The "I" Word

The word innovation gets thrown around in the sourcing business as much as it does in seemingly every other industry. And, in keeping with usage elsewhere, we often hear the word without any clear definition of exactly what kind of new stuff is being done or how precisely it's supposed to make our lives better.

So just what does innovation in sourcing look like? A little over a year ago my firm reached out to clients, practitioners and providers with what we called an Innovation Agenda to suss out the answer to that question. We came up with four planks:

  --Refreshing contract terms: Sourcing has a long way to go, but it's already seen a lot of change, and the old ways of establishing a relationship often don't cut it.

  --Rethinking benchmarks: If the only reason you measure the price of a service against what everyone else is paying is to get your costs down, you aren't doing yourself or your company any good.

  --Gainsharing: Both sides of a relationship ought to be able to expand their risks and rewards as sourcing relationships grow more solid and sophisticated.

  --Change management: Not just another jargon phrase. Sourcing has to develop systems to better align the roles of client and provider.

And here's some good news: The first two of these have already gotten a lot of good buzz in the industry and even some actual application. Progressive minds are moving together. The last two are well on their way to seeing the light of day, and I'm pleased (and should disclose) that my firm has offerings for both gainsharing and change management.

OK, so I've told you about near-term innovation. What's next? I see a couple of possible trends.

The first entails better comparisons between what an organization says it wants and what it's actually buying. The "lift and shift" model of reassigning jobs to a lower-cost environment is just that. If it's being talked about – and measured and criticized – as a more robust sourcing solution that should produce ever-more benefits for the organization, then we're talking about apples and oranges.

Another thing I think we'll see is contracts that are better able to manage the increasing number of multi-sourcing relationships.

I want to keep the Innovation Agenda going. If you're interested in suggesting new planks, please drop me a note or see: http://www.tpi.net/knowledgecenter/innovationagenda.

Comments

[Phil Fersht]

Hello Peter - a very interesting article.

"Innovation" can be described as how companies achieve value from their outsourcing engagement after the transition phase is complete and things become "operational". There are tactical means, which invariably mean contract terms, multi-vendor trade-offs etc and also strategic means, which - as you describe - involve a two-way approach from both the provider and buyer to work together (esp gainsharing). Three measures can include the following:

1. Ongoing cost reduction
2. Core business impact
3. Continual quality improvements

Defining the metric for (1) is easy, but the other two need to be based on outcomes that have to be set once the client and provider get to know each others' business well in an operational relationship.

PF.

[Steve Koutros]

Peter:

I like the "I" word. The problem I have is the way Service Providers use the term and what it implies...

I usually listen with patience and read their idea(s) of what Innovation means to them.

This usually gives rise to question to the Service Provider with tongue strongly in cheek, "Can I please see your innovation-o-meter?" ...I add, "Seriously, if we can't measure it, it has no added value to us."

So, Innovation is a great agenda...please let's make sure we can measure the results.

Steve

[Peter Allen]

Guys ... we also need to put "I" into the context of MONEY. Ultimately, this is about widening the risk/reward window - meaning that there can be a win/win and there can be a lose/lose.

Any client will need to know foremost that s/he has received that for which has been paid in the core agreement. Innovation is either part of the deal, or an added benefit that accrues over-and-above.

Peter

[Phil Fersht]

Peter,

I know of some clients who have had "pre-paid consulting time" built into their contracts to "enable innovation". I guess it all depends on the type of provider they use - if it's a very operational vendor, they may struggle to get the innovation help they need, but if it's a vendor which does a lot of transformation and process-engineering work, this may be a workable step. Early days here still...

PF