Innovation in Outsourcing – What Clients Want

There is no shortage of innovative thought in outsourcing or most business endeavours. Lots of sales, technology and consulting folk can talk the hind legs off a donkey when it comes to sounding innovative! But companies that buy outsourcing want more than lip service or to see whizzy stuff – they want to know what it means for them:

  • How is the service provider innovative? Do they have an R&D budget? Do they have continuous improvement programmes for general products and services?
  • So what if the service provider can demonstrate ‘being innovative’. What are the real world benefits a client will see? How do any generic product and service improvements filter down from the supplier’s general portfolio into the specific day-to-day operational environment for clients?
  • What formal and informal mechanisms will be in place to ensure these benefits are realised? Will the supplier be measured on innovation, and are they willing to put it in the service level agreement? Are there appropriate triggers and mechanisms to bring about changes that may result from innovation? Are there contractual elements such as innovation forums, technology roadmaps, client satisfaction surveys with increasing year on year improvement targets?

There are many stages in the outsourcing lifecycle where clients want to see evidence of innovation. In the early days of courtship, they like to meet and hear from innovators, futurists, generally people passionate about the future who can put on a good show. They like to be taken on site visits to see flashing lights, eye-on-glass, development labs and so on.

During the solution development phase, clients would like to understand what is innovative in the base solution. Is there anything new and exciting what will happen in the first year, or is it just walk-in-take-over and stabilise? Next, from a general perspective, how will they benefit from corporate investments made by the supplier, and how will these filter down to their specific situation? And then, specific to their operational solution, what mechanisms will be put into place to bring continuous improvement and foster innovation within the teams, tools and processes serving them? Will there be obligations on the supplier to hold forums, bring forward improvement plans? Will there be a joint innovation team? An incubator fund?

A good example in many outsourcing situations is the Services Catalogue. You’d think that the UK’s largest and most prestigious engineering firm would want its employees to have fairly modern technology on their desktops. This is important for productivity and also because younger recruits might actually want to work elsewhere if they can’t have the latest toys. But as late as 2010 they were still mostly running Windows 2000. This isn’t because their IT supplier didn’t have the technical capability of upgrading them to XP or Windows 7, but because the contract was too inflexible. There weren’t mechanisms put in place to do something as simple as add new configuration items to the services catalogue while figuring out how to pay for migration and applications re-mediation. Finger-pointing and arguments about who should pay arose from day one and somehow, ten years later, the problem still existed! So it’s a good idea to not under-estimate the importance of negotiating workable mechanisms for change into outsource contracts!

An outsource provider I worked for used to have a tool in place to measure client satisfaction along a number of key dimensions. Every three months, senior people in the client organisation were interviewed and asked their opinion, using a four point scale, on the following key criteria:

  • Are we innovative?
  • May we use you as a reference for other clients?
  • Would you renew with us?

If the answers weren’t positive for any of these, a so-called go-to-green plan was launched and tracked at a very high level in the organisation. These are non-binding, subjective criteria and you also need more objective KPI’s and service levels on which to base a commercial agreement; but in terms of motivating the right behaviours when the relationship started to go south, this was very much a good thing.

How many times have I come across an existing long term outsourcing relationship in the final year, leading up to re-tendering, where the client complains that the supplier hasn’t shown any innovation, never delivered on even half of the transformation benefits that were sold, and only now, with the renewal date in sight, has anything stirred in the innovation camp? The answer is lots; indeed, almost all the time. This is a real shame because with proper foresight, by including certain obligations, measurements and change mechanisms up-front, clients will be happier and suppliers will increase their chances of renewal.

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