Forrester’s research into outsourcing frequently shows buyers berating providers for failing to innovate. Most recently, Forrester’s Enterprise IT Services Survey, from April 2007, threw up new evidence. Of more than 1,000 IT executives we interviewed, 28 per cent said their outsourcing provider was unable to respond rapidly to changing business needs.

There are two areas of focus that could close this innovation gap and help to alleviate the grumbles.

First, buyers must recognise that outsourcing at its best is rooted in focused innovation. Leading service providers such as HP, Capgemini, IBM, and EDS have to innovate just to meet the demanding cost-reduction expectations of clients. These firms labour to consolidate and rationalise infrastructure, implement strong service management disciplines and processes, and impose structured metrics and measurement on service delivery. This is real value-generating innovation, delivering a more reliable, agile infrastructure, often at substantially reduced cost. But too many stakeholders inside the client do not recognise this innovation because its impact does not by itself provide direct business performance gains.

Customer owners of outsourcing relationships need to address that failure of communications and make sure their colleagues grasp the true value of the services delivered.

Second, buyers of outsourcing must stop wanting to have their cake and eat it. They want to impose a contract that drives the outsourcer to deliver a rigidly commoditised service at a rock-bottom price. Simultaneously they expect the provider to bring all kinds of improbable performance improvements to the business. Service providers compound this problem by promising a raft of improbable inputs from company scientists, research facilities, centres of excellence and the like ­ but allowing the client to studiously ignore such niceties in the hard language of the contract.

Both sides need to break away from this destructive collusion during the negotiation of outsourcing deals. Clients that want innovation built into an outsourcing contract have to directly express this in the contract ­ and be prepared to pay a market price for the added value. Outsourcing providers in turn must clearly represent the various areas of value delivery they offer ­ from commodity desktop services, for example, to business performance consulting ­ and properly represent to the client how to procure those services on appropriate terms.

Too many outsourcing buyers still approach the contracting process as an adversarial contest to be won on all terms. To combat this imbalance, outsourcing advisers such as TPI have begun to talk increasingly of promoting a more win/win-oriented approach to setting up outsourcing relationships.

Forrester can only agree ­ and if the market can act upon this advice, then that might see the first tentative
steps taken to lay to rest the old moans about outsourcing’s innovation deficit.

Andrew Parker is vice president and research director at Forrester Research

Computing readers can download Forrester Research reports free of charge at www.forrester.com/computinguk. For more information on Forrester’s Sourcing and Services Forum held on 29-30 November in Nice, visit: www.forrester.com/sourcing2007