Do we want our outsourcers to innovate?

Last night I was invited to speak at an event Fujitsu were holding for alumni of their graduate programme. Every so often, apparently, they get everyone whose been through their programme together for networking and so forth, whether they are still with the company or not.

So anyway, I’m at this event, and I got asked a question that does, sometimes, come up. Does a big company that outsources lots of its non-core business expect its outsourcing partners to do innovation on its behalf, or do we prefer to do it ourselves and just tell the partner what to do?

Frankly, since there’s usually not enough innovation to go around, we’ll take any that comes our way. That’s capital “I” Innovation, of course, meaning an idea that’s useful to us coupled with some execution behind it to make things happen.  Ideas by themselves aren’t that valuable to anyone.

Let’s face it, a lot of the time what we want to outsource is completely commodity. The nature of commodities is that there is usually not all that much that differentiates one provider from another, and price is quite often the key decision factor.

So if one of our outsourcing partners dreams up something that we can use, we’ll likely just jump at it. But unfortunately, this doesn’t often happen. Commodities, with their razor thin margins, don’t leave all that much room for innovation. You usually need some money to invest, you see, to get things happening.

And those same margins don’t leave much room for our partners to be responsive to our innovative requests either. And we get into the habit of thinking the money will be an issue no matter what, so in the end on our side of the fence we’re probably just as much to blame.

So the answer to the question, really, is that we do expect our partners to be innovative, but the dynamics of the outsourcing game don’t often make it possible.

It is unfortunate for both sides.

4 Responses to“Do we want our outsourcers to innovate?”

  1. July 19, 2008 at 8:04 am #

    Interesting set of pros and cons. Anytime I have seen innovation on the outsourcer end, it always seems like an opportunity for a joint test of some kind. That way you can have some degree of control over the IP associated with the outcome, and learn from the test.
    Of all places, where I have seen this is with ATM manufacturers.

  2. July 21, 2008 at 9:23 am #

    James – I have a question for you. What’s your definition of “innovation”?
    Is it the classic dictionary version, “to make changes” or is it most of us now associate with the word, ” to radically transform”?
    I ask because I was concerned by your statement “Ideas by themselves aren’t that valuable to anyone”. OH. MY. GOSH.
    You imply that you don’t want to hear about ideas, only fully working proposals. Packaged, good to go, solutions. You’re joking, right?
    Let me present a scenario. Imagine you’re the head of strategy of say, Ford Motor Company. A guy stops you on the street and says “Hey, James, I’ve got a design for a new engine. it runs on potatoes and does a zillion miles to the gallon. It’s 4 foot tall and 5 foot long. it could make you a lot of money”
    Would you respond “Sorry. It’s too big for us. Our engines must be 2 foot tall and 3 foot long to fit into our current body shells. Unless you can design me a complete car to accomodate this. I’m not interested. Your idea is worthless to me.”
    What you’re saying by rejecting an idea in isolation is that you’re expecting someone from outside of your business to do YOUR job for you. Remember, managing your company’s internal processes and touch points are not the responsibility or concern of any external source and should never be. Isn’t that what your team is there for?
    You appear to be saying you want to take someone’s idea, get them to look at how that would fit into YOUR organisation by somehow knowing how YOUR business works and then let YOU take the money and credit for it.
    Good deal James. I bet that has your suppliers queing up.
    Forgive the sarcasm, but do you seriously expect people to pay for the work themselves that it would take to develop ideas that will make your company more successful. Have you not allocated any budget for that?
    There’s an old adage, “you don’t appreciate what you don’t have to pay for”. Was there ever a truer application of this expression?

  3. July 21, 2008 at 9:49 am #

    Neil,
    Our definition of innovaiton is anything that we aren’t presently doing. This idea that innovation is about “radical transformation” doesn’t actually pay the bills. Running an innovation function means that the incremental is as important – maybe more so – than the radical stuff.
    And to my comment that ideas are valueless in isolation. Well, they are. Anyone can sit around dreaming up things on a whiteboard, and what happens then? Nothing. Your example is an idea + execution. After all, he has a working design.
    And finally, when we have an outsourcing relationship with someone, it is absolutely reasonable they would know our business, since they are inside our business. Don’t you think so? Actually, that is what we pay them for.
    Best,
    J.

  4. July 21, 2008 at 11:20 am #

    When you bring in a supplier for a specific role, you’re actually buying that part of the supplier’s company’s expertise only – not the whole company’s portfolio of services. You get what you pay for!
    It’s easy to assume that because a company can do more that you have a right to it, or can blackmail them into providing it even though they would expect to sell that facility. Innovators and strategists cost far more than “business as usual” bodies.
    If you bought a window cleaner would you expect him to go and choose some double glazing for you for free, or the back-street garage who services your car to go and choose you a new one?
    In the eighties, NCR took an idea to Barclays to produce a machine to dispense money through the wall. Barclays liked the idea and put up the funding to develop a prototype which went into a Barclays branch. Could that happen today?
    Incidentally, the guy who designed it still lives in the little bungalow in Scotland. he never got a penny for his idea for a technology that revolutionised banking around the world.
    Back in the early nineties, I was the senior ATM support consultant at Olivetti working in a large bank’s TPM deal. They had a problem with screen vandalism of their ATM’s. NCR charged Olivetti £200 for their screens each time and no-one could use the ATM until fixed, which lost the Bank revenue and up-time. We couldn’t pass that cost on to the bank.
    I took it on myself to investigate a fix for this and after a while, came across Pilkingtons who made fighter windscreens. Together, we came up with a screen that would stop a magnum bullet at one metre, wouldn’t craze over and was even blue, to match the corporate branding better. It was even better in strong sun. It cost us less than £19.00 a screen. They went into every vandalised ATM.
    The Bank never paid us a penny for that improvement despite all the effort and value to them.
    Ironically – and this is a true story – Lloyds had a reciprical ATM use deal with this bank and both directors met up on day. The Lloyds guy asked our bank guy why his customers could see our ATMs and not his own. He told him about us.
    I was sent down to Bristol to meet Lloyds, IBM and NCR to show our screens. I then had to fit them into several Lloyds sites around Bristol with a very uncomfortable NCR design guy. NCR, IBM and others with vested interests later vetoed the deal!
    I moved on and did a lot more stuff like this on the bank’s IBM RS/6000 systems to improve service levels. Other guys working around me did amazing work on other platforms – well outside the break fix contractual requirements, including staff help desk training.
    It just became the thing we were expected to do.
    The moral? You don’t value what you don’t pay for.

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