Innovate or perish. There are few businesspeople today who haven’t heard this simple but powerful aphorism. For years immemorial strategic thinking has said that, as time goes by, points for differentiation inevitably end up looking somewhat mediocre. What happens when the reason your business was different, your USP, has been replicated by every man and his dog? Well, that’s the whole problem – if the business is not constantly looking forward and searching out new, ever ‘shinier’, skills and USPs, its ability to win and impress new business will diminish significantly. A business standing still is usually destined for failure.

But how does this apply to outsourcing? Surely if you’re outsourcing a boring back office function no innovation is needed? It’s a simple commodity-esque relationship of payment and service. Not so; the outsourcing business is also inextricably bound by these three words. In the competition to bring in the best clients, create great relationships and hold on to them, innovation is flourishing. The outsourcing relationship, the services and the products suppliers offer are all benefiting from this competition-fuelled inventiveness. But what’s on offer and what do end users stand to gain?

For a long time many outsourcing providers have tried with all their might to move up the value chain. Creating higher value services and partnerships has traditionally been seen as the way to engrain relationships and by doing so, justify a more productive, more profitable relationship for all. HCL, the IT outsourcer, is one company continuing to push this approach. Its ‘Co-sourcing’ model shares out risk and reward between ‘partners’ and ‘leads to HCL innovating above and beyond the letter of the agreement, helping to transform the businesses of its clients, rather than only reduce their costs’.

The innovation that can spring from this close partnership approach does not usually stray beyond internal IT and process transformation. However, there are some cases, though few in number, of outsourcing partnerships taking things further. Luxoft, the top Russian ITO provider, provides one key example in its work with Deutsche Bank. The companies managed to develop a CRM system (Client First) they valued so highly that they subsequently planned to take it to market for other banks and share in the revenues. While this type of occurrence is rare, it does demonstrate the innovation that close outsourcing partnerships can create.

At the centre of good partnerships is usually an element of collaboration and information sharing. The advent of web 2.0 technologies in the consumer space is quickly feeding through businesses and appears to have found a perfect home in outsourcing. In an industry characterised by geographic and time-zone separation, tools allowing the seamless coming together of minds, transcending boundaries is a perfect fit.

Cognizant 2.0, a platform developed by leading IT outsourcing provider, Cognizant, is a tool used both internally and externally to facilitate communication. “It allows outsourcers to develop new levels of customer closeness and satisfaction, and if correctly implemented, can result in dramatically reduced interaction costs but with an improved result,” a spokesperson for the company said.

The Cognizant example is a good one as it conveys the importance of using these tools to enhance a suppliers offering rather than just for the hell of it. “Consultants across the globe are encouraged to collaborate to solve specific business problems using their best delivery resources regardless of location,” added the spokesperson.

Internal collaboration is one thing but what of clients? How is innovation helping keep clients in the loop? Bravosolution, a kind of supply management intermediary outsourcer, has taken things a step further. Its BEN (BravoSolution Education Network) provides a platform for public sector procurement managers to pool and share information on their own sourcing and as a result become more effective.

“The network has proved to be a goldmine for collaborative information sharing for UK Public Sector procurement professionals. With more than 1,100 users from local & central government and the NHS, it has enabled people to share information around Standard Policy Documentation from EU Directives, local legislation and best practice for organisational procedures. [It’s] a sort of Wikipedia for public sector professionals,” commented John Shaw, Director of Education for BravoSolution.

The benefits derived from this kind of platform are not only one-way, however.

“BEN enables us to take on board feedback from public sector procurement professionals and tailor our services to meet their exact requirements. This evolution of sourcing practices based on the recommendations of the buyers is enhancing relationships with suppliers and also enabling clear cost and efficiency savings through shared best practice methods,” he added.

The wide availability of collaborative tools and other new technology could also be having an affect on the nature of deals themselves. One thing on the lips of most IT professionals is virtualisation and SaaS (software as a service). The increasing possibilities of not needing all software systems on the corporate network are having a knock on effect on both the cost of outsourcing and the size of deals.

According to a recent report from Gartner, the number of outsourcing deals worth less than US$50 million increased in 2008 while those of more than US$50 declined. There appears to be a trend towards smaller deals and this is only likely to increase throughout 2009.

The multi-sourcing approach is symptomatic of this trend. The model, where numerous suppliers are used in quasi-competition for various parts of a businesses outsourcing, is an innovation in itself. According to its proponents, the increased competition will drive innovation whilst driving down costs at the same time. The best of both worlds it seems.

“By drawing on and shaping an outsourcing partnership with one or more suppliers, a dependent and supportive ecosystem can be created and leveraged. An ‘Outsourcing 2.0’ approach will in theory simplify the outsourcing process, by getting the job outsourced to third parties with mutual business interests, and align business goals with the servicing parties,” commented Simon Ormston, Head of Outsourcing at BT Global Services

Along with innovations emerging organically and through supplier competition, there are various macro-factors affecting the focus of today’s outsourcers. After the recession, to which outsourcing is a natural answer, green initiatives are sparking some interesting developments. Green, unsurprisingly, is the thing of the moment and many western governments, including the UK, are increasingly putting green on the agenda where procurement is concerned. Currently directives are in place surrounding green suppliers but it won’t be long until legislation follows, forcing organisations to outsource sustainably.

Patni, an Indian BPO firm, is one company ahead of the game in this respect, having spent a whopping $14 million on a low emissions, low impact delivery centre. The company is planning many more centres across India to cope with the future demand. With public sector organisations increasingly needing green suppliers, innovation in the green space only looks set to grow. The importance of good environmental credentials will also inevitably feed into private sector procurement more fully as time passes.

In a time when budgets are heavily under threat, many suppliers obviously have their ears to the ground where their customers are concerned. Making sure new innovations are forthcoming with their associated advantages is clearly central to continually impressing clients and gaining new ones. The benefits to be gained by tapping the needs of markets, experimenting and implementing new initiatives, cannot be underestimated. Some suppliers seem to be doing it and succeeding while others are not. The question is can a supplier afford not to innovate? After all, standing still is dangerous.