Commoditise or die!
Innovation is the source of endless debate. Customers want it, but there is little consensus on how to get it. Few have got far in trying to define or measure it.
The result is that attempts to capture innovation are usually disappointing. Most procurement and contracting approaches are blunt, ineffective and bureaucratic. Take as examples innovation meetings and innovation reports. In the right context these are worthwhile activities, but they will not provide innovation in themselves. They may even prove to inherently lack innovation (see, for example, How Group Dynamics May Be Killing Innovation).
Other approaches better foster innovation. For example, good governance, continuous improvement, gainsharing, and employee incentivisation can play a part. Less subtly, so can pricing mechanisms which encourage suppliers to managing costs down. But no route to innovation has consistently and effectively delivered, even if there have been some successes along the way.
Although there may be little consensus on what innovation looks like, when it comes to commoditisation outsourcing professionals are tend to agree. The services which can most successfully be outsourced are those which can be process mapped and so described in commodity terms. Commoditisation is fundamental to successful outsourcing. Strangely, it may be the process of commoditisation which teaches us most about how to harness innovation.
Although we may find innovation hard to define, many outsourcing professionals do in fact innovate daily. They apply themselves to finding new solutions. When they find potential answers, they work to improve them. They share their ideas with colleagues and develop them collaboratively. The best innovations are rapidly “open sourced”, kicked about, improved and become part of the new standard in their organisation or even across the profession. Innovation shared can result in best practice being rapidly assimilated and the growth of common approaches.
This process from innovation to common approach may take years for complex ideas, but can sometimes be very rapid. Most organisations with a focus on knowledge sharing will encourage innovation to be swiftly captured and shared. This is more than simple process improvement to merely reflect the latest best practice. It is about knowledge capture and organisational learning. Innovation is worth little on its own. Commoditisation as an outcome is more important. Commoditisation is what happens when innovation gains wings.
It transpires that the real value in innovation is an organisation’s ability to create new ways of working and rapidly disseminate them in replicable processes capable of mass exploitation. The supplier who innovates and commoditises will, in the long run, improve service quality or reduce costs. The supplier who does not complete this cycle will lose competitive advantage and market share.
No doubt the perennial debate on how to define and measure innovation will continue to loom large in setting strategy and executing deals. Progressing this debate remains vital since innovation fuels change and improvement. However, perhaps its time we moved on from the old adage “innovate or die”. If we really are to survive in today’s tough conditions, innovation is not enough on its own. We must examine the culture of organisations and whether they harness the new ideas they generate. We must look at how knowledge is shared and advanced. The process of moving an idea from inception to mass production is more key than the mere process of idea creation. “Innovate or die” is only the beginning. “Commoditise or die” may more accurately describe the habits of the best outsourcing organisations.