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Apr 16, 2009

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Another innovation factor to consider is what have you paid for? Extremely low cost driven contracts for basic services approaching commodization are not going to see annual innovations aligned to each customer’s internal business goals. Buyers should gain from efficiencies and enhancements the provider makes to their platform to remain competitive over time – for more major innovations they will have the opportunity to purchase the upgrades.

Transformational partnerships with customized goals for innovation over the life of the appropriately funded contract need to sharply align and define what innovation means, how projects will be selected, what is included in the pricing and what will be added cost.

We had an “innovation fund” built into our HRO contract that was funded by both parties. You cannot always see and define the needs over a five to seven year contract as business needs will change. The initial enhancements to be delivered as part of transition were well defined. In addition we annually identified list of projects and jointly selected those that would be developed out of the innovation fund.

The term innovation means "a new way of doing something. It may refer to incremental, radical, and revolutionary changes in thinking, products, processes, or organizations. For example, innovation leading to increased productivity is the fundamental source of increasing wealth in an economy." It's the same for a business.

Outsourcing can be a major catalyst for companies to innovate, as long as a provider and a customer can work together to redesign processes to increase the firm's competitive performance. If the outsourcing engagement is a simple "lift and shift", the only way to increase competitive performance is for the service provider to achieve operational metrics better than those attained pre-engagement. But that's not doing something new, it's simply improved efficiency.

Roger, you make a great point that the CEO's stated goals need to be tied in with an outsourcing engagement, but that's only going to bring innovation if the business transformation drives revolutionary changes in the firm's processes to achieve them,

John O'Sullivan

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