Consider the Source

Waiting for the Innovation Fairy

By Max Staines

If you expect something, you should have some way of knowing whether or not you get it.

A sizable portion of IT executives seem to be missing that point.  According to a recent survey cited in CIO magazine, “67 percent of IT leaders say they rely on outsourcers to turn ideas into new and improved processes, but just a third actually measure the impact of innovation delivered by their service providers.”

Sounds like a recipe for disappointment.

The survey, conducted by the United Kingdom’s Warwick Business School and sponsored by offshore outsourcing provider Cognizant, also found that most CIOs would welcome some sort of framework for innovation, and half would be willing to pay more for such a framework.

From Compass’ perspective, a process for measuring innovation has to address some basic questions, including:  

• What’s my current state?
• What’s the potential benefit of the proposed innovation or improvement?
• What’s the investment, risk, and change involved to implement the initiative?
• What are the alternatives to the proposed change?
• What will we need to manage the future state?

A broader consideration is to make a distinction between productivity improvements on the one hand, and true innovation on the other.  Client organizations and service providers will admit they often make unrealistic demands for (and promises of) both. Yet true game-changing innovation requires specific mutual incentives that allow both parties to envision the art of the possible and work towards a transformative future state.

That’s a very different proposition from optimizing the efficiency of the existing environment. 

Bill Huber, a TPI Partner and Director of CPO Services, suggests building a certain number of consulting hours into service provider contracts that are devoted to identifying and exploring truly innovative ideas. Gainsharing incentives can also be effective, as can governance frameworks that include a specific focus on tracking the introduction, acceptance, and lifecycle of innovation initiatives.  (A recent column in Global Services magazine discusses TPI insights into innovation, specifically in the BPO space.)

To put the improvement vs. innovation distinction into perspective, consider the business world of 100-some years ago.  When efficiency-minded organizations were equipping messengers with bicycles to increase productivity, a few saw an opportunity to make a step change with this new telephone thing.

What were the telephone people doing differently?

Sourcing Strategy Drivers: Three Big Questions

By Peter Allen, Partner & Managing Director, TPI

I tend to spend a good amount of my time helping organizations think through whether or not to offshore or outsource some of their business processes. It’s always an invigorating experience to help dig into the opportunities and risks associated with such significant changes to how business functions are organized and delivered. 
Some of the more common questions that arise with regard to sourcing strategy include:

• Should we fix and ship or ship and fix?  This question relates to the adequacy of a process’ operation and whether or not that process should be remediated prior to altering its delivery model.
• Is there significant value in IT-BPO synergy?  This topic is especially sensitive as companies look to gain benefits beyond wage arbitrage. The answer will steer the consideration of internal/external sourcing options and the candidacy of the providers. 
• What is the incentive for a service provider to automate/improve?  This is linked to the lingering issue of “innovation” (or lack thereof) in outsourcing.  It’s more acute for considering the outsourcing option, but I also hear it in the context of moving a process to a captive offshore location.

I’ll be sharing my views on these three strategy-driving questions in coming blog postings, but would welcome your thoughts.  Are there other drivers of strategy that you see of equal emphasis?  Let me know!

Private Equity Sees a Pony

By Peter Allen, Partner & Managing Director, TPI

I wonder if others have noticed the recent activity levels of private equity investors. They have internalized the idea that innovation emerges from recessions.

There are a fair number of initiatives underway where PE investors have proposed carving out back-office functions from companies in certain industries, combining them with technology enablement investments, creating platform companies to service a broader market.

Of course, what I tend to see are situations in which the carved-out operation continues to provide services to the parent company.  The service agreements take the form of outsourcing contracts, but also have the characteristics of a joint venture or other shared go-to-market activities.

In my discussions with private equity players, they are sensing that the current economic dip is the ideal time to set up new creative businesses that benefit from a large cornerstone client and leverage new technological capabilities.  The result?  We’re likely to see some interesting new industry-specific BPO offerings emerge.

I think we should monitor these occurrences to help gauge how the outsourcing market will look when the return to growth arrives.

Listening to the Buy-Side

Today's blog on TPI's Americas Sourcing Leadership Exchange (SLE) comes from Peter Allen, Partner and Managing Director, TPI.

Falling quickly on the heels of our Americas Sourcing Industry Conference (SIC) held for service providers, we conducted our latest Americas Sourcing Leadership Exchange (SLE) for buy-side participants last week in Chicago.

What can one learn from spending a couple of days with almost 200 executives who are actively involved in the outsourcing business proposition and battling the recessionary markets of 2008?  Plenty.

Despite some of the popular conjecture about a slowdown in the adoption of outsourcing, this was our largest SLE ever, and the attendees generally expressed a desire to become ever MORE active in using outsourcing to achieve greater variability in their corporate cost profiles.

Many of the attendees, whether in the planning stages or actively managing existing arrangements, were keen on achieving even greater flexibility in their costs.  The discussions around captive operations, shared services and internal optimization received considerable air time when considered in contrast to outsourcing.

Tipping Forward

Today's blog on TPI's Sourcing Industry Conference comes from Peter Allen, Partner and Managing Director, TPI.

Have 120 executives from over 50 service provider firms discuss the “tipping point” in sourcing, and the word you’ll hear repeatedly is innovation. It’s no surprise the topic earned the most buzz at TPI’s Sourcing Industry Conference (SIC) in Chicago on April 22.

How to put the topic of “innovation” more prominently on the table for outsourcing relationships has been led by my colleague Harvey Gluckman. His work with several service providers and law firms is addressing the ways that innovation is declared as an expectation, its evaluation techniques, funding models, and the overall governance constructs. It’s truly market-changing work.