Outsourcing driving innovation

Outsourcing is leaving old preconceptions behind and showing how innovative it can be. This presents both challenges and opportunities for outsourcing providers and their clients


Many companies are now using outsourcing to drive innovation, rather than using it for narrower goals such as cost reduction, according to a new report from outsourcing adviser Aecus, formerly Alsbridge plc.

Following a survey of business leaders and decision-makers, 83 per cent of respondents say they have witnessed innovation within their outsourcing relationships, with 92 per cent noting that their partners are keen to adopt new approaches to drive innovation.

This innovation is taking many forms, from incremental continuous improvement to project innovation (joint client-supplier projects), radical innovation (a major change to the service, underpinned by a new deal) and business innovation (which generates new ideas to improve the client’s business).

“This is a significant development in the evolving relationship between outsourcing companies and their clients,” says Paul Morrison, head of outsourcing innovation at Aecus. “It shows how outsourcing providers can offer new value to their clients, and how clients can benefit from the experience and knowledge of those partners. Perceptions are rapidly moving on from the old caricature of outsourcing as static and focused on ‘your mess for less’.”

Why is this happening now? “Outsourcing buyers and sellers have grown up. Buyers show more appreciation of what suppliers need to make a deal work. Suppliers are in a competitive market and are looking for new ways to work with their clients – and it just happens that a whole suite of emerging technologies is out there to be used,” says Mr Morrison.

He highlights two areas in which innovative outsourcing is making great strides: analytics and robotics. With the rapid growth of big data, clients are working ever closer with their outsourcing providers to make better decisions using analytics. According to research from Aecus, nearly half (46 per cent) of organisations have already implemented analytics in their outsourced operations.

Robotics offers the next wave of efficiency improvement and this could be the biggest change to the services industry for the next 20 years

“Take a call centre function,” says Mr Morrison. “These days an outsourcing partner can do much more than just handle the calls. The supplier is sitting on vast streams of data about customer behaviour and preferences, and the opportunity is there to convert this into recommendations about how the client’s products and services are delivered.

“Or take an outsourcing provider that maintains a website. Analytics can provide insight into how people use the site, addressing where visitors drop out without making a purchase. The outsourcer can be part of improving the client’s business, rather than just running the back office.”

Through innovative outsourcing

Another major innovation that is being driven by outsourcing is robotic process automation (RPA). “The cost benefits of outsourcing and offshoring have already been realised by many companies. Robotics offers the next wave of efficiency improvement and this could be the biggest change to the services industry for the next 20 years,” says Mr Morrison.

Essentially, RPA is the use of smart software to replicate process work previously done by humans. It differs from “normal” automation because of the speed of deployment and the use of specialised software to quickly replicate laborious manual work, such as data entry, report checking and form processing. Aecus has found that around a third (32 per cent) of companies have already implemented robotics while nearly half (44 per cent) plan to do so over the next three years.

Respondents to the survey noted that innovative outsourcing is driving a range of business outcomes other than cost reduction. Some 54 per cent of respondents have experienced improved customer satisfaction through outsourcing, 48 per cent have experienced revenue growth and 45 per cent experienced reduced risk.

This new era of innovative outsourcing is reflected in the Aecus Innovation in Outsourcing Awards, which recognised the achievements of 19 organisations such as Airbus, BT, GSK and Shop Direct.

“Outsourcing can be an engine of innovation,” says Mr Morrison. “Outsourcers and their clients are under pressure to achieve more and, by working together with the latest technology and techniques, innovation is possible. Our research and the Aecus Innovation Awards show how much is being achieved.”

However, he adds a warning. “Old habits die hard and innovation is still a challenge to both parties. Outsourcing providers need to ensure that they’re constantly developing their capabilities in emerging practices and technologies. Meanwhile clients need to ensure they have the right skills, incentives and governance in place, otherwise innovation will not get off the ground. There needs to be a dynamic relationship between the two parties.”

INNOVATION IN OUTSOURCING:

THE FIRST THREE STEPS

  1. Defining innovation

While precise definitions will vary, the key is to recognise that innovation takes many forms in an outsourcing context. Aecus typically breaks innovation into four basic forms: continuous improvement, project innovation, radical innovation and business innovation. Each type of innovation has different goals and requirements, and by segmenting the innovation opportunity, rather than lumping it all together, the chances of success are significantly increased.

  1. Funding innovation

Once you have defined innovation, and agreed this with your partners, you need a way to pay for the effort and investment to make it happen – innovation does not happen for free. The funding mechanism will vary according to the specific type of innovation in question, but the most common approaches are either a fixed price (a long-term “bet” by the supplier that they can deliver the innovation, typically focused on cost-reduction innovations) or gainshare (a mechanism for apportioning the benefits of the innovation between client and supplier when they reach a target level, which is suited to both cost-reduction and revenue-growth innovations).

  1. Getting the right enablers in place

The Aecus Innovation Awards have shown many common ingredients in the recipes for innovation success. Broadly they fit into three categories. Firstly is the right framework in place, such as the right supplier(s), the right contract and suitable governance? Secondly are good ideas being created, whether through research, benchmarking or by listening closely to your customers? Thirdly can you implement your ideas, by decisively filtering out weaker projects, bringing in the expert skills required to change and through active executive sponsorship?

ABOUT AECUS

Aecus (formerly Alsbridge plc) is an award-winning consulting firm that helps clients to get great results from outsourcing, offshoring and shared services. It helps clients by bringing deep-domain expertise supported by the best current market data. Aecus ensures clients avoid the pitfalls and maximise the benefits, developing sourcing arrangements that take advantage of the best the market has to offer.

Aecus is currently receiving submissions for the 2015 Aecus Innovation in Outsourcing Awards

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For more information please visit www.aecus.com