As outsourcing matures, clients are expressing a desire to take it to a “next level” where overall business value, rather than cost savings, is the key objective. There is an ongoing debate about doing away with the term “outsourcing.” Though the industry wants to rebrand itself, it can’t seem to come up with a term that describes this more nuanced view. I like “smartsourcing.”
Smartsourcing offers the following characteristics which are not customarily found in traditional outsourcing:
1. A comprehensive end-to-end approach
2. Collaborative Business Process Outsourcing
3. Outsourcing governance
3. Making change management a priority
4. Seeking value beyond cost reduction
5. Laser focus on business outcomes
6. Domain expertise and analytics
7. Transforming retained organizations
8. Using information technology, especially leading-edge cloud technology, as a business enabler
Smartsourcing helps companies cuts costs; fosters long-term, mutually profitable partnerships with third-party providers; and facilitates continuous, measurable, incremental and demonstrable innovation.
Smartsourcing’s benefits are obvious. But how does one move from a traditional outsourcing model to a smartsourcing model? These six steps provide a blueprint.
Step One: Strategize innovation where executives consider what type of innovation is expected (i.e. incremental or radical) and what the expected impact of this innovation is at the operational and strategic level.
Step Two: Design measurement instruments where executives determine how to assess the improvements achieved through either incremental or radical innovation.
Step Three: Assess vendor’s innovative capability where executives are required to develop a methodology which guides them to consider the innovativeness of the vendor as part of the other vendor selection criteria.
Step Four: Design a contract for innovation where the contract is crafted to include performance targets and compensations for incremental innovation and a clear roadmap to form partnerships in order to achieve more radical innovation.
Step Five: Build relationships where the client firm and the vendor invest in mechanisms that support the ongoing development and renewal of their relationships as a complementary element to the contractual approach.
Step Six: Measure innovation where the client firm monitors and verifies meeting performance targets in incremental innovation and the health and performance of the radical innovation network.
Marc Kauffmann is the president of The Kauffmann Group, LLC, a management consultancy featured in New York Times best-selling author Seth Godin’s book, “Bull Market: Companies That Make Things Happen.” He has 25-plus years of expertise in the evolution of innovative business practices, market approaches, product/service offerings and information technology. You can follow him on Twitter @Marc81753262 or find him on LinkedIn.