In our work with the client-side users of outsourcing, the most common complaint we hear is that the supplier hasn’t brought any “innovation” to the party. They have delivered, by and large, on what they committed to deliver – the KPIs are green, the price is fair, the relationship is ok – but they haven’t delivered what was expected – some sort of best practice/added value/new thinking/business improvement which would provide the “wow” factor.

This raises three key questions.

Firstly, what do clients mean by “innovation”?

Secondly, was it ever reasonable to expect it?

Thirdly, what is the best way to get it in the future?

So what is “innovation”? When pressed, it seems to mean bringing and implementing fresh ideas which would have a radical impact on either the delivery of service and/or the client’s general business performance. This would include making changes which would keep the services up-to-date, leading edge, and delivering added-value to the business.

Can this be expected of a supplier? Clients would argue yes – and cite the sales presentations which promised that they were dealing with a world-class service provider at the forefront of best practice who would partner with them to improve their business. And following the BSkyB-EDS ruling this year, they may have a point. But fundamentally in outsourcing you get what you contract for, and “innovation” is tricky to define and therefore even trickier to specify in a contract.

Furthermore many outsourcing deals never really had a desire for “innovation” at their heart – when it came down to it they were about cost reduction (“your mess for less” or “lift and shift” in the industry vernacular). That is how they were sold and bought, how they were shaped and how they were contracted for, and that driver will continue to govern the service and the relationship as it dictates the deal economics for the supplier.

And lastly, in most deals suppliers (despite their aspirations to be seen as transformational business partners) actually run a subset of an overall process, with the client controlling the end-to-end process along with strategy, and determining business priorities. Given this, it is hard for a supplier, on their own, to deliver significant change or innovation – it takes both parties working together to do this.

So, how to improve the chances of accessing “innovation” through outsourcing? The key is in the previous paragraph – working together. It is next to impossible to expect any supplier to deliver “innovation” on its own.

There are two main actions which should be taken. Firstly, improvements and innovations which can be identified in advance should be documented and committed to in the initial contract, with responsibilities on both sides and clear expected outcomes (eg reduced cost, improved service, other business value). Secondly, for innovation which can’t be foreseen, the contract should specify regular (annual?) “value & innovation workshops” where the parties meet to share requirements, drivers, capabilities and new developments in the market, and agree what to implement and how to share the benefit. A strong governance process is needed to make this work – such commitments are often mentioned in contracts but are rarely effectively used.

In summary, if you want “innovation” (or anything else from your outsourcer) do two things:

- Put it in the contract

- Work at it together with your supplier.