Award winning benchmarking, sourcing and transformation advisory firm, Alsbridge, Inc., today released a report on“Squeezing the Life out Innovation in Outsourcing Relationships.” The report throws light on why innovation is viewed as underachieved in the client-provider relationship and how benefits of innovation can be achieved, as set out at the beginning of the RFP process.
“IT and BPO procurements increasingly require innovation and new ways in which it can be brought forward by providers,” says Ben Trowbridge, founder and CEO Alsbridge Inc., “Yet clients are negotiating pricing to the point of impairing the profitability of the outsourcing provider.”
Why “Squeezing the Life out of Innovation” occurs
1. The competition and negotiation process has driven the price down to the point that the provider’s main focus has shifted to figuring out how to deliver the base business profitably. During the RFP process, there are also activities taking place within the client’s organization where the goal of IT is to lower costs, yet maintain and improve service delivery while procurement’s main measure is low cost.
2. The ongoing transition and steady state due diligence process uncovers additional investment requirements in order to innovate. Due diligence prior to and during contract negotiations is often limited to validating resource baseline counts and documentation, and yet does not address what is necessary to upgrade the current infrastructure and the applications to deliver innovation.
3. The definition of innovation has many interpretations. The client understands the outsourcing provider has access to many more resources, and through a larger diverse organization, can deliver more IP then what it has within its own people, but defining what innovation is and how to tap the capability is another challenge.
4. Innovation costs money. Who makes and owns the investment? What is the business case? How is it going to be implemented? Clients often will find that innovation is shared amongst many of the outsourcing provider’s other clients and are not necessarily unique, but it is important to maintain industry competitiveness.
5. There exists a lack of collaborative client-provider governance processes. Innovation governance management should be an extended arm of the main governance function to avoid the daily conflicts involving baseline services.
Getting the Most out of Innovation
A path to acquiring innovation effectively starts with the provider:
- Describing the path as to how it will work with clients moving forward
- Presenting examples and using clients as references
- Promoting a strong collaborative client-provider governance relationship
- Demonstrating where the client currently lacks the capability and how its current competitive position can be enhanced
- And client recognition that innovation requires provider investment
With this approach, there is greater possibility of achieving a fair and balanced agreement between the client and the outsourcing provider, while obtaining the innovation benefits that were set out at the beginning of the RFP process.
For further details on the above, download the complete report Squeezing the Life out Innovation in Outsourcing Relationships.
About Alsbridge Inc.
Alsbridge provides world class sourcing advisory and benchmarking services for the CIO, CFO and CPO. We’ve helped hundreds of companies reduce costs and get more value from their vendors. Our experienced consultants leverage proprietary tools and information databases to identify and engage the optimal vendors for your situation, negotiate best practice terms at fair market prices, and improve the way you work with your vendors. Alsbridge clients utilize the most cost effective and value added sources globally for IT infrastructure services, hardware and maintenance, network services, software and maintenance, application support and development, business processes and cloud services. Alsbridge was ranked the #1 outsourcing advisor in the world by the International Association of Outsourcing Professionals (IAOP) based on the value delivered to clients. This commitment to delivering value to our clients has made Alsbridge a distinguished member of the 2010 Inc. 500 fastest growing privately held companies in America.