As the outsourcing industry has matured, buyers and providers have gotten better at crafting solid contracts, transitioning smoothly, and managing delivery across significant geographic and cultural boundaries.  However, many customers continue to be disappointed by the lack of innovation or “value add” their arrangements are able to generate over time.

There are several common reasons for these disappointed expectations:

    * A push toward a “business as usual” environment (with fewer service disruptions and less change for end users) makes it hard to try new things or take big risks
    * Many companies don’t have the ability (or sometimes the fortitude) to drive change in their own organisations
    * Buyers and providers have differing views about how to define innovation – is it only the break-through, market-changing ideas that haven’t been tried previously, or are incremental improvement and adoption of best practices part of “innovation” as well?
    * The parties haggle over who will reap the benefits (savings) from innovation, which becomes a disincentive
    * Many organisations don’t plan specifically for how to achieve “value add” beyond the initial transition

To get beyond these common problems, buyers and providers should undertake a few critical steps:

1. Think broadly about the potential sources of value to tap

The parties should first brainstorm together a variety of specific opportunities for value creation.  Individuals who know both sides’ business objectives, understand the current contract and delivery, and can think creatively about ways to better deliver to business objectives should participate in these types of brainstorming sessions.

One multinational oil and gas company holds “value creation” meetings with their top providers annually.  They begin with a briefing from the customer on their business priorities and strategies, and an update from the provider on their offerings and capabilities.  From there, the parties brainstorm ideas across a wide range of categories – from ways to enhance top-line value, to ideas for delivering bottom-line savings, to ways they can work together more efficiently and effectively.  Sometimes these ideas involve medium- or long-term planning; others are shorter-term “quick wins” to help build momentum and support from key stakeholders. 

2. Understand the obstacles and plan to remove them

Even with the best of intentions and great executive support, a number of barriers – from contractual, to process, to relationship issues – can get in the way of innovation.  For example, brainstorming of great ideas is likely to be insufficient if the parties don’t trust one another. Many attempts to add value are foiled when insufficient attention is paid to identifying and removing those barriers.

One financial services company based in the UK was dissatisfied by the lack of innovation they saw from their providers of multiple outsourcing services (from IT, to HR, to call centre).  Their providers reported that a strong resistance to new ideas and an unwillingness to embrace change was getting in the way of their ability to innovate.  As a result, the company’s Supplier Management Centre of Excellence put in place a systematic, simple, diagnostic process to identify the barriers to change for particular relationships. Now an understanding of those specific barriers drives the design of the facilitation approach taken in any “value brainstorming” meeting, which thereby increases their likelihood of seeing innovation through successfully.

3. Plan together for how to achieve the value

Many organisations, strapped for resources, find it difficult to implement innovation programs because operational needs always have to come first, leaving little time for much else.  Unless ideas are prioritised, accountability is assigned, and progress is monitored, innovation programs will most likely fall by the wayside.

One outsourcing relationship in the telecommunications sector was failing to deliver on expected ongoing improvements.  After identifying some critical barriers, the parties agreed on a new innovation identification process.  First they prioritised an initial set of innovation opportunities up against a simple effort/value matrix, and then they created a phased process through which innovation opportunities could be analysed, funded, and implemented.  Their efforts have been so successful that the parties extended their contractual innovation commitments and gain-sharing program for an additional two years.

In today’s economic environment, the pressure to do more with less is even greater than usual.  And when times are tough, collaboration between buyer and provider is not only more difficult, but also more important. To achieve (rather than just hope for) innovation, buyers and providers need to work together to:

    * Engage at all levels to consider different types of value and identify potential opportunities to achieve it
    * Identify actual and potential barriers to value creation and ways to appropriately address those challenges
    * Jointly plan for achieving the value by determining what both sides need to do to make implementation a success

Source: Outsource