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Outsource magazine: thought-leadership and outsourcing strategy | August 17, 2017

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Joint Innovation Culture In Outsourcing

Joint Innovation Culture In Outsourcing
Outsource Magazine

My role over the last few years has been to drive joint innovation activities with IBM’s IT outsourcing clients in the UK and Ireland. This involves all sorts of things – from running one-off innovation workshops and online ideas events to innovation-related projects to full joint innovation programmes.

In this time I’d argue that there has been a step change in IBM’s approach. Not in driving innovation for our clients in the services we deliver as this has always been a major focus area. It’s why our teams are so busy at the moment – for example, applying analytics to service delivery and management and developing and deploying technology roadmaps to migrate our clients from stand-alone infrastructures to cloud services.

The step change has been in the way IBM engages sourcing clients to collaboratively drive a wider innovation agenda with the client, tapping into the depth and breadth of IBM’s capabilities. This change is driving a client-centric innovation approach systematically across the client portfolio.

The reason we do this and invest in it is simple: innovation matters – to IBM and to our clients. Innovation enables our clients to drive value for their businesses and at the same time gain additional value from their sourcing partnerships. This in turn drives up client satisfaction and at the end of the day, more often than not, happier clients generate more follow-on business – so it’s a win-win.

Am I claiming IBM has got innovation right with every sourcing client? No – but we’ve made a step change in our approach and this is driving very positive and real business outcomes with an ever-increasing number of clients. But no – not all of them yet. Why is this the case? Well, let me come back to that in a moment. First let’s talk numbers…

Talking Numbers

We all know that cost is the key factor in the majority of sourcing decisions. This was backed up in an IBM survey of more than 1,300 sourcing decision-makers on why and how organisations are sourcing (which can be viewed here along with the accompanying report). The findings show cost is still a hugely important factor but… the survey also identified the importance of other higher order outcomes such as process effectiveness, competitive advantage and enabling business innovation – with 39% sourcing primarily for innovation in at least one business or IT service area (we placed the respondents into four quadrants; the 20% strongly motivated by innovation, but with a narrow extent of outsourcing, we termed ‘Focussed Innovators’, while the 19% similarly strongly driven by innovation but with a broader spread of activities outsourced were categorised as ‘Enterprise Innovators’).

In addition this study identified two other key findings. Firstly, the ‘Enterprise Innovators’, who source widely and focus on sourcing services to drive innovation as well as cost, significantly outperformed those using other partnering strategies across every financial measure tested – for example, 9.4% revenue growth (three-year CAGR; FY 2011) as opposed to a 3.4% median for the other three quadrants, and an even more impressive 10.9% gross profit growth compared with a 2.3% median for the remainder.

To me this is something that all sourcing clients should take note of. If they consciously focus on innovation with their sourcing partners they are more likely to drive better overall business results than if they focus purely on cost. There’s a real bottom-line argument for driving innovation in the sourcing relationship.

Client Challenges

Another finding of the report is of interest to clients and service providers alike but is probably not a surprise to many. When client organisations engage sourcing service providers to drive business outcomes, the way they select partners, structure contracts and manage those relationships does not always reflect the higher-order motivations.

Some organisations don’t even jointly agree what innovation really means in the context of their sourcing relationship. It only takes a few minutes to sit down and agree a joint definition of innovation – but it can make a big difference. I have two favoured definitions – the client’s, if they have one, and this one if they don’t: “innovation is the use of new ideas, or current ideas in a new context, to drive change which delivers value.” This definition gives a great starting point from which to hone down the scope and focus areas for innovation by aligning with what is most important to each individual client.

The lack of consistent alignment can be the reason why innovation sometimes does not work in a sourcing relationship. Both client and provider need to design their teams, their incentives and their relationships to enable and deliver innovation and not to stifle it.

There are of course other reasons – sometimes for example the supplier needs to do the basics more effectively to earn the right even to have the innovation conversation… But with some clients the challenge can be that some individuals in key roles are not ready for, or even receptive of, an innovation discussion with their sourcing partners.

Other clients want innovation but have not thought through the actions they need to take to make strategic innovation work in a sourcing relationship work. There is sometimes an expectation that the client team can sit back and let innovation happen to them. Inevitably this approach fails. Innovation in a sourcing partnership is not something that is done to you – it is something you do together.

A number of clients (perhaps you are one of them?) understandably say that they are just too busy for innovation “so let’s try again next year”. When there are 101 things on the to-do list already I would urge clients to remember the point above on the bottom line. Otherwise there may never be a good time to start – and the sooner you start the sooner the benefits will come.

To help here are three simple recommendations to help clients make a start on driving innovation for impact with their sourcing providers:

1. Use innovation to address your priority challenges

  • If you already have a long list of imperatives focus innovation on addressing some of these rather than starting something new.
  • Focus innovation activities on doing what you planned to do differently – better, faster, more cost effectively – the business case is key.

2. Make somebody in your team responsible for ensuring innovation is delivered

  • Include it in their personal objectives, targets and incentives – and measure them on it.
  • Ensure this person has the gravitas, network and ability to deliver – it should be a key role, so treat it like one.

3. Ensure your sourcing partner(s) do the same

  • Whether innovation is in the contract or not it needs to be defined, designed and delivered.
  • Ensure innovation is in your governance, managed and measured.

There’s a lot more to it than that of course – but putting those three things in place will make a major difference. And if that’s the negative side of things addressed what are the more progressive organisations doing?

Innovation Culture

On the positive side many clients already do all of the above – and much more besides. And some of them are now looking at how they get to the next level. A growing number of clients are recognising the value of developing an “innovation culture” that spans their own and key partner organisations.

There is a lot of literature on this and many different models and approaches. Most organisations realistically don’t have the luxury of giving all their employees time each week to take a step back, think and collaborate – but there is a lot than can be done easily and cheaply. In a sourcing context I’d make the following starter recommendations (which you’ll also align closely with the earlier three points above).

  • Communicate innovation as a strategic imperative from the top in both client and provider organisations.
  • Communicate innovation as part of everybody’s day job and not something that just a few people get involved in.
  • Make named respected individuals responsible for ensuring innovation is delivered in client and provider(s).
  • Put mechanisms in place to tap into the wider and often under-utilised pool of knowledge and ideas across client and provider(s) – more on this below.
  • Create a “platform” where client and provider teams can quickly create and share new apps, demos and proof of technologies – this is a hot topic in itself and enough for an article on its own.
  • Use a range of mechanisms and approaches for delivering innovation – as one size doesn’t fit all.
  • Focus innovation activities on the objectives of the client and fast-track the right ideas into delivery.
  • Positively communicate all of the above focusing on success stories to inspire the next set of innovations.

An open and inclusive innovation model is the key here. It needs to tap into a wide array of capabilities, ideas and expertise in the client and providers and beyond. What will work well with one organisation and/or type of challenge will not with another – so it is critical to be able to think, act and deliver differently as and when needed.

A Real Example

Let me bring this to life with an example. IBM has a retail client with a major IT infrastructure sourcing services agreement. One of the key business imperatives of this client is to deliver an enhanced personalised customer experience for their online customers. IBM and the client agreed to focus joint innovation on bringing new ideas and thinking to this challenge.

There were many ways to do this but both organisations agreed that a collaboratively delivered IBM Extreme Blue accelerated innovation project would be a great cultural fit (positioned alongside a great deal of other activity). Extreme Blue focusses on using top-talent student interns to deliver a new technical solution which address a client challenge in a time-boxed 12-week project. The team are supported by a wide range of IBM mentors, experts and lab facilities and develop the solution collaboratively with the client.

The project delivered a new gamification mobile- and social-based solution which delighted the client’s business team. It was a solution that the client hadn’t considered before and has fed directly into the evolving business strategy moving forward. As impressive as the solution developed was, the process used and the demonstration of what could be delivered using a collaborative approach was equally important.

Part of the specific success was attributable to making the challenge relatively open so that the team could innovate around the requirements as well as the solution. This worked fantastically well but if by necessity the requirements had had to be closed the team would have applied a different innovation capability such as a First of a Kind innovation project. The team also communicated the project and positive outcomes to a wide set of people in both IBM and the client. This included running an innovation showcase event attended by hundreds of the client’s head office staff to create a real buzz around the innovation delivered.

Idea Generation

As detailed above one of the key aspects of a joint innovation culture is being able to tap into ideas and talent right across client and provider teams. Again I’d recommend using multiple approaches. Many organisations have ongoing ideas systems. These are great but you have to work them. The role of the innovation “catalyst” is critical for success – searching out and championing the best ideas so that they are followed up and delivered on and not lost in the system.

Of course we run many face-to-face innovation workshops with our clients and these can be very powerful due to the level of personal interaction and alignment. But even using the best video conferencing facilities, with globalised client and provider teams, face-to-face time is not always possible – or at least limits the inputs you can get. An alternative approach is to run an online ideas event. For example IBM has been running Idea Jams for many years.

With our sourcing clients we’ve increasingly been using an adaptation of this approach to run a “Mini Innovation Jam” or “Idea Lab”. These use social tools to run time-boxed online idea collaboration events focused on key challenges and topics. These can cover anything from cost saving ideas to specific client business growth opportunities. They tap into subject matter experts and delivery teams from across client and provider teams and the globe – and on occasion across multiple providers, recognising we live in a multisourcing world!

Like any innovation event there are three key phases to getting this right:

  1. Preparation: sponsorship, communications, getting the challenges and content right, user engagement and invitations, how IP will be managed.
  2. Delivery: the social tools, security, facilitation to foster development, collaboration and improvement of ideas generated.
  3. Follow up: selecting the best ideas and delivering on them – and positively communicating the value and benefits to foster the innovation culture.

We’ve run two of these in the last week with clients in different industries. One of the great things about these online events is simply seeing the ideas being created, co-developed and improved in front of your eyes – with inputs from teams across multiple organisations – and the way this brings the teams closer together focussed on common goals and challenges. This alignment around key client challenges is to me what innovation culture in a sourcing context is all about. Well, that and taking the ideas generated forward so that they deliver real business value.

Innovation Matters

My experience is that a joint innovation culture is increasingly being used as a key enabler for driving innovation in a sourcing relationship. To make innovation work the joint team needs to drive a systematic approach, supported by governance, sponsorship and positive communications to ensure that both organisations understand what innovation means in the context of their relationship and where to focus their efforts.

The follow up is critical. It’s about ensuring that not only are ideas generated but the best ones acted upon. After all it’s the delivery of the ideas that matters and makes this “innovation”. And this is where the ultimate value comes from, whether the idea was generated in a workshop, an online ideas event or in a corridor conversation.

The great news is that a growing number of sourcing providers, like IBM, have placed a huge emphasis and focus on making this work, and a growing number of clients recognise the bottom-line impact of innovation and the importance of getting innovation right by design – and by developing and driving a joint innovation culture with their key sourcing partners and providers.

This article was first published in Outsource #37 (Autumn 2014)

About the Author

Tony Morgan 200Tony Morgan is Client Chief Innovation Officer, IBM Strategic Outsourcing UK and Ireland, and sits on the NOA Advisory Council and Special Interest Group for Innovation.

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