NOA Innovation Day
by Paul Corrall, sourcingfocus.com
Wednesday 8th June 2011
As companies struggle through the current austere times, many are investing in processes that will be cost effective and beneficial in the longterm.
Modern outsourcing relationships now offer and deliver much more than just cost savings.Businesses are often transformed through innovation to achieve far greater efficiency and productivity.
Innovation is perhaps the most misinterpreted term in outsourcing. It seems everyone wants a slice of the pie, but many are unsure of what the pie actually consists of..
The National Outsourcing Association’s Innovation Day was chaired by Lee Ayling, NOA Board Director for Innovation and featured the latest information and advice on how to implement innovation in your outsourcing deals.
Lee announced the results of the NOA’s latest research, carried out in association with KPMG, “Driving Innovation Through Collaboration” and looked at varying interpretations of innovation.
What is Innovation?
· Innovation has no standard definition and means different things to different people
· To avoid misunderstandings, definitions and expectations of innovation should be agreed upon with each service provider
· Innovation is not applicable to all service provider relationships
· Innovation is new ideas or ways of working to drive commercial gain and / or competitive advantage
Lee said: “Coming out of a financial crisis, many businesses are looking at innovation to increase their profit margins, streamline processes and improve services quality.
Following on from this, we felt the NOA needed to put together a very recent piece of legislation to investigate and highlight trends in outsourcing.
“Driving Innovation Through Collaboration” Research Highlights”
· 70% of respondents consider innovation to be very important and 50% are discussing innovation once a quarter
· Improving quality and lowering costs – but also decreasing time to market and replacing old legacy systems are key drivers
· Less than a quarter of all user organisations do have a formal innovation methodology to support the outsourcing process
· There is a disconnect between the way users and suppliers want to fund / are funding innovation
· Around 80% of the user organisations don’t measure innovation quantitatively
· Users and suppliers agree that both organisations should take the lead role for innovation, but that rarely happens in practice
· When innovation is important to you, consider appointing named leaders to ensure this topic gets enough attention
· User organisations can do much more to support their innovation initiatives
· Both users and services providers think most innovation is possible in ITO, KPO, customer care and niche areas, while least innovation is possible in BPO.
David Baker, formerly United Biscuits, discussed innovation in practice and focussed on how innovation was achieved as best practice at United Biscuits through the contract, governance, structure, behaviours, gainshare mechanisms and finance. David said: “Additions to original contractual arrangements are usually examples of true innovation. Suppliers should have full knowledge of how an end user’s business operates in order to effectively incorporate innovation in the best possible way.”
Innovation Lessons Learned
· Do it yourself before someone does it to you
· Get the contract right and the rest follows
· Create an environment for change
· Get the funds to demonstrate quick wins
· Don’t just look at “headcount or price savings” – reduction in working capital, right first time.
“Innovation distinguishes between a leader and a follower” – Steve Jobs
“Without change there is no innovation, creativity or incentive for improvement. Those who initiate change will have a better opportunity to manage the change that is inevitable”
“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow” – William Pollard
“Innovation is not the product of logical thought, although the result is tied to logical structure” – Albert Einstein
Debra Maxwell, arvato, emphasised the importance of relationships and transparency when developing innovation.
Debra said: “A true partnership should be used to push innovation and truly ‘innovate’. Transparency is very important with our clients, we need to be able to see what is happening and what is not happening in order to bring change.
“Service level agreements need to outline exactly what requirements are needed.Space is also very important when trust is involved. Time is needed for trust to be earned through results and expectations which are met.”
Nick Pantlin, Herbert Smith, discussed contractual innovation in outsourcing and gave examples of two innovation contracts.
· Innovative Contractual Structures
Frameworks/New contractual structures
· Innovative Contractual Provisions
Nick said: “In this age of austerity, outsourcers are required to provide more for less. Is innovation something that can actually be contracted for and do end users really know what they want when they ask suppliers to ‘innovate’?
“It is also hard to present on innovation without mentioning the cloud which is one of the tool sets set to change the outsourcing landscape.”
Will McAllister, Aegis, provided a view of innovation from a supplier perspective and outlined examples of best practice.
· Innovation which drives a better business outcome is the goal – keep it real
· Innovate using the knowledge collateral that your colleague community represents.. and your clients if possible
Will said: “Innovation takes a number of forms but to be considered as innovators we must address them all”.
IIan Oshri and Julia Kotlarsky presented the latest Warwick Business School research on innovation in outsourcing.
In early 2009: A survey of 263 CIOs and CFOs of the largest firms in the UK andother European countries about realizing value in outsourcing.
In late 2010: A survey of 253 CIOs and CFOs of the largest firms in the UK and other European countries about innovation in outsourcing.
Qualitative input from both surveys was obtained along with indepth interviews on key findings with CIOs and CFOs from leading European multinationals. Input from research was conducted with a dozen multinationals on their outsourcing decision making processes, practices and impact on their business. IIan commented: “Many organisations do not effectively measure the effects of innovation or even allow room for innovative practices. It is really hard to envisage what innovation will be and it is very hard to imagine at the beginning of a partnership what that will be.”
· Client firms want vendors to deliver innovation that has significant impact on the firm performance
· Client firms don’t want to pay extra/premium for innovation
· Contracts are not designed to accommodate innovation
Jim Hemmington, Head of Strategic Contracts, BBC, outlined how the BBC continues to drive innovation in its outsourcing contracts.
Outsourcing at the BBC fell down to three reasons: cost reduction, service improvement and business improvement.
BBC Outsourcing Requirements
• Maintain quality
• Control cost
• Achieve value
• Increase value
• Meet customer changing needs
• Do more for the same
Supplier Outsourcing Requirements
• Retain margin
• Increase margin
• Take out cost
• Increase scope
• Achieve lowest acceptable quality
• Do the same for less
Jim said: “You need a sense of urgency to drive real innovation along with an incentive. Risk always comes with real innovation and unless you have open and frank discussions with your suppliers, you will never really reap the benefits.”
The interactive breakout sessions at the end of the day focused on three key topic areas of innovation in an outsourcing context
1. How should organisations document and contract for innovation?
2. How should organisations govern, manage and measure innovation?
3. What are the people and roles needed to drive successful innovation?
The breakout session groups discussed a number of item in each area and then selected a primary item for discussion on each topic to feedback into the main session
Documenting and Contracting
· clear visibility in contract
· incentives on a corporate and individual level
• Use of incentives in the contract to drive innovation – including the use of
both corporate and individual incentives (selected idea)
• Definition of what innovation is and isn’t required up front (shortlisted)
• Use of competition to drive innovation (shortlisted)
• Drive short term innovation by competitive threat
• Document mutual expectations
• Access to senior execs with a board to review ideas
• Clear IP agreements
• Simple friendly contract language
• Innovation framework with decision trees
• Capped T&M / hybrid commercial model
• Penalties for not innovating
• Painshare approach
• Seconding supplier people into client to understand business
• Documented customer led process
Measuring, Managing and Governing
• Create an “Innovation Forum” to air ideas across end user and supplier teams and organisations (selected idea)
• Innovation as the first topic on the governance agenda (shortlisted)
• Clarity of R&R and incentives
• Collaboration between procurement and inlive service teams
• Agreed metrics and measurements
• Focus on guarding against not invented here / use of different hats approach
• Clear baselines to measure benefits against
• Best practice / case study achievements
• Communications in and between both parties
• Supplier personnel continuity
• Clearly documented, communicated and understood objectives
• Named leaders for innovation
• Links to wider teams
• Considered deployment roadmap / effective prioritisation of innovation
People, Skills and Roles
•Strong leadership with clear objectives
• Focus on innovation through reskilling and strategy
• Reskill the retained organisation to focus on innovation and strategy and less on marking supplier organisations (selected idea)
• Named innovation leaders with credibility in their organisations (shortlisted)
• Empowerment and sponsorship from above (shortlisted)
• Get direct ideas from the “customer” (e.g. users in the business)
• Clear communications that everyone should be able to contribute ideas etc
• Tapping into the wider supplier workforce
• Swap / imbed roles between the organisations to give teams each other’s view points
• Use of Lean etc process reviews and redesign
• Ensure suppliers bring in the ideas of their subcontractors
• Planning for what roles and skills required to deliver innovation are needed
The seminar came to an end with a panel discussion and networking with drinks.
Please see the Innovation Day slides for further information and visit http://www.noa.co.uk for details on upcoming NOA events.
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