22 Nov 2007
Forrester’s research into outsourcing frequently shows buyers berating providers for failing to innovate. Most recently, Forrester’s Enterprise IT Services Survey, from April 2007, threw up new evidence. Of more than 1,000 IT executives we interviewed, 28 per cent said their outsourcing provider was unable to respond rapidly to changing business needs.
There are two areas of focus that could close this innovation gap and help to alleviate the grumbles.
Further reading
First, buyers must recognise that outsourcing at its best is rooted in focused innovation. Leading service providers such as HP, Capgemini, IBM, and EDS have to innovate just to meet the demanding cost-reduction expectations of clients. These firms labour to consolidate and rationalise infrastructure, implement strong service management disciplines and processes, and impose structured metrics and measurement on service delivery. This is real value-generating innovation, delivering a more reliable, agile infrastructure, often at substantially reduced cost. But too many stakeholders inside the client do not recognise this innovation because its impact does not by itself provide direct business performance gains.
Customer owners of outsourcing relationships need to address that failure of communications and make sure their colleagues grasp the true value of the services delivered.
Second, buyers of outsourcing must stop wanting to have their cake and eat it. They want to impose a contract that drives the outsourcer to deliver a rigidly commoditised service at a rock-bottom price. Simultaneously they expect the provider to bring all kinds of improbable performance improvements to the business. Service providers compound this problem by promising a raft of improbable inputs from company scientists, research facilities, centres of excellence and the like but allowing the client to studiously ignore such niceties in the hard language of the contract.
Both sides need to break away from this destructive collusion during the negotiation of outsourcing deals. Clients that want innovation built into an outsourcing contract have to directly express this in the contract and be prepared to pay a market price for the added value. Outsourcing providers in turn must clearly represent the various areas of value delivery they offer from commodity desktop services, for example, to business performance consulting and properly represent to the client how to procure those services on appropriate terms.
Too many outsourcing buyers still approach the contracting process as an adversarial contest to be won on all terms. To combat this imbalance, outsourcing advisers such as TPI have begun to talk increasingly of promoting a more win/win-oriented approach to setting up outsourcing relationships.
Forrester can only agree and if the market can act upon this advice, then
that might see the first tentative
steps taken to lay to rest the old moans about outsourcing’s innovation deficit.
Andrew Parker is vice president and research director at Forrester Research
Computing readers can download Forrester Research reports free of charge at www.forrester.com/computinguk. For more information on Forrester’s Sourcing and Services Forum held on 29-30 November in Nice, visit: www.forrester.com/sourcing2007
The author makes good points ? but what a study can't uncover is that innovation is something that occurs over time, not at the moment of signing. Assuming the contract is sensible, the client still has to be responsible to create an environment that not only encourages innovation, but also measures it as part of the overall engagement scorecard. I have worked with more than 20 outsourcing client engagements to develop the governance processes, and I have found that clients sometimes create conditions which make service provider innovation impossible: clients often retain the very people that should go to the service provider to ensure innovation, and thereby both deny the service provider work pool the most knowledgeable people, but also create immediate micromanagement and discord in the relationship.
It?s no different to develop an environment for innovation in an internal relationship that with a service provider. Clients who have trouble with innovation before their outsourcing should look at their internal environment carefully; outsourcing will not change the way they work or their business environment.
The author's statement that the owners of outsourcing should make sure their colleagues appreciate the innovation of the service provider to hold down costs etc. should try to walk in the shoes of a real owner of an outsourcing deal - often the most thankless and politically-charged role in an organization. Customers don't care about the service provider, who instantly becomes a whipping boy in an unhappy services situation. Customers only care about themselves. Focus on assuring the service levels really meet the needs of the consumers of the service is a better way to spend time (preferably before signing an agreement, but if need be, after). This is an area where I have frequently seen revision of service levels, sometimes too late to correct consumer perceptions which are hard to change once they are set.
Finally, clients frequently take far too long to raise issues that are impediments to the services, and to innovation, in part due to lack of experience and in part, I think, because they are afraid to damage their ?partnership.? However, allowing issues to fester is very damaging to a services relationship (just as it is in a marriage, a very analogous situation). For clients who seek innovation, intelligent management and sensitivity to the fact that the service provider's people are human beings are prerequisites to achieving a relationship in which innovation is possible.
I am a project director at TPI, the global outsourcing services advisory firm, with five years' experience managing an IT outsourcing engagement as a client, and five years as an advisor.
Posted by: Cynthia Batty 22 Nov 2007
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