Service Providers Tell All: How to Improve Innovation in Services Relationships

Clients often complain that they don’t get enough innovation from their service providers, so we asked a group of providers at our recent Sourcing Industry Conference about why this might be. They defined innovation as a two-way street and said their clients don’t understand the collaborative process needed to foster innovation. They also noted that the contract between service provider and client can cloud the matter with vague promises of innovation but that it often lacks specificity on how to create innovation and the critical and engaged role of the client in developing a genuine innovation cycle.

When we mentioned “gainshare” as a motivator, the providers snorted, not because it wasn’t viable, but because they said pat industry answers alone cannot solve the deeper problems of creating trust and understanding in a services relationship. Trust is essential to encourage innovation and creativity. Both parties have to accept and embrace the paradoxical nature of the relationship (in which the client is interested in savings, the provider in profits) and use that in a structured process to drive the best thinking and engagement from both sides.

The following ISG Top 5 points distill the ideas we gained from service providers about how to handle this difficult-to-deliver subject.

1. Define innovation together. Clients have many different perceptions of innovation; the lack of a common definition between client and service provider can create unrealistic expectations or preconceived ideas on the part of the client, which creates uncertainty. If the client’s criterion is only savings, that will inhibit both the discussion and the provider’s ability to bring forward ideas with a wider application to the client’s business.

2. Integrate innovation throughout the business.
Not all client companies have a culture of innovation in the back office services. Many companies see strategic planning and innovation only on the product side of the business. Finding a way to bring together the business strategy and planning with the business operations will allow the provider to deliver innovation that matters to the client’s business.

3. Invest in innovation. Technology and back office services can be seen as cost centers. Even though clients insist on contractual obligations for the provider to deliver innovation, clients are generally not interested in innovation if it costs more, a perception that closes the door on options in emerging technology or services areas which may require investment to obtain the innovation or savings result. In addition, pressures on the provider to continuously provide cost savings to the client means less margin that could incent or pay for innovation.

4. Recognize the difference between “Big I” innovation and continuous improvement. Client business executives expect business innovation, but operations executives expect technical and process innovation; it can be difficult to bridge the gap and create meaningful solutions that support both areas. Some forms of continuous improvement can be very valuable to a client both from an efficiency and a cost savings perspective but do not get the recognition as “Big I” innovation.

5. Bring more minds to the table. Multi-service provider environments, which are the norm today, require a number of providers to be engaged in a complex services situation. The provider can bring leadership to this kind of multiple player situation, but the client must be the driver. We have seen interesting situations where clients have been able to do this, but this is not yet an industry trend.

Defining innovation in your services relationship is a good place to start. See my recent Consider the Source post, Rethinking Innovation in Outsourcing: Defining Outsourcing Innovation or contact me for more ideas on this subject.

By Cynthia Batty, ISG

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