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Two Ways IT Outsourcing Can Unleash Innovation

Published by SPK Blog Post
on December 20, 2011

One of the most frequently cited windfalls of IT outsourcing is the level of autonomy that’s created for internal IT staff who are able to devote more time and energy to pursuits aimed at benefiting the business. This includes innovative approaches to applying technology to help solve business problems or to create new revenue opportunities.

IT outsourcing can also spur innovation through well-constructed partnerships between customer companies and outsourcing providers. Companies that outsource one or more IT activities can jump start innovation by partnering closely with experienced outsourcing providers to identify new sources of revenue generation or to devise alternative approaches to tackling business problems. This works particularly well when both organizations have skin in the game.

One of the best examples of this involved a partnership that Xcel Energy entered into in late 2003 with six vendor partners, including IBM, Mercury Interactive Corp. and Itron Inc. to help the power company find new ways to improve its field service and internal business operations. All told, in early 2004 some 45 people from Xcel Energy and the six companies worked together on design development for nine business improvement projects.

Several components were critical to the success of these efforts. For starters, instead of focusing its IT outsourcing contract with IBM on cost containment, the deal was focused instead on achieving business results, including those that resulted from partnering on business transformation together. Another key element, according to a Computerworld case study on the partnership, was Xcel Energy’s decision to cede any of the intellectual property that came out of the development efforts to the outsourcing providers it had teamed with.

Early results of the teamwork included the rollout of automated meter reading technologies that send outage and performance information back to Xcel Energy’s headquarters. The use of automated meter reading technologies was extremely cutting edge for utilities in 2004.

Outsourcing customers can also stoke innovation by assigning their most creative IT staffers to explore opportunities for driving innovation in business, even if only on a part-time basis in addition to their other responsibilities. For instance, one midsize hospitality company that outsources a portion of its IT activities has assigned a handful of its IT staffers to skunkworks R&D teams to test emerging technologies such as the potential use of RFID tags and iPhone applications. These apps were eventually applied to various aspects of the company’s operations in order to improve aspects of the customer experience.

Obtaining innovation from an IT outsourcing partnership can be fraught with challenges around issues such as clear definitions of IT-driven innovation and lack of client involvement, as noted in a recent Forrester Research study. But when constructed and managed properly, this type of brainstorming can yield big rewards.

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