outsourcing and innovation michael weeks saïd business school university of oxford © 2003, michael...

Outsourcing and Innovation

Michael Weeks

Saïd Business School

University of Oxford

© 2003, Michael R. Weeks – All Rights Reserved


IT – Then and Now

Automate Technology

Competencies Generalized

Knowledge Cost Reductions Technology

Knowledge Acquiring Knowledge

Transform Human

Competencies Specialized

Knowledge Value Creation Strategic

Knowledge Continuous Learning


Innovation from Outsourcing

Is this a paradox or a necessity? Does anyone really expect innovation? What kind of innovation do they want –

incremental or radical Is anyone happy with their innovation

outcomes?


The Innovation Process

Client Supplier

Relationship

Innovation

- Sourcing Strategy- Core Capabilities

- Formal R&D Structure- Workforce Development

- Attitudes to Innovation

- Length of Contract- Innovation as a Goal?- Obligations- Power Sharing- Division of Risks/Benefits- Trust

-Types of Innovation- New Technology Development/Adoption- New Business Processes- New IT Management Processes

- Benefits - Lower Costs/Efficiency-Competitive Advantage

- Perceptions of Innovation- Expectations of Innovation

- Client-industry scope- Knowledge Transfer Practices- Scope of Services Delivered- Workforce Development- Attitudes to Innovation


Alignment of Interests Three categories of Alignment – Natural, Unimportant,

Unnatural How do we make sure that our goals align with our

outsourcing partner? Different steps for each situation

Natural Alignment – easiest category – metrics are difficult but not terribly important

Unimportant – metrics become the key driver – telephone services is an example where alignment can sometimes be considered unimportant

Unnatural – Relationship management becomes critical – Expectations and perceptions must be managed constantly


Prerequisites for Innovation - Trust

Trust is required for innovation

Typically starts out high-initial euphoria over completed deal

Top management must set the proper expectations

Starts decreasing with initial operational difficulties

Begins to recover after relationship matures

Typical Trust Life-cycle

Trust

Time - Years

1 2 3 4


Prerequisites for Innovation - CIO

Some organizations think that an outsourcing deal eliminates the imperative for a strong CIO

Strategic direction can typically only come from the CIO – someone must aggregate all the competing requirements for resources

Firms without a strong CIO tend to complain that their outsourcer is not proactive with innovative ideas


Prerequisites for Innovation – Absorptive Capacity

What is absorptive capacity? Are we an intelligent customer? The role of retained IT – Technical

Troubleshooter or Horizon ScannerFrequently the outsourcing firm feels that the

retained IT personnel “get in the way”


Prerequisites for Innovation – Absorptive Channel and Process

How do we get ideas into the relationship?What communications processes are in placeHow broad are those processes

What do we do with these ideas? Is there a defined innovation process?Project management skills are key?Leadership must shift role from supervisor to

sponsor/champion


Risks and Rewards Risk management is not risk elimination Risk sharing must be sorted Value estimation is difficult

Outsourcing brings cost transparency Outsourcing does not bring benefit transparency

Reward sharing arrangements tend to be less difficult—however, realization of rewards is difficult to measure

Even the most savvy customers cannot always resist the temptation to focus on costs and not value

Again trust rears its head – Risk/Reward sharing requires trust


The Innovation Paradox Trust is required for innovation Operational efficiency tends to build trust Innovation disrupts the status quo which causes

operational difficulties Operational difficulties decrease trust Therefore, a highly innovative environment risks

weakening trust Therefore, creating an environment of

‘continuous innovation’ becomes extraordinarily difficult


Summary - Overcoming the Paradox

Contracts are great at spelling out service requirements—but they are not great at specifying roles and processes

Communication channels must be clear with the necessary breadth and depth

Strategic direction must come from the client CIO—not the outsourcer

Managers must be conscious of the different roles (i.e. supervisor and sponsor) required in order to foster innovation


Thank you!Michael Weeks

Saïd Business SchoolUniversity of OxfordPark End Street Oxford OX1 1HP

Telephone: +44 (0)1869 322 355

http://weeks2000.com

[email protected]

outsourcing and innovation michael weeks saïd business school university of oxford © 2003, michael...

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