Innovation lacking in Outsourcing business

October 19, 2011: According to researchers, one of the problems that disappoint outsourcing customers is the lack of innovation and value addition from the part of outsourcing suppliers. Even though managers are generally pleased with the cost savings and the quality of service provided by outsourcing vendors, these services have failed to delight and surprise the customers in terms of creativity.

Usually outsourcing arrangements are made based on standards and specifications which make innovation in outsourcing a dream. What customers do repeatedly is that they make comparisons between outsourcing vendors and gives out compelling service level requirements and create requests for proposals. The vendors compete based on price and the one offers lowest price wins. The negotiations continues over a long period during which the profit margin of the vendor is reduced, but sill he manages to deliver what has been mentioned in the contract terms at a reasonable profit. The customer earns savings in terms of cost and carefully goes through the Service Level Agreement reports and waits for the delivery from the vendors. After the providers deliver what they are supposed to deliver, the customer starts to wonder about the innovation he was supposed to get.

The truth is that the outsourcing providers are not encouraged to take bold steps and to take risk in the existing deals. They have to follow standardized procedures which help them to increase operational intensity and make savings. The customers are also demanding in terms of stability which helps them to reduce disruptions at the user end. While following standardized operations, it brings in more savings, but not innovation.

Innovation always involves risk and need more effort and investment. Customers are not ready to accommodate for the disruptions that arise out of innovation. Outsourcing offers benefit in terms of reducing cost, but they will be more benefited with innovation.

Customers who are really serious about innovation should follow a different approach.

They should:

1.      Work in collaboration with the suppliers in terms of requirement

Most the customers often select suppliers based on price comparisons. In order to select suppliers customers provide them with their requirements and in such a situation there is no room for creativity. Some customers take a different approach by collaborating with suppliers by providing information on their business and operation with prospective suppliers. This will help customers to get creative options from suppliers by making use of their strengths. In addition to this it will help customers to understand the benefits and drawbacks of the various options.  

2.      Reduce resistance to change

Resistance to change from the part of customers is factor that affects innovation from the part of outsourcing suppliers. Executives should take initiative to identify the barriers to change and take measure to remove these barriers. Change should be given due importance in order to bring about innovation in outsourcing.

3.      Do proper joint planning

 Most of the customers and suppliers collectively plan for transition. But stress should be given for joint planning for innovation after transition. This will help in giving attention for ideas that come up after transition.

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