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Outsource magazine: thought-leadership and outsourcing strategy | November 22, 2014

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Innovation: a hoary old scab, or something worth talking about? (Part 2)

Innovation: a hoary old scab, or something worth talking about? (Part 2)
Louise Beaumont

Margin.

It all comes down to margin.

Margin for the outsourcer. Margin for the customer.

In my last article, I looked at definitions of innovation and answered the “why bother with it?” question – the answer, as you might suspect, is margin.

This article looks at why companies are all talk and very little action when it comes to innovation, and the next instalment will look at what it really takes to drive innovation through an outsourcing business.

As ever, people from a broad range of perspectives contributed to this trio of articles:

  • strategists, like Dan Batts, from Microsoft;
  • business leaders, like Les Mara from Hewlett Packard, Chris Conroy from Atos Origin, and Bindi Bhullar at HCL Technologies; and
  • people who have real track record in flowing innovation from ideas to results, like Gerben Mak and Danny Wootton from Logica, and Anita Bradshaw at Wipro.

So, why all talk and no action?

Everyone agrees, there are innovation-blockers every step of the way through the relationship lifecycle…

1. Doing the deal

The Legal and Procurement functions, and sourcing advisors, come in for a lot of flak…..

As Les Mara, Hewlett Packard, said: “Legal, Procurement and the advisors can get in the way.  It should be all about co-terminus agreements between the outsourcer and the business-case owner within the customer – aligned and mutually beneficial goals and outcome. If I can earn more margin by serving the customer more efficiently, and improving the value delivered for the customer, then I should be encouraged to do this and share the commercial benefit. The construction industry, for example, does this increasingly to good effect.”

So, what gets in the way?

‘We’re all guilty of being human’ seemed to be a common theme, and perhaps we’re not always mature, with negotiation becoming a point-scoring exercise, rather than the method by which we build the basis for a successful relationship focused on optimising the business outcomes.

But there was also a real need expressed to develop commercials that support innovation, rather than try to reduce it to a tick-box exercise. As Danny Wootton, from Logica, says: “Every contract lawyer sticks in something along the lines of “Supplier X shall bring me Y number of innovative ideas per month” without the other part of the equation which is that “We (the customer) will supply the people and the money to explore the ideas and their implementation.” This results in lots of ideas being generated which go nowhere, whilst fulfilling the terms of the contract.  No one wins.

As Chris Conroy, Atos Origin says: “We all need more of an outcomes focus; we need to think about how the outsourcers get paid on the customer’s outcome. One way Atos Origin do this is to acquire IPR from customers, allowing them to capitalise on their investment, and allowing Atos Origin to deliver an outcome-based service in return.”

2. Developing new products, services, and processes

For Gerben Mak, of Logica, developing new products and services is the engine room of a company: “The real performance impacts come from business process and business product/service innovations.”

And here’s the rub: innovation’s a cultural thing. It ignites in the right cultural context. It flickers and dies out if the culture doesn’t support it. You can’t force people to be creative – it’s a process.

So, what gets in the way?

For Anita Bradshaw, at Wipro, it’s about “negotiating effectively with those people that just want to maintain the status quo. The people who just want an easy life.”

Budget, organisation, and stakeholder management are issues too. All too often innovation budgets are the first thing to get axed when times look tough.  Organisation can be a blocker – either there’s an innovation team which can get siloed and become a hobby function, or there’s no focus at all, with stakeholder management being ad-hoc at best, which means that nothing gets adopted.

In summary, there’s a growing body of opinion that says that game-changing innovation doesn’t happen from within.

3. Delivery – driving it through

As Anita put it – rather crisply: “The challenge is intelligent implementation.” And the problem is that people come up with ideas, not implementation strategies. Ideas remain just that: ideas.

So, what gets in the way?

Often, it’s the contract. You can just picture it, can’t you? The outsourcer sticking to the letter of the contract, saying “we delivered X number of ideas this month”; the customer saying “fine. But there’s no resource or budget to implement these.  And you still need to maintain your SLAs.”…. Which kills it stone dead.  The idea remains an idea.

In short, there’s no collaboration. And, as Gerben says: “In outsourcing, the collaborative capabilities of all parties determine the type and degree of innovation possible. Only deep collaboration makes large business process and strategic innovations feasible. Innovation can be costly and involves risks. Collaborative innovation finds ways of sharing cost and offsetting risk. It also steers behaviour towards lessening risk and achieving shared goals.  And collaborative innovation definitely supports superior performance more realistically than more traditional outsourcing relationships.”

Maybe we also need to be more practical and less focused on revolution.  As Danny says: “Most of the time, it’s about operational wins rather than major technology transformations.”  Maximising operational efficiency might not get one’s pulse racing, but it does make a hell of a difference to the bottom line. And don’t forget, we’re all human.  Bindi Bhullar, at HCL Technologies, ran a customer council on Innovation for Growth recently, which showed that despite their best intentions customers found that implementing innovation gets deprioritised by the daily running of a business.

“Urgent trumps important every time.  And bureaucracy is a killer.”

So, where are we?

We’ve defined innovation, we’ve answered the “why bother with it?” question, and we’ve understood why it’s so hard to do.

In my next article, we’ll look at what it takes to drive innovation through an outsourcing business – and deliver that margin – both to the outsourcer, and to the customer.



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