IT Outsourcing: 3 Reasons Your Vendor Won’t Innovate

Posted: May 26, 2010 in Market Research

Internal IT
organizations choose to outsource for any number of reasons: to cut
costs, improve service, increase efficiency. Increasingly, they’re
seeking innovation from their IT outsourcing partners, even though many
don’t have a clear picture of what innovation means in the context of
outsourcing. Consequently, those IT departments are not getting much
innovation from their service providers.

According to a 2009 Forrester Research survey, 38 percent of IT
outsourcing customers said lack of innovation or continuous improvement
was their greatest challenge with existing vendors–up from 33 percent
the previous year. (Also see CIO’s Exclusive Outsourcing and Innovation

“Clients expect more from their service providers than just a cost
reduction and reliable service,” says Forrester Senior Analyst Chris
Andrews. “In many cases they want their supplier to be aligned with
their own business concerns, and that implies some level of evolution
in the supplier’s capabilities.”

Leading IT outsourcing providers recognize that innovation is
integral to their survival. “None of the service providers I have ever
spoken with is unwilling to engage in an innovation discussion,” says
Andrews, who recently interviewed ten technology service providers to
figure out the disconnect between customer expectations for and
outsourcer delivery of innovation.

So what’s the problem? In a word–it’s you. Andrews says IT
outsourcing customers make the following three seemingly basic, yet
critical mistakes in attempting to procure innovation from their
external partners. He recommends ways they can address these mistakes
to obtain the innovation they seek from their vendors.

1. You don’t know what you want.

Everyone wants innovation, but no one knows what it is.

In talking to IT service providers, Andrews found that most agreed
that innovation should help clients achieve “a new and disruptive
business impact,” but the scale and scope of such initiatives
fluctuated wildly. Before the recession, transformational IT
outsourcing deals or “going green” were seen as innovative. In the last
few years, however, the focus shifted to cost-cutting efforts,
preserving cash flow or increasing efficiency. In the near future,
innovation may center on cloud computing or social computing.

If an IT outsourcing customer doesn’t define innovation in its own
terms, an IT services vendor can’t provide it. “I don’t think that many
[clients] really know what they are looking for,” says Andrews,
recalling an outsourcing RFP he recently reviewed with a “innovation”
section. “It laid out that the service provider was expected to help
the company innovate–without any definition or context. There is
widespread confusion, and this confusion has a big effect on the
alignment between service providers and their clients.”

If you want your outsourcer to innovate, you must define innovation
in the context of your corporate objectives, says Andrews. A good way
to start is to think about the various innovation stakeholders in your
company–executives, line-of-business leaders, IT, product development,
marketing–and what innovation looks like to them. For the C-suite, it
may be transformation efforts that improve shareholder value or create
long-term strategic advantage. For business stakeholders, it could be
projects that increase sales or improve customer satisfaction. “With
that understanding, the innovation discussion can be clarified,” says

If you’re still struggling, ask a provider to help. Many outsourcers
are willing to administer IT-business workshops to outline objectives
for their most strategic clients. Some have processes to sharpen a
customer’s innovation focus, says Andrews, such as Capgemini’s
TechnoVision and Rapid Innovation frameworks, Fujitsu’s FutureScape
program and Accenture’s High Performance Research.

2. You chose the wrong provider.

Just as a tiger can’t change its stripes, a body shop won’t ever innovate.

“If the client has literally picked an IT services provider only to
get cost savings, they are somewhat unjustified in turning around and
asking the supplier to bring them greater levels of innovation,” says
Andrews. “This is a big complaint from the service providers
themselves: we can innovate, but our clients won’t pay us for it.
Cost-cutting and innovation can coexist, but they do not do so easily.”

Once you’ve figured out what innovation means to you, seek out
providers that line up with your definition. These days every vendor’s
marketing materials stress their ability to innovate, but a closer look
will reveal that a provider’s perspectives on innovation are closely
linked to its culture, history and typical suite of services, says
Andrews. Indian provider ITC Infotech, for example, says its ability to
build deep vertical relationships at the IT level is helping it evolve
from offshore outsourcer to strategic partner. IBM Global Services’
pitch is that it incorporates its technical research and consulting
expertise into technology-focused business innovation.

Vendor-developed processes and methodologies around
customer-specific innovation can be helpful in illuminating a
provider’s experience, approach, and in setting client expectations,
but they aren’t compulsory.

“The midsize company Sierra Systems does not point to an explicit
tool or framework to guide their innovation efforts,” says Andrews.
“They simply rely on their deep understanding of a few key business
processes and an intense focus on client relationships to improve their
clients’ business processes.”

Most importantly, says Andrews, look for an outsourcer that’s
enthusiastic about the innovation challenge. If you’re frustrated with
the lack of interest in innovation in your existing relationship, take
your concerns to senior executives at the outsourcer. If you still
encounter resistance, he says, it’s time to look for a new innovation

3. You didn’t set up effective innovation metrics.

Innovation in IT outsourcing varies from customer to customer. So,
too, do innovation metrics. Outsourcing customers have to define their
unique desired outcomes and tie those objectives to service levels in
the contract.

That’s easier said than done. Outsourcers are starting to move away
from traditional IT service metrics that are easier to collect–and
meet–to more complex business-outcome metrics, but the transition “is
happening more slowly than many expected,” says Andrews.

“Clients realize that a variety of internal and external factors
could impact a business metric–not just the work of the service
provider–and they are hesitant to link the dollar value of the
contract to such a complex metric.”

Further complicating the situation is the fact that more quick and
easy metrics for innovation–such as number of Patents or R&D
spending–don’t do the trick when it comes to IT outsourcing and

There are pockets of new innovation-related metrics activity in the
IT services industry. India’s Wipro is starting some of its engagements
with metrics discussions. “Instead of dictating a traditional IT
metric, they are honing in on a client problem statement such as, ‘We
want to reduce our days-sales-outstanding,'” says Andrews. “That helps
the Wipro delivery team think about ways to affect that metric with
their technology capabilities.”

In many cases, IT outsourcing customers who want innovation must
push providers toward metrics that align with their innovation
objectives, whether it’s the introduction of emerging technologies, the
development of more flexible technology platforms, process
improvements, or increased business collaboration. Defining the desired
end state will challenge vendors to come up with creative ways to meet
your innovation requirements, says Andrews.

Source: ITO News.Eu


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