A client asked me last week what terms or clauses he should build into his outsourcing contract to get the service provider to generate more innovative solutions. I wish I had an easy answer.
I believe the place to start is WITH the service provider at the table. Both parties need to agree on how innovation will be defined. I don't think companies will get anywhere if they push contract terms -- of any sort, not just innovation -- AT their service providers. Vested Outsourcing is all about figuring out What's In It For We, and doing that TOGETHER. And that's not just philosophy. Our research shows that when companies work together, they will achieve more.
The innovation needs to have a foundation in business objectives. Those objectives can be around cost, quality or competitiveness. And they need to be baselined. How will you measure the impact of innovation?
Once the two parties have agreed on what sort of innovations they want and the outcomes they want from those innovations, then they can build relevant terms into the contract. You can find components of a contract strategy to drive innovation in several sections.
These include pricing model, incentives, governance, metrics and performance, and of course legal boilerplate (think intellectual property ownership). Most important is right up front, at the top of page 1, a documented shared vision.
Be aggressive with your shared vision. This should be more than a stretch goal. It should be a Big Hairy Audacious Goal. The kind of goal that makes you nervous, unsure how you’re going to achieve it.
Next most important is that you define a mechanism for rewarding the service provider for innovating. Then, use your governance structure as a forum for developing innovations. Make sure your weekly or monthly performance reviews, even your QBRs, spend more time dedicated to answering the question “what can we do better?” rather than “how did we do last month?”
What shared vision have you and your outsourcing partner defined for innovation?
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