The “I” Word: How can buyers best ensure they get the innovation they require from their outsourcing providers?
Outsource community members share their thoughts on how to find innovation within an outsourcing agreement…
Global Business Services – Global Finance Lead, Kelloggs
Buyers will sensibly build a savings target into their BPO contract to ensure focus on cost reduction and hence innovation. But the BPO provider cannot release all savings without help from the buyer organisation. It is critical that a collaborative culture is created in which both parties work together, along a value stream, to drive end-to-end savings and value creation and that the outsourcing provider is incentivised to help identify and realise opportunities.
Senior Supplier Development Manager, BBC
Random innovation can lead to mutual frustration: the supplier never comes up with what the customer needs, the customer never takes up the proposals from the supplier. If innovation is what’s needed then it might be better to place an obligation on both parties to contribute. The customer could be obliged to pass across to the supplier several business problems a year – the supplier is obliged to respond with innovative ideas and business cases for overcoming those business problems. Also, there’s the well documented ‘Captains Table’ where as a customer your ‘mission partners’ earn the right to sit at the table and where business development opportunities are discussed in addition to giving the suppliers the opportunity to differentiate themselves by demonstrating the capability to collaborate with other suppliers to overcome customer business problems.
Director, DJA Business Solutions
How you get the innovation you require can be a little tricky. Almost by definition you don’t know what future innovation may be so the trick is getting the suppliers motivated to bring you new ideas and to help them with that. You can try to put a requirement to innovate into a contract but it is almost impossible to enforce.
I believe that getting innovation from suppliers comes down to two things. Firstly short-term contracts with the ability to extend and secondly client engagement. The short-term contracts act as a motivator for the supplier. With good performance the contract can roll on and on and providing the client with new ideas is part of that good performance. For future requirements such as innovation you need a motivator beyond an SLA.
The second thing, client engagement, is more of a facilitator. Useful innovation is difficult to achieve if the supplier doesn’t know what you want. Supplier days, where the client explains their KPIs, current performance and future product roadmap, are a useful way of focussing the thinking of your suppliers to what you need and this will help innovation.
I don’t believe you can contract for innovation but I do believe contract structure and client engagement can help to deliver it.
SVP Strategic Accounts and Alliances, EMEA, Tungsten Network
The best place to start is at the deal. I recommend taking the following steps:
- Define innovation.
- Ensure that the pricing mechanism doesn’t make it difficult for the outsourcer to innovate from a profit-and-loss perspective.
- Make it a recurring governance item that is not skated over.
- Choose an outsourcer that has a real track record of innovations that are possible in your corporate environment.
If you can’t start at the beginning, don’t wait until the first renegotiation:
- Understand what you want to achieve.
- Research the options that deliver your goals.
- Ask questions around those options.
- Add it to the deal and govern it properly.
Head of Shared Services and Outsourcing Practice, PA Consulting Group
More than two thirds of corporate spending is with third parties. Those suppliers constitute a huge pool of potential innovation and one of the primary drivers of outsourcing has always been to secure access to new ideas and know how. The problem is that those aims have rarely been met.
Buyers then tend to blame the suppliers saying they have failed to deliver on their promises. Yet the reality is more complicated with most suppliers making big investments in new ideas and new ways of working, particularly in the areas of digital, cloud, big data/analytics and robotics/automation. In many cases the problem is not the lack of innovative thinking on the part of providers; it is the fact that they cannot gain traction for their ideas with their customers.
Ultimately the responsibility for driving innovation lies more with customers than with suppliers and they need to get the right culture and leadership in place to support it. Steve Jobs said “Innovation has nothing to do with how many R&D dollars you have….it is not about the money. It is about the people you have, how you’re led, and how much you get it”. Clients need to apply those principles to their suppliers and allocate time within governance for innovation to be considered and be clear about what they really want.
Outsourcing will only provide real innovation if customers provide the fertile climate in which it can take root and grow.
Co-Founder & Partner, Chazey Partners
To get the innovation out of your outsourcing providers is to know what you are looking for and how to measure outcomes – easier said than done. No doubt there are plenty of intended innovations but buyers can be disappointed with what they eventually get. The source of this problem could well be the criteria set in the vendor selection process. Asking for the right things and then in the contract negotiation phase, establishing the right environment for a productive relationship. It is advisable that buyers should always look for examples of innovation and step change in client references as part of the selection process. It is also critical to embed innovation in contracts, ensuring it includes a financial commitment on the part of the outsourcer to invest in innovation, or major process improvements. If it’s not there, the incentive on the part of the provider to drive changes will be, at best, minimal.
CEO, MooD International
The right incentives need to be in place for innovation to flourish. We’ve seen suppliers assigning budgets, or even joint budgets with other suppliers in the contract, that are dedicated to testing useful, pragmatic ideas which could drive innovation.
Buyers need to make sure that their suppliers are putting the mechanisms in place that will monitor, measure and track the impact of supplier activity across the business. The intent to do this is not enough; all too often the impact is not tracked and valuable learnings lost.
This mechanism helps both the client and the suppliers; it gives suppliers physical evidence that they’re delivering results, innovating and driving out costs and the client is also able to prove this to the business, which is especially useful in a shared service environment.
For more from our special feature on innovation, from the Summer 2014 issue of Outsource, go to the index page.