Rethinking Innovation in Outsourcing


A few weeks ago, the Wall Street Journal published a story that pronounced the word innovation dead. Well, the Journal didn’t quite put it that way, but if you look at the basic statistics that were reported (see sidebar) you’d have to agree that “innovation” is now business jargon with little real meaning. Alas, no more so than in our world of outsourced services.

In outsourcing, the concept of “innovation” has been the cause of a ton of heartburn for both clients and providers. I think we can find a better way to think about it. I’ve been talking to my ISG colleagues globally and to the service provider community at our recent 2012 Americas Sourcing Industry Conference (SIC), and I’ve been listening in my practice and at conferences to clients and their providers talk about how they experience innovation. There’s a lot to report, and there’s hope for the future! But it will involve some changes in the way we think about it.

At the Sourcing Interests Group (SIG) Global Sourcing Summit in May, I had the pleasure to hear a presentation by a Chief Information Officer and his company’s Application Development & Maintenance service provider. The two men had an IT-related problem and a project that came out of it, and they talked about it in some detail from a technical perspective. But I was much more impressed with the attitude and enthusiasm of these two presenters. They were active, vibrant, invested stakeholders in this project initiative, and they had clearly become good friends in the process.

They preached all the good textbook stuff we all know is part of innovation, including the parts about building the provider relationship to be a true partnership — they called it “collaborative outsourcing.” They took a risk with a project that needed latitude to be developed, and they created an environment where ideas were king. But finances were the measure (and they measured), and they led their combined teams to a solution for their problem that all agreed was outstanding and innovative. I was charmed … and invigorated.

It might be possible to start the argument that this wasn’t innovation — merely problem-solving — and that there was no gainshare* issue because it was a new project and not a re-engineering of an existing process to drive out cost (what most companies want to see as innovation). However, to make this argument is to completely miss the point. These two organizations managed to work as though, for this one brief shining moment, they forgot they were separate, and they melded into one entity with an enthusiastic, guided, measured, creative process to solve their problem. And they succeeded.

There are many ways that innovation in outsourcing gets blocked, and a major one is skepticism on both sides that the innovation is actually achievable. Success stories are useful to prove that it is indeed possible, but it involves something greater than just a need and a contract. These two individuals were enthusiastic in the truest sense of the word — the breath of the gods was in them. They were believers that they could do great things together, and they did.

Understanding innovation is similar to understanding creativity. The two are, in fact, pretty much the same. People who study or experience creativity will tell you that creativity is only possible within limits or boundaries; it never arises without a decision to create, or from chaos or a blank slate. In my own experience in many different fields, from artistic endeavor to the outsourcing business, I’ve observed that creativity requires three factors of limitation and a combination of a strategic and practical goal to be successful. Too many limits stifle the options; too few limits allow too many options (and the attendant indecision). Lack of larger strategy invalidates the tactical goal.

Your limits may be simple (cost/time, old technology impeding change, required customer engagement and satisfaction) and your strategic and practical goal may be lofty (as in the case of the presenters, to make the company the preferred supplier of their complex and relationship-based product by engagement with 23,000 stakeholders through a customizable online interface). But if you can set the parameters and the goal, and create the right working environment, creativity and innovation will result.

Wait a minute. Create the right working environment?

When an outsourcing provider is in the mix, this is the magic key. As the presenters learned, they had to create a trusting environment between their teams and infuse the teams with their own personal enthusiasm. Then they had to create a working process and compensation model that facilitated communication, integration, development, confidence in fairness, and acceptance of ambiguity during the creative process — while still measuring and managing. Sounds complicated, and it is. But achieving substantial rewards does not come easily. This is both process-driven and created by leadership behaviors and values.

Will they be able to do it again? I’m eager to see! Are there lessons to be learned for organizations trying to innovate in less-inviting circumstances? For these two organizations, the problem was project-focused, while for most organizations striving to drive innovation, it is far less clear how to just get started. However, if you step back and look for your strategic objectives, your tactical requirements and the three limits, you can get started with your team-building to create your own conditions for innovation.

I’m going to write a whole lot more on this subject, powered by the thoughts and experiences of many very smart people who are trying to make innovation in outsourcing work. As an industry, we have to rethink innovation in outsourcing, and I want to do it together with you. Stay tuned.

*Gainshare – a financial arrangement between a company and its service provider to allow the provider to keep a portion of savings from joint initiatives for a period of time.

About the author

Cynthia brings 25 years of experience helping clients develop their sourcing governance and service management design. Having worked with more than 50 organizations to improve business management and service management processes in both single-provider and multi-provider environments, Cynthia has become a recognized expert in sourcing governance, vendor and contract management. She currently serves as the architect for ISG’s service methodology and global integrator of its products and services. Cynthia works to leverage ISG’s accumulated intellectual property resources to help enterprises create effective transformation and governance capability, and maintains a continuing role in the Strategy and Organizational Change Enablement practice.