What Does “Innovation” Mean in Terms of Outsourcing?

Spend Matters is pleased to present a guest post from sharedserviceslink.com's Sandra Higgison. Original content can be found here.

When the invitation to an Innovation Day run by the National Outsourcing Association appeared in my inbox a couple of months ago, I didn't think twice about registering. As a word, innovation is alluring, it promises to reveal secrets and give you a peek into the future. As a subject it regularly crops up at our events and in conversations with practitioners so I was interested to hear what NOA members, both end users and suppliers, were doing.

Innovation expectations
It was only when I sat down with my coffee and notebook that I started to question what I understood innovation in outsourcing to mean? Innovation in the front office is perhaps easier to grasp: a pharmaceutical finding the next blockbuster drug, a car manufacturer creating vehicles that replenish the ozone layer, the fat-eliminating doughnut...

But innovation in outsourcing? What makes something innovative? An activity or approach that's new to the outsourcing market as a whole? Or is it something that's new to your company or particular function? Or is it the approach or methodology you follow rather than the end product that makes something innovative? Does it matter if somebody somewhere else has done it before? As these semantic questions started to hurt my head, Lee Ayling, NOA Board Member for Innovation, Partner at KPMG and chair of this event, gave us their definition: "innovation is new ideas or ways of working to drive commercial gain and/or competitive advantage."

Drivers, challenges and opportunities
He opened the day with the very fresh results of a survey run by the NOA and KPMG with both end users and suppliers, which found that:

  • The top drivers for innovation are to improve service quality, lower costs and decrease time to market
  • While both end users and suppliers consider innovation important, only 23% of user organizations have a formal innovation methodology in place in contrast to 71% of suppliers, and around 80% of users don't measure innovation quantitatively
  • Both groups think innovation should be led jointly, but it rarely happens in practice
  • Both groups say they lack innovation skills and engagement with their stakeholders, and struggle to measure innovation
  • Users want suppliers to come to them with ideas
  • Suppliers want users to be more forthcoming with information on their challenges and give them greater access to stakeholders.

These results and presentations that followed gave some exciting examples of how innovation can flourish in the right environment. And to me, the message was clear: the success/failure point for innovation in outsourcing is the relationship between the user and the supplier.

What's in a relationship?
Debra Maxwell, Global BPO Director at Arvato, an outsourcing company, shared a particularly powerful story of innovation in supplier relationship management. She described how Arvato worked closely with its client, the world's largest software company, to set the right foundations for a successful outsourcing partnership. The technology company realized that its outsourcing contracts had failed to deliver and wanted a new approach. By jointly rethinking the contract with the supplier, both companies worked to revise their incentives, measures, scope for flexibility, decision-making powers and governance structure. With both companies now invested in each other's success, they had the right conditions for change and a fruitful relationship.

One thing in particular struck a chord, Debra asked how many times do we say we want to build a strong relationship or partnership in an RFP or contract but don't define what we mean by it? Just taking the time out to understand what a successful relationship looks like could make a huge difference to the success of an outsourcing or shared services program, as well as support innovation.

- Sandra Higgison, Content Director, sharedserviceslink.com

Spend Matters would like to thank Sandra and sharedserviceslink.com for this contribution.

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