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Why is Outsourcing Innovation So Hard? Here’s How to Make the Impossible Possible!

Talk to most outsourcing buyers at the outset of their engagements and innovation is always on their wish list. Talk to them two or three years later, and the one thing they wish they had gotten is innovation. The lack of innovation in outsourcing seems to be one the few things they are unhappy about.

Why is innovation so difficult in outsourcing relationships?

Differing perceptions are major part of the problem, according to KVL Somayaji, Global Transition & Transformation community leader for IBM. “While outsourcers provide ROI and can demonstrate tangible savings, buyers are interested in its impact on the ground. That is a matter of perception, making innovation difficult to prove,” he explains.

Another problem may be the definition itself. “Disruptive innovation may not fit into a business process management context,” says Keshav Murugesh, Group CEO, WNS Global Services. That kind of innovation, which appears at regular intervals at Google and Apple, “while not impossible, will be few and far between” in a typically outsourcing engagement, he says.

The importance of trust and collaboration for innovation

Instead, innovation that is possible in a BPO or ITO relationship is “more of a two-way street,” Murugesh observes.  And he believes partnership is the requisite foundation. “If the engagement model is built around partnership, then innovation is more likely to happen,” the WNS executive believes.

“Openness, trust and the will to collaborate,” are the key drivers to innovation, adds Rich Jaso, vice president, Global Operations, Unisys. These behaviors create an environment where both sides “have the freedom to display new ways of thinking.” Buyers and providers in adversarial mode, on the other hand, can count on no or minimal innovation, he has observed. “Both sides have to keep each other honest,” adds Subramanian Gopalaratnam, group head of innovation for Xchanging.

And the will must be there on both sides for innovation to happen. The WNS executive believes innovation can happen if it’s “an aspiration for both sides.” He says it can’t be lead by service level agreements or by pressuring the service provider. “Innovation happens in a relationship of equals,” he says.

In addition, the relationship’s maturity determines the level of innovation possible. “Some innovations may seem very risky at the start of a relationship, especially when dealing with non-linear models,” according to Murugesh of WNS.

How do you define innovation?

Murugesh equates outsourcing innovation like viewing the hour hand of a clock. “It does not move if you keep looking at it. It’s only after a point in time that you see it has moved,” he explains.

Somayaji of IBM adds that the concept of innovation changes from industry to industry, even from process to process. “If there is a concept that is used in different contexts by different stakeholders with different meanings at different times, it probably is innovation,” he says.

Yet he took a stab at an all-encompassing definition: “any project or process that can deliver significant tangible and intangible benefits by using emerging technologies that are ahead of industry standards.”

Gopalaratnam says innovation requires “a different thought process.” In his experience, innovation “is not about shiny things. It’s about a sustained effort to think differently.”

Murugesh of WNS adds innovation in outsourcing comes in many forms:

  •  Completely new, disruptive business idea
  • A  never-seen-before, high-impact business outcome that may create a new revenue stream
  • A dramatic idea that changes the way the client engages with its end customer
  • An idea that can change the direction of the client’s organization internally

Jaso of Unisys adds an innovative idea doesn’t have to be completely new. It can be “an old idea used in a new way.”

How buyers can aid innovation

The experts say both parties are equally at fault for not producing the desired innovative outcome. Outsourcing buyers serious about innovating should do the following:

  • Get everyone on board. Sandeep Malhotra, associate vice president, industry solutions, HCL, observes that the biggest hindrances to innovate are getting  buy in to the idea and dealing with the inertia to change. He says it is often easier to deal with both issues if the new idea has a measurable business impact, either revenue upstream or margin improvement or both. “You have to start a change management initiative early in the game,” he suggests.
  • Look both upstream and downstream too. Jaso of Unisys says clients frequently ask his team to innovate a certain segment of an IT process. But things are also happening upstream and downstream. He says clients have to look at the entire process and be willing to work on all the pieces if they want to solve the problem. “Tangential things impact processes. You have to address those too,” he says.
  • Invest. Somayaji of IBM says buyers need to invest both time and money if they desire IT innovation. Time is just as important as money, he adds. “Buyers can help by spending significant time in planning, so the long-term strategy is the culmination of several near-term strategies.”
  • Ask insightful questions. Murugesh says clients can help by asking insightful questions, like:
    • What more can I drive into my processes to make the outcome more dramatic?
    • What kind of analytics can change the way I work?
    • How can I generate a new revenue stream with my existing sales and marketing force?

  • Stop focusing on the”how.” Jaso of Unisys believes the real focus should be on the “what.” He says focusing on the “how” is an inhibitor to change. He believes the ‘how’ “should be open to adopting best practices and better ways of doing things.”

  • Adopt a long-term perspective. Somayaji of IBM believes any innovation road map must be long term, “while not losing sight of the low-hanging fruits: the near-term benefits.”

  • Don’t fixate on cost reduction. “This inhibits innovation,” says Jaso of Unisys. Clients who live and die by their outsourcing contracts “don’t have the right mind set for innovation,” he says.  “You have to look broader than just this month’s SLA or KPI.”
  • Stop thinking in silos. Real innovation happens when the service provider can impact all functions, according to Chris Merriman, director of quality and Six Sigma Lean for Unisys. For example, IT is a series of highly integrated processes. “”ut they are often compartmentalized by function. This inhibits break-through innovation,” says the Master Black Belt.

What the service providers can do   Service providers have their own to-do list:

  • Set the right expectations. This is crucial, points out Somayaji of IBM. “What gets sold and delivered as transformation makes buyers think the providers didn’t get it. While both agree to the broad innovation framework, translating it into visible benefits has been a challenge.”
  • Understand the client’s expectations. Gopalaratnam of Xchanging says this is the best way to plot a course for innovation success and avoid “the blame game.”
  • Provide benchmarks. Sandeep of HCL says measuring impact is “the most difficult part of innovation.” He suggests a good way is to quantify the business impact of an idea. Some suggestions: measure productivity or outcomes or gain-share. “You have to remove the ambiguity,” he says.
  • Understand the C-suites’ appetite for innovation. Somayaji of IBM says understanding the constraints of the customer determine both the pace and success of the innovation initiative. “Buyers can get out at any logical stage, having received the ROI they need until the next logical step.” He says having “exit options at various stages” allows companies to innovate at their own pace.
  • Have deep domain knowledge too. The HCL executive believes implementing technology is not enough to innovate. Instead, it’s a combination of technology and deep domain knowledge. “You have to understand your client’s industry,” he believes.
  • Assemble the proper team. The HCL executive says the right team “can make all the difference” in making innovation happen. Cultural fit is important. So is the right mix of business and technology skills.
  • Employ risk/reward models. Sandeep says HCL uses risk-reward models and outcome-based pricing to spur innovation. “The service provider has to be willing to put skin in the game,” he says.
  • Have courage! Sometimes the service provider’s innovation team has to move beyond their functional sponsor and talk to executives at a higher level if there is deep resistance to change. “You have to have courage to go to the CIO or the head of sales to break down the barriers,” says Merriman of Unisys. This, of course, is a delicate dance and can easily backfire.
  • Use analytics. Jaso says 90 percent of Unisys’s IT accounts have a continuous improvement and innovation programs in place. Since the service provider stores this information in a standardized format, it can compare actual performance levels with other clients who have chosen similar improvement initiatives. Unisys also uses outside metrics from Gartner and Forrester. Together, these analytics give clients a clear picture of their status and acts as a catalyst to change.
  • Invite everyone to contribute ideas. Sandeep of HCL says both the buyers and service providers should ask everyone, not matter what level, to share their ideas. “You never know who has the big idea,” he says. HCL created an innovation board to make idea sharing possible. It also has an innovation SLA. “If you come up with one new idea every day, then eventually you will come up with an idea you can validate,” he explains.
  • Create a continuous improvement program. Innovation is not a one-off event, Jaso of Unisys points out. Instead, “it’s a continual commitment. Every day you have to think of new ways to do things in order to create even more value.”
  • Schedule periodic reviews. The WNS executive says regular reviews enables the provider “to show the client a continuous view of the innovation curve.” Merriman agrees and recommends that buyers and providers should embed continuous improvement and innovation programs in mature governance structures.
  • Employ motivational leaders. Motivating leaders are infectious. Sandeep at HCL believes that service providers that value their employees create employees who, in turn, create value for the customers.

Jaso says Unisys evaluates each account manager yearly and their success at innovation and continuous improvement figures into the assessment. “Our employees know innovation is something they can’t forget about.”

  • Add contractual incentives for the employees. Murugesh says including contractual incentives “nurtures a climate of innovation.” Another employee motivation!
  • Chunk things down. The IBM executive says the best way to transform is to manage “a few simple tasks.”
  • Build prototypes. Sandeep says often good ideas are immature. A good way to test them is to build prototypes or do a soft launch. It’s a more inexpensive way to get feedback.

Fortunately, outsourcing innovation is not a Holy Grail search. Unfortunately, outsourcing innovation is hard work on both sides. You just can’t give up. “Innovation requires sustained work,” observes Gopalaratnam. “Innovation doesn’t happen by chance or because buyers demand it,” says Jaso of Unisys. Instead, it’s a “journey of many small steps that lead to a big leap.” But the rewards are rich when it does happen. What are your innovation failures and successes? What did you do right and wrong?


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