Keep 'Em Hungry and Other Strategies

Tips to get your IT services providers to innovate

Outsourcing providers are more likely to introduce innovative ideas if they're hungry. That's why Ed Hansen, partner in law firm Morgan Lewis's global outsourcing practice, often advises his clients to take IT services that might be ripe for innovation out of the defined scope of services.

For example, if you're on the verge of signing a $20 million outsourcing contract, $4 million of which is development work you'd like your provider to approach in a new way, make it a $16 million contract. "Give the outsourcer a position in your organization so that they can understand what's going on in your business and give them the opportunity to earn that $4 million by coming up with innovative project ideas," says Hansen. "It puts the economics back where it belongs."

The idea of actually encouraging your provider to continue to sell new ideas to you after you've sealed the deal may be a turnoff to some IT leaders, but Gartner's Dave Anderson says he's seen positive results. A customer may hold regular brown-bag sessions, during which his vendor pitches new ideas. The client requires that the vendor bring a third party either to back up the sales pitch or weed out ideas that are purely self-serving.

Some ideas have been approved and turned into additional work for the vendor. "You don't want to turn them into a bunch of used-car salesmen," says Hansen. "But if you take them out of that guaranteed revenue position and treat them as a trusted adviser, it encourages them to look for new opportunities."

They key words are "trusted adviser". To get innovation you have to "trust the vendor enough to let them under the tent, sharing and getting ideas," says David Rutchik, partner with outsourcing adviser Pace Harmon.

Not only do you have to give the vendor a seat at the table, you need to make sure you've got the right person in that seat. Hansen is currently renegotiating a nine-year outsourcing contract for a customer disappointed with the lack of value-added service provided by the vendor. The customer had stipulated that someone from the vendor sit in on CEO-level meetings, but that someone turned out to be the guy who "kept the lights on", says Hansen. "You don't want the data centre guy in on those meetings. You want the former analyst-types to be part of that."

Traditional outsourcing pricing models can also discourage innovation. "[CIOs] are starting to look at more innovative pricing models," says Ben Trowbridge, CEO of outsourcing adviser Alsbridge. One organization Trowbridge advised chose to go with the one vendor who offered a business metric-based pricing model. The customer would pay the outsourcer $1.15 per claim that was paid. Period.

"The provider had to think of all sorts of innovative technology they could use to make sure that they earned as many claims as possible," says Trowbridge. "The customer got the full benefit of working with a $US20 billion outsourcing provider; the provider has a chance to increase its margins by sharing in the growth of the customer's business."

- S OVERBY