The "I" discussion has certainly dominated debate on the Horses these past few weeks, and one of the finest outsourcing advisors in the business has anonymously volunteered us his thoughts.
This fellow has been working on some of the largest and most challenging outsourcing engagements in recent years and lives on a plane somewhere between London, Bangalore and the US (take your pick where he was when he wrote this, and whatever fine brand of fine screw-cap Merlot he was supping).
What I find most interesting about his anonymous submission is this following statement:
"I’d argue that innovation has been a massive distraction in outsourcing. Any client that pushes innovation dollars towards the back office rather than their differentiating, market-facing offerings probably needs to re-connect with its shareholders"
Interesting point of view - some would argue that outsourcing their back office is an enabler for clients to focus innovation investment in market-facing offerings, while others hold the view that innovation in the back office isn't an investment - it's simply a quest to find new and creative ways to improve performance. And then there are businesses who shun market-facing innovation and simply want to churn out their profitable products quicker, faster, cheaper... the argument goes on.
Personally, I'd question whether innovation should even be deemed an "investment", but more of a culture and mentality enterprises should simply have embedded in their DNA to be constantly trying to be unique and creative in their respective business. Anyhow, take some time out to read this piece and weigh in with your views:
Busting the Innovation Myth
“Innovation” has been amongst the most used—and overused—buzzwords in outsourcing for the last three or so years. Until clients and providers can have an honest conversation about what it takes to innovate, and what to do with the results, I don’t think it will ever happen. I’ll stop short of saying it’s impossible, but entire galaxies of stars will have to line up. Here’s why:
First of all, let’s get serious about what innovation means. True innovation is new. New means “hasn’t been done before”. So implementing SAP to make accounting efficient is not innovation. Consolidating servers? Not innovation. Per-employee pricing in HRO? Sorry. Developing software ate PCMMI level 5? Please. All of these are good things, but none of them are innovative—they’ve been done before.
Second, not all innovation is good. It’s only good if it creates some kind of value. Seems fairly obvious, but all of the contracts I have seen that mandated innovation have resulted in lots of “changes” that might even be “new” but have made nothing better.
So why is it so difficult to create something new and valuable in outsourcing?
Outsourcing providers havevery little incentive to create bespoke innovation. Their business model and brand is best supported by deploying any worthwhile innovation to as many of their clients as possible. When a provider creates something new—their instinct is to spread it around, so the innovation becomes a “best practice” and loses its differentiating value quickly. Can you call something new if all of your direct competitors could haveaccess to it? By the way, there is nothing wrong with best practices or what the industry now calls “transformation”, but neither of those is innovative.
Clients, on the other hand, have every incentive to keep innovations developed in their shop to themselves, and their attorneys generally write language into the contract to do just that. In the process, it’s likely they discourage the provider from even trying. But innovation is also a bit of a gamble—one must risk something to win. Many innovations just don’t pay off; even if they seemed like a good idea at the time (see Betamax, New Coke, motorized seatbelts, etc.) So the scary scenario facing client executives is this: to get any kind of innovation, someone must invest. Providers, most of them not interested in the not-for-profit tax filing status, aren’t likely to invest in my innovations out of the goodness of their hearts. So it’s going to cost money whether I see it or not and I am not sure whether it will yield anything good—hmmm, can’t wait to take that proposition to the boss!
Humans, regardless of which organization they work for, don’t innovate on demand. Try it: Please invent something now…
Time’s up. Ok what did you invent? See? Not that easy. Now add the complexity that most of the people on either side of the transaction are there because they know how to standardize, repeat, execute—hardly fertile fields for game changers. But even with an Einstein or two on the team, innovation takes trial and error, failure, non-standard approaches, and one-off solutions. Imagine writing the last eleven words into an outsourcing contract!
Like anything else in outsourcing, innovation will only be successful if both sides stand to gain from it. Starting from there, providers and clients should engage in meaningful discussion about how much they want, how much it might cost, how many failures they are willing to withstand, and how they will create the environment in which game-changers—not just incremental improvements—will be conceived. Generally, when I have seen this type of conversation, one or both parties ultimately decides it is too complicated and returns to “business as usual”
I’d argue that innovation has been a massive distraction in outsourcing. Any client that pushes innovation dollars towards the back office rather than their differentiating, market-facing offerings probably needs to re-connect with its shareholders. Any outsourcer that focuses on innovating for only one of its clients is betraying the fundamental economics of its business model. Both parties’ interests are best served by pursuing broadly applicable process and efficiency improvements. That said, I am very interested to hear from the “Horses” readership—have you found an example where innovation (not process improvement) was delivered in a profitable way?