Numerous surveys of clients and suppliers all agree – collaborative innovation is important and desired. Especially in outsourcing. But why is it still not ‘business as usual’?
Two research projects recently completed by the National Outsourcing Association in the UK and Warwick Business School (WBS) explored how innovation is included within outsourcing contracts and how it is subsequently managed. Here are some of the results:
• 60% of Clients and 80% of Suppliers believe it is very important
• 25% of people surveyed discuss innovation on a monthly basis. 50% discuss it once a quarter. But no one discussed it weekly
• Over 60% of clients and suppliers agree that innovation is needed to improve the quality of service. It helps to lower costs, reduce time to market for new services and address issues of replacing aging infrastructure.
So why, when most people are in agreement that collaborative innovation in outsourcing is a good thing, do organisations struggle?
I think this is still an industry wide issue. The underlying reason is that too many organisations don’t see innovation as a collaborative activity. Many still expect this to be delivered by the supplier, when in reality it takes two to innovate successfully.
My theory is backed up by the statistics:
• 80% of clients and suppliers believe that both parties should take the lead in driving innovation, but in reality only 40% of clients and 45% of suppliers think that someone is taking the lead. Only 10/15% believe it is currently driven by both parties collaboratively.
• This is also reflected by the fact the although 80%+ believed that there should be a named person responsible for leading innovation, only 10% from both sides believed there was such a person.
The WBS research found that different contractual models and relationships drove different types of collaborative innovation. Simplistically, if incremental innovation is required, then simple contracts with incentives are the key drivers.
However for radical game changing innovation close working relationships, JVs and contracts that facilitate collaboration are essential.
More information on the WBS research can be found here.
At Logica, we take a very pragmatic approach to innovation, focussed on delivering business benefits for both parties. And we have a named person responsible for driving innovation in Logica.
For this approach in outsourcing to work, it means that both parties:
• agree upfront what we are trying to achieve through innovation
• there must be an open dialogue where both parties bring ideas to the table
• jointly invest in exploring those ideas, ensure that both parties can share in the success and agree on a joint set of KPIs
• talk a common innovation language
• talk to the business people and share business challenges – without understanding the business issues, the service and procurement teams don’t know what problems they are trying to solve.
Overall, reaping the benefits from innovation is easy, but it takes both parties to take it seriously and jointly commit to making it work.