand-over to project delivery and tracking of benefits realisation.
On the other hand, many believe that innovation shouldn’t be put into a framework and ‘managed’ as it should naturally evolve from a partnership.
Simon Briskman, FieldFisherWaterhouse, opens the debate: “Putting innovation into a contract can often be a problematic approach. Many companies just want innovation to be included without understanding what it is. Procurement asks suppliers to show innovation and include the requirement in an RFP. But these requirements are generic and so that makes it very difficult for a lawyer to translate into the contract, outside of requesting continuous improvement requirements and reducing the price year on year.
“If the user can state the exact innovation they are looking for and how to transform it, then the contract can be more specific and a Governance structure built up to work and so make the contract an enabling framework to deliver that innovation – this is however a rarity.”
A modern outsourcing relationship should help a business to innovate whether metrics are set from the start or organically produced as a product of the relationship. However a framework can assist outsourcing partners to determine their objectives and formalise the innovation achieved. Developing metrics will also help to share the results and prove the worth of outsourcing-led innovation.
