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Analysis

Innovation & Outsourcing - the Practical Agenda
Richard Sykes By: Dr Richard Sykes, Associate, Bloor Research
Published: 5th December 2007
Copyright Bloor Research © 2007
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The outsourcing relationship is a privileged relationship—privileged because each party to the outsourcing deal, both supplier and customer, gains access to the opportunity to learn through hands-on experience what really works and what really does not work in practice.

It is easy to assume that innovation in the world of information technology is about technological innovation—new break throughs & inventions just waiting to be exploited. And at times it is. But with the increasingly all-pervasive application of the capabilities of information technology in all that the contemporary company does, the real opportunities for innovation lie more in the ways that application is made to work in practice.

This is the world of innovation in process (does the technology allow us to deliver this particular business operation is a better way?) and in how the human contribution is made (does the technology allow us to automate this back-office aspect of the business, and re-allocate staff to more customer close roles?). This is the world sometimes of major business transformation (does the web enable a totally new business model?) but more often of an accumulation of a whole series of small transformations, each yielding a small ROI, but taken as a whole having a very significant impact on the bottom line.

This is not innovation that is delivered by one party (the supplier) to the other (the customer)—much as this model of ‘innovation is something that you will bring to the deal' is an attractive one, and one frequently articulated in outsourcing RFPs and industry marketing material. This is innovation that has to be created by both parties to an outsourcing deal working in a collaborative partnership—this is about co-creation.

The supplier has to learn what really does work best in practice in the customer's market place—and only the customer can open the doors to this learning. If the supplier has new capabilities that may well be useful to the customer, it is the customer who has the operational and market insights to guide their effective exploitation. This is about innovation that is best triggered by those who work at the sharp end, ‘close to the coal face’, in both the supplier and the customer—as they are the players who, properly briefed and motivated, can see, day by day, where innovation in how things are done will improve the performance of both of their businesses.

In an outsourcing deal, the supplier delivers back services to the customer. The real opportunity for innovation lies both in how the services are delivered (by the supplier) and how the services are exploited (by the customer). The supplier & customer are creating a shared services chain that is also a shared value chain. The mutual motivation should be to make that value chain the most competitive in the wider market place. Shared processes of innovation focused to this end will improve both of their bottom lines, and both of their competitive edges. Genuinely a privileged opportunity!

Note:
This article was developed to summarise the Bloor "Innovation inside Outsourcing" White Paper, which was produced following a roundtable held in August 2007 facilitated by Bloor analyst and industry expert, Dr Richard Sykes, along with participation from customers and market watchers in partnership with Steria. The full version of this and other white papers are available for download at www.bloor-research.com/Outsourcing2007.

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