The Innovation Promise vs the Innovation Reality

When it comes to why SAIC failed to meet Smith's expectations, there's plenty of blame to go around. Smith suspects SAIC overstated its ability to move beyond the traditional provider's role of managing IT as a utility. He also admits that Entergy's leadership was unable to figure out how to manage the relationship with SAIC in a way that would encourage that kind of strategic involvement. Perhaps most important, despite what both sides said, innovation was never officially part of the deal.

"When we were all sitting in the room, there was all kinds of talk about what might be possible," says Smith. "And what was possible got sold a lot harder than what actually went into the contract." (SAIC declined comment on its relationship with Entergy.)

Smith is not alone in his frustration. Forrester Research reports that 42 percent of buyers are dissatisfied with the innovation provided by their primary outsourcer. According to a recent CIO survey, 44 percent of respondents were unhappy with the innovation provided by offshore outsourcers. (Twenty-one percent were dissatisfied with the level of innovation provided by domestic providers.) Of course, these numbers don't take into account IT leaders who are entering their deals with limited expectations or who are looking for more straightforward relationships with providers.

"When you talk to suppliers before the contract is signed, they talk innovation," says Mark Kobayashi-Hillary, offshoring director of the National Outsourcing Association (NOA), a UK-based outsourcing trade organization. "Once it's signed, they need to service the SLA. So you'll find outsourcers that hit all the key indicators and still the client is not happy." CIOs "look at the dashboard and see that everything's green," says Ben Trowbridge, CEO of outsourcing adviser Alsbridge, "but they still feel red."

According to an Alsbridge survey of 300 buyers of IT services, the biggest gap between outsourcing benefits sought and achieved exists around innovation. The same research found that suppliers themselves say that their inability to innovate to client requirements is their biggest challenge.

As was the case at Entergy, both sides, customer and provider, bear responsibility for the failure to deliver on the promise of innovation. Though EDS or IBM may sell the idea of transformation, and offshore providers like Tata Consultancy Services (TCS) or Satyam may say they want to deliver higher value services, the former can't afford to do so due to decreasing profit margins and the latter built their businesses on commoditizing IT services, not innovating. And while IT leaders may say they want something more than "your mess for less", for the most part they're still focused on price, according to outsourcing experts. Most IT shops, says Trowbridge, are unable either to manage the relationship with their outsourcers in a way that yields innovation or are ill-prepared to implement the changes they say they want. Even when buyer and seller think they're on the same page, a clear definition of what constitutes innovation is rarely built into the deal.

That leaves CIOs with two options if they're looking for innovation: Make radical changes to the way they establish and manage those relationships, or give up on the idea entirely.