by: Yann Gourvennec

At Cisco France's request I wrote this brief article (see per below) on the role that innovation can play in customer relationships. This article will be published shortly in the client publication, which is entitled Ciscomag. In order to write this article, I used the material developed for a previous interview carried out in September 2007 for NextTimes, which is the Orange equivalent of Ciscomag for Orange Business Services (click here to read the September issue of NextTimes, the article being on page 2).

I have added a few recent references to this core material. The main purpose of this article is to lay the stress on our clients' requests for outsourcing and how they evolve. This is not the only goal however. In a recent article entitled, "is innovative outsourcing a pipe dream" (that title in itself in fact is causing an issue, because one wonders whether the journalist is referring to innovative outsourcing, i.e. outsourcing done differently, versus innovation within outsourcing, which is in fact the true subject), Stephanie Overby describes how difficult it is to execute on an innovation strategy within outsourcing. In essence, the future outsourced client wants his or her savings delivered (standard outsourcing savings being 20% on average, in this kind of contracts), and the vendor is therefore making a lot of promises with regard to innovation, which according to Stephanie Overby will seldom if ever be implemented. As soon as the contract is signed, the outsourcing service provider is caught in the daily woes of delivery and has literally no bandwidth left for innovation implementation. In many cases, Overby is right - and that was the case for the December client mentioned in my article (client name will remain hidden).

However, innovation in outsourcing is in my mind not a pipe-dream and here are the reasons why I think we can add a few nuances to Overby's conclusions. There is a case in my eyes for a halo effect (re. the halo effect blog and the book), i.e we are adding several causes which are not actually linked to one another. Besides, there is also a confusion between the relevance of a strategic objective and the quality of its execution:

  • Firstly, it all depends on how this innovation promise is actually formulated. The onus is on the client's representatives so that they work with the vendor in order to develop the precise framework which will define the conditions of the execution and the key success factors of a joint innovation programme. This is why I entitled this approach ' programme '. I didn't use this word because it sounded good; this is on the contrary a very careful choice of words. The word programme means "super project", very often complex and cross-organisational, which often serves as an umbrella for an array of sub projects. In this particular case, the contract is an outsourcing contract, but this is not making any difference with regard to the requirement for a programme to be set up. In other words, innovation doesn't happen by chance, it requires focus and planning,
  • Secondly, the implementation of the programme requires a very strict governance, which is often considered as a chore, and therefore not very interesting. Everyone will tell you they want innovation, but the head of innovation has to be able to stand up and speak up for his/her programme and defend the need for a real governance. This is not an easy task, and often very unpopular. This very strict governance is what is going to make a programme succeed. This is true of all programmes, not just innovation, and the programme has to be managed properly and at the right level (i.e. neither sales or operations). In the particular case of outsourcing, this is even more mandatory if you want to avoid slippage,
  • Thirdly, the financial aspect of the programme is very important and yet often minimised by management. However, without financing, innovation can NOT be delivered. Stephanie Overby seems to imply that clients want innovation for free, embedded in outsourcing contracts. I don't think this is true, and this is not what I witnessed in the field. On the contrary, clients who are really interested in innovation know that it has a cost, and are ready to invest in it. The most important failures, often come from clients who have not understood that innovation has a cost. In that particular case, the vendor also has a duty to educate its client, in the interest of both parties. As I am used to saying, there is no such thing as a free innovation lunch. I have never met a client who did not understand this perfectly,
  • Lastly, the allocation of resources and their level in the hierarchy is fundamental. Once again, this is a mistake that should not be overlooked. The failure to allocate a dedicated resource is a non starter. Choosing people whose competencies are not up to the job (the head of innovation needs to be good at marketing and technology, see my dossier on ICT marketing regarding this subject) is another non starter. Besides, such competencies have to be allocated on both sides of the contract (many of the failures in innovation within outsourcing contracts are due to the lack of a stable head of innovation on the client side).

There may be other points, but these are the main ones. Other details are available within our White Paper on innovation which describes our approach minutely.

Joint innovation: creating an "amazing" client relationship

Innovation has been on top of the technology agenda for a few years now. The end of the early 2000 Internet bubble has forced companies to take it into account in their strategies. As a consequence it is no longer viewed as a low priority and necessary evil, and it has now become an integral part of growth and sustainability. As a consequence, Technology vendors are also evolving their service offerings in order to propose more new technologies, and innovative service approaches too. Even in financially-driven outsource deals, clients are now demanding that innovation be a significant part of the process.

But how can we ensure that we are all talking about the same kind of innovation? There is a strong requirement for vendors to elicit the requirement for innovation in conjunction with their clients and develop a heuristic of creativity which will enable both vendors and clients to reap the benefits of innovation. In order to address these issues, it is required that we take a bit of hindsight and apply a very methodical approach. Paradoxically, innovation and methodology are less antagonistic as it may seem at first sight. In the first place, one has to elicit the definition of an innovation requirement and translate it into a solution. This is why Orange Business Services has developed its joint innovation approach and a whole range of methods and tools in order to make joint innovation happen.

At the end of December 2007, a large worldwide industrialist was hosting a meeting in London and inviting us there. The welcome speech of the head of sourcing started with a very open proposal: "We want this relationship to be an amazing relationship". When we were first invited at that client meeting we already knew what to expect. Innovation was the main reason for this large International manufacturer to terminate its current outsourcing contract with an incumbent supplier, three years only after it was originally awarded and despite the fact that its original duration was five years. This case is not isolated and is a sign that enterprises have become more mature in the way that they handle outsourcing and also with regard to the benefit they can expect from innovation with such constraints.

 

This change, we had measured time and time again, and also during a survey led by Orange on a panel of 600 Executives last summer (2007): 46% of respondents were saying that a joint innovation programme was a must-have, and 39% were declaring that it was a good thing. The focus of outsourcing has shifted away from being simply a way of reducing costs; now companies are recognising that outsourcers are partners and a great source of new business ideas. IT and communications are frequently integral to new services in sectors like financial services, media and retail, and so major technology partners, such as outsourcers, are taking a more dynamic role in their customers' innovation process. Outsourcers, by working closely with customers, have become the catalyst for developing 21st century solutions to existing business problems. Outsourcing is not just a chance to update existing technologies with new ones, although continuous improvement is an important part of the contract. It gives you the opportunity to set up the next iteration of your business model.

The joint innovation concept

Success depends on harnessing innovation between the two parties. Orange Business Services has an established and proven joint innovation program that helps to combine the innovations generated by Orange Labs, the experience of Orange's professional services who work closely with customers in diverse sectors, and the customers who know more about their own businesses than anyone else.

Sometimes people view innovation as the generation, prioritization and development of radically new ideas. But whether it's incremental or disruptive, innovation always benefits from experimentation that involved customers and partners. Analyst Forrester believes that these 'innovation networks' are growing in importance. Its research found that three quarters of CEOs across all verticals now view external collaboration as indispensable to innovation.

Orange has worked with diverse companies to develop and co-market new solutions. With AXA, Orange jointly developed a remote blood pressure monitoring solution for patients suffering from chronic high blood pressure. For London Waste, Orange developed a routing system to prevent rubbish lorries entering zones where lorries are prohibited. And for EADS and the design of its A340M aircraft, Orange Labs used an in-house 3D modelling tool in an innovative application: it merged it into its web conferencing tool so airplane engineers in multiple locations could view 3D models in a collaborative environment without having to fly to face-to-face meetings.

All of these companies have benefited from joint innovation. The program helps Orange customers to think beyond the typical boundaries of product development and at new ways of conducting their businesses, either at the operational level or in order to develop new services.

Joint innovation program

The Orange joint innovation program can be divided into two parts. The first is dedicated to uncovering potential business opportunities and high-level design of potential technical solutions. This joint innovation assessment (JIA) is where Orange evaluates the innovation context, environment and new ideas.

The JIA will present a series of prioritised innovation opportunities, which can then be carried forward to a pilot. Of course, not all ideas will lead to real projects. It's normal for ideas deemed sound at the outset to be excluded later on.

But the joint innovation program doesn't stop with assessments and the prioritisation of good ideas. The main benefit in engaging in that kind of process is about delving into actual project development in conjunction with Orange Business Services. This will typically involve piloting innovations within a controlled environment and if this is successful, the customized solution can be prototyped and brought to market. Orange Business Services will dedicate time and resources to the project in order to ensure that it delivers business benefits for its clients. The ultimate stage of joint innovation is about the generation of a new business model as was the case with lens manufacturer Essilor and the development of the Orange video goggles which are now sold in all Orange outlets in France. One does not need to invent a new business model to start a joint innovation program but this option shows how serious Orange Business Services is about innovating jointly with its clients.

Original Post: http://visionarymarketing.wordpress.com/2008/03/02/innovation-outsourcing/

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