Now here is a very interesting article. If you read the entire article, and I would suggest that you do, you will find that CIO after CIO is moaning about the fact that their outsourced vendor is not providing innovative services. The technology stack layer (whatever bit, whether application down to data centre) is stuck at the time when the contract was signed and the SLA was written.
I am not surprised and nor should you be. Why on earth would you actually expect your outsourced vendor to provide innovation? Let me be blunt. Do you expect your sewer facility provider to provide innovation? Or how about your postal provider? How about asking if your electricity provider is providing innovation? No? What about the provider of your cleaning services? If they are not providing innovative services, why are you expecting your data centre or application support services vendor to provide innovation?
The fact that you are expecting innovation to come from your vendors means that you have lost your people. This is far too common, I am afraid. You outsource on the basis of a big fat contract, an SLA which defines service levels down to the number of breaths that the service personnel can draw in 1 minute, the costs and and and. That inexorably leads to a concept of keep quality at the level defined and try to do whatever possible to reduce the costs. Which means labour arbitrage, service arbitrage or technology arbitrage. But YOU do not get the benefit, the provider is getting the benefit. So instead of having ceramic pipes for your sewer, they have put in plastic pipes. Who gains? Not you. But you do not care, you care about your business.
And if you were taken in by the salesmen from the outsourced vendors who said that they will be strategic partners and innovators, then perhaps you might want to get some reality checks. Sales people will say anything to get you to sign on the dotted line.
So how do you get the benefit? Well, think clearly about why you are outsourcing. Are you outsourcing because you can only provide those services at a higher cost than outsiders? Then what you are looking at is a cost innovation driver. So build in falling cost targets or increased bonus levels at increased quality levels per period into the contract. That way you capture the benefits of better technology by the outsourced vendor. Incentivise them to come up with better ways to do your business.
Secondly, get the best relationship managers you can afford and then some more. These relationship managers are a rare breed but they are the people who can talk to your business and then translate that into what you want the outsourced vendor to do. When you outsource, you remove the feedstock of your best relationship managers, the boys and girls with 2-3 years of experience. Do not lose them, tie them into your firm.
Third, have a strategic innovation team. Not a big one, 4-5 people. Explicitly incentivise them to come up with 10 ideas per year and also get them on an exponential bonus scale if they manage to operationalise 1-2 ideas per year. So that way, they do dream but some of the dreams are grounded in reality. And it wont cost that much either.
Fourth, make sure that you are able to flip your outsourced vendor. Competition is a great way to pull in innovation. Make sure that your vendors know that they have to pitch for the business every 3 years, and that way, they will be on their toes.
All this to be taken with a grain of piquant salt!!!
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