Lee Ayling, Partner, Sourcing Advisory, KPMG in the UK

Would you like your service provider partners to deliver innovation in your organisation’s outsourcing contracts? The answer is probably yes. Can you define innovation? The answer is probably no. This is a scenario experienced by many managers of outsourcing contracts getting to grips with innovation.

Before continuing any further I should state what I believe to be the definition of innovation in the context of outsourcing relationships. This being: ‘innovation is new ideas or ways of working to drive commercial gain and competitive advantage.’ Innovation is not to be confused with continuous service improvement – in my view, it’s radical change rather than incremental change and is likely to create business-wide benefits. I should also clarify that innovation is not, in my view, applicable to all service provider relationships.  For example, smaller or highly transactional contracts may not benefit from focusing on innovation – the return on investment is unlikely to be appealing.

Delivering innovation requires more than introducing a contractual obligation for your service provider to be innovative. If you want to challenge your service provider to be innovative, it’s important to ensure that your organisation is up to the task.

Are you ready to innovate?

Do you have a role dedicated to leading and managing innovation activities? Clearly innovation is far more likely to be sustained where an individual or team has this specific remit. As well as the human resources, do you have the necessary financial resources to provide the budget needed to implement any new, innovative solutions?

Another question to address is, does your organisation have the right culture – is there a willingness to take the risks needed to achieve innovation? Just as importantly, your organisation should be willing to share its strategic vision and facilitate interaction between business stakeholders and service providers. This level of engagement is essential as the service provider needs a sound understanding of your business and future aspirations in order to incorporate innovation into the relationship. For the same reason you will also need to dedicate the time needed to maintain a good understanding of the capabilities of the service provider.

So, if you’re wanting to enjoy the benefits of innovation in your outsourcing relationships, you can’t assume innovation will happen by itself. Trust, open and honest communication and having a mutual understanding of financial and business objectives are central to successful innovation.

For further insights into the subject of innovation read the full Get in Shape if You Want to Innovate paper, and my recent blog co-authored with my colleague Karene House, Driving Innovation through Collaboration.

Filed under: How to..., Outsourcing by KPMG