Outsourcing innovation - key considerations

In our experience, many outsourcing customers complain that they are not achieving the level of innovation from their suppliers that they had envisaged. And often suppliers complain that their customers are not specific in terms of innovation objectives and focus purely on cost savings.

You should consider the following to ensure your IT outsourcing contract delivers the outsourcing innovation you expect:

• Strategy: Innovation means different things to different organisations so it is important that you clearly communicate your innovation expectations and strategy to suppliers. What is your level of innovative ambition and your appetite for risk?
• Contract: Innovation objectives, measures and incentives should be as specific as possible in the contract. You should consider establishing a joint innovation fund with both parties contributing a pre-determined sum to cover the cost of proof of concepts or pilots. Incentive mechanisms such as gain-sharing should also be assessed.
• Organisation: Business representatives should be involved with IT and the vendor management community in looking at innovation initiatives – suppliers should be encouraged to engage directly with the business stakeholders in order to drive out innovation opportunities.
• Governance: To achieve your innovation ambitions 
you need to be prepared to be highly proactive and focus significant energy on achieving your innovation ambitions. A joint innovation steering committee supported by an agreed innovation charter and senior sponsorship – from both the business and IT communities – should be established from the start of the contract.

To achieve business innovation from an outsourcing contract you need on-going commitment from both the supplier and the customer.