1. Innovation in an Outsourcing Relationship
Seminar ICT Contracten voor Juristen
IIR Legal
Alan Steele Nicholson
a.steele@mitopics.nl
Walter van Holst
w.van.holst@mitopics.nl
30 august 2012
Onafhankelijk IT-advies vanuit de combinatie van technische, bedrijfskundige en juridische expertise
2. Independent IT consultancy
through technical, business and legal expertise
Strategy Contracting
Feasibility studies Contracts and SLAs
IT policy Negotiation
Change management Dispute resolution
Procurement Assessment
(Out)sourcing Audits
European public sector procurement Valuations
Contract management Expert reports
Renewal And
Programme of requirements Second opinions
IT and partner selection Project management
Implementation management Workshops
3. Innovation in an Outsourcing Relationship 3
Agenda
Introduction
PON’s Innovation Workgroup
Lessons Learned
PON’s Standard Outsourcing Contract
Discussion
4. Can innovation happen after the ink is dry?
Platform Outsourcing Nederland
‘Creating innovation by outsourcing and alignment’
8 December 2010
Alan Steele Nicholson
a.steele@mitopics.nl
5. Where does it go wrong?
Creating innovation by outsourcing and alignment 5
It’s human nature. People like watching the
vendor grovel and getting them to come down in
price. The client deal team comes back and
everyone congratulates them on how they
kicked the vendor’s butt. But in the end, you get
what you pay for.
– Ben Trowbridge, CEO
Alsbridge plc
“
”
6. Pick up where PON left off in 2010
Review previous studies; build on them:
Academics and practitioners
Gather/circulate actual cases
Link up with groups abroad
Prepare a seminar & whitepaper
Task of PON Innovation Workgroup
8. Addedvaluetothebusiness
Low High
Low
High
Improve the
business
Improve the
business
Optimize ITOptimize IT
Impact on and risk for the organization
Innovate the
business
Innovate the
business
Optimize IT operations and services
Optimize IS development & change
Optimize systems and IT architecture
Optimize/cut IT cost
Improve customer service/convenience
Improve business processes (speed,
time to market, reliability, flexibility)
Improve/cut business cost
Improve market approach
Create new business
New products/services
New customer groups
New business models
New markets
Radical
innovation
Incremental
innovation
What is the level of innovation?
Spoor & Silvius (Presentation, 2010)
9. Time
Maturity level
Cost Stage
Economic Benefits
Transaction cost
Contracts
Principal – Agent
Firm Boundaries
Cost Stage
Economic Benefits
Transaction cost
Contracts
Principal – Agent
Firm Boundaries
Resource Stage
Access to resources
Innovation
Strategic Resources
Core Competences
Skills & Capabilities
Resource Stage
Access to resources
Innovation
Strategic Resources
Core Competences
Skills & Capabilities
Partnership Stage
Alliance
Economic Exchanges
Relational Norms
Social Exchanges
Stakeholders
Partnership Stage
Alliance
Economic Exchanges
Relational Norms
Social Exchanges
Stakeholders
Gottschalk & Solli-Seather (journal 2006)Gottschalk & Solli-Seather (journal 2006)
Improve the
business
Improve the
business
Innovate the
business
Innovate the
business
Optimize ITOptimize IT
10. Source of innovation in an outsourcing
Reactive
Innovation
Organisations
’s Innovation
Proactive
Innovation
Collaborative
Innovation
Level of domain expertise
Van der Linden (IEEE Conference, 2011)
11. What are the enablers/disablers?
Weeks & FeenyWeeks & Feeny (scientific paper, 2008)(scientific paper, 2008)
13. Conclusion
Think about at what level you want to boost innovation
Think about your maturity level of outsourcing and
innovation
Think about where innovation within organisation can
come from
Think about what and who the enablers/disablers are
Think about the impact of different cultures on innovation
15. Addedvaluetothebusiness
Low High
Low
High
Improve the
business
Improve the
business
Optimize ITOptimize IT
Impact on and risk for the organization
Innovate the
business
Innovate the
business
Optimize IT operations and services
Optimize IS development & change
Optimize systems and IT architecture
Optimize/cut IT cost
Improve customer service/convenience
Improve business processes (speed,
time to market, reliability, flexibility)
Improve/cut business cost
Improve market approach
Create new business
New products/services
New customer groups
New business models
New markets
Radical
innovation
Incremental
innovation
What is the level of innovation?
Spoor & Silvius (Presentation, 2010Spoor & Silvius (Presentation, 2010)
16. Do’s
Describe architectural framework/ limitations
Establish incentives for innovation
Sufficient know-how available in client organisation
Match needs with supplier
Implement standard approaches
Focus on requirements: ‘What’ do parties want (not ‘how’)
Enable process improvements E2E (chain)
Formal lessons learned sessions at end of contracts
17. Don’ts
Dictate or limit the solution
Enforce own standards
Focus on rates only
Not pay enough attention to innovation within contract
Ignore the win/win
Make it supplier’s problem
18. Observations
Most innovation organized in selection phase, not
contract phase
Technology roadmaps support operational
innovation
Challenge for ongoing relationships: More
efficiency means often less money for supplier
19. - doing the game differently -
Business Process innovation
20. Addedvaluetothebusiness
Low High
Low
High
Improve the
business
Improve the
business
Optimize ITOptimize IT
Impact on and risk for the organization
Innovate the
business
Innovate the
business
Optimize IT operations and services
Optimize IS development & change
Optimize systems and IT architecture
Optimize/cut IT cost
Improve customer service/convenience
Improve business processes (speed,
time to market, reliability, flexibility)
Improve/cut business cost
Improve market approach
Create new business
New products/services
New customer groups
New business models
New markets
Radical
innovation
Incremental
innovation
What is the level of innovation?
Spoor & Silvius (Presentation, 2010Spoor & Silvius (Presentation, 2010)
21. Do’s
Relationship based on trust and measurement
Soft skills and hard skills are always needed
Co-creation is possible
Innovation does not have to be part of the standard
contract
Innovation governance
Business / Domain knowledge
22. Don’ts
Deadlock: expecting the other party to start it
Focus on the contract
Independent actions
Not focusing on orthogonal innovation
Learn from other sectors
Outside your own scope
24. Addedvalueto
thebusiness
Low High
Low
High
Improve the
business
Improve the
business
Optimize ITOptimize IT
Impact on and risk for the organization
Innovate the
business
Innovate the
business
Optimize IT operations and services
Optimize IS development & change
Optimize systems and IT architecture
Optimize/cut IT cost
Improve customer service/convenience
Improve business processes (speed,
time to market, reliability, flexibility)
Improve/cut business cost
Improve market approach
Create new business
New products/services
New customer groups
New business models
New markets
What is strategic innovation?
25. Case study: Internet payment –Atos
1. Clear ownership and executive sponsorship
2. Clear responsibilities and governance
3. Trust
4. Transparency in objectives for both parties
5. Separate agreements for Innovation
6. Attention for communication
7. Commitment (long term, flexibility)
8. Capabilities (provider as well as customer)
26. Don’ts
- Stating the obvious:
No clear ownership
No alignment between or even within partners
Not enough attention for Innovation in contract
Not challenging the win/win of both parties
The (consortium of) client(s) should not focus
on technology requirements: leave this to the
IT partner
No Cultural fit
27. Conclusions:
• Level of outsourcing is important
• Flexibility is essential: parties are in a greenfield
• Strategic innovation does not originate from an
outsourcing contract
• The majority of strategic innovation initiatives
originates within the customer organization
• All the disablers found were obvious
• Parties underestimate strategic innovation challenges
28. Contracting Approach
For the contractual aspects, the contract is not
the only aspect…
For certain innovation, the contract is not even the
most important aspect
Contract
Contract
Management
Contracting life-cycle
RFx Process
29. Output
Best practices for of innovation throughout
contracting life-cycle:
RFx-phase: checklist
Contract: checklist & example clauses
Contract management: checklist
Best practices were similar for all types of
innovation, except for Strategic Innovation
30. RFx phase
Get incentives right
Pick right supplier
Set (mutual) goals and expectations
Set transparent business process(es) and domain
knowledge
Dedicate resources (people, approp. expertise, funding)
Establish path towards trust
Draft approp. clauses set up contract management
Process & strategic innovation: establish long-term
commitment
31. Contract
Define innovation required/expected
Agree metrics to track success
Establish dedicated governance structure:
Innovation board/ managers, communication, escalation
Allocate innovation funds & other required resources
Contract clauses themselves:
A schedule to the outsourcing contract
Not a mandatory list for each contract
Only provide guidance for discussions and negotiations
Innovation projects separate project agreement
32. Contract management
Work on building & maintaining trust, e.g.:
Periodic meetings: reviewing ambitions &
achievements
Setting realistic timelines
Ensure both parties adhere to the contract
Keep ‘innovation’ metrics separate from
operation
Ensure effective knowledge retention
Capture lessons learned
33. Contracting Conclusions
General best practices & conclusions
– Build, maintain and measure trust (=
ongoing process)
– Define and agree what parties expect
– Secure management support &
(financial) resources
– Innovation governance
– Incentives must promote shared
risk/reward
Contractual provisions re. innovation are an
enabler, not a prerequisite
34. Creating innovation by outsourcing and alignment 34
You want to get to thecastle, you
got to swimthemoat.
“
”– Elizabeth Gilbert
‘Eat Pray Love’
35. PON’s Standard Outsourcing Contract
Brief overview of the contract
Look at it from an innovation perspective
Other issues
38. Service innovation
Merely an expression of good intentions
No clauses on the process of innovation
No clauses on how to distribute the benefits
of innovation
40. Conclusions
Both from a contract control and an
innovation perspective the PON standard
contract may already be outdated
More of a set of building blocks than a
complete solution
Outsourcing contracts are still tailor made
Wrong metric: Cliets realise that a variety of internal and external factors could impact a business metric – not just the work of the service provider – and they are hesitant to link the dollar value of the contract to such a complex metric. Simple metrics (number of p-atents or R&D spending, don’t do the trick for outsourcing/innovation.
WAT IS INNOVATIE? Definitie: introductie van strategieën, business processen of technologie, welke nieuw is voor de relatie en dat bedoeld is/waarvan verwacht wordt dat het leidt tot nieuwe resultaten voor het bedrijf. Soorten: * beter opereren van de IT * beter bedrijfsproces bv. Introductie RFID, ERP * strategische: uitbreiden van producten en dienstenportfolio voor bestaande klanten of voor nieuwe markten VB: senseo
Slide eruit
HOE doe je het Level of Trust = hoe is de relatie m.a.w. Partnership => level of trust = hoog Organisations innovation: Ideal idee van ING: expertise is niet zo hoog, ING hoeft geen partnership te hebben met ATOS ze weten hoe het werkt Pro active Innovation: Philips met senseo apparaat gaat naar douwe egberts => collaborative HP
Wat maakt het mogelijk / best practices Best practices: enablers Als werkgroep hebben wij een 5-tal praktijk cases verzameld. In deze cases hebben we gekeken wat de gemeenschappelijke succesfactoren waren. Deze overeenkomsten zijn te categoriseren als: Enablers = Deze hebben duidelijk bijgedragen aan het eindresultaat Disablers = Deze hebben een negatief effect op het eindresultaat gehad. Vervolgens hebben we de door ons gevonden resultaten gecontroleerd door ze te vergelijken met bestaand onderzoek en te toetsen aan academische modellen. Het academisch model is van Weeks en Feeny, en raad ik zeker aan voor diegenen die… In grote lijnen komt het er op neer dat de noodzaak en vormen van Trust (te verstaan als…) en Measurement Specificity (te verstaan als…) toenemen naarmate de innovatie strategischer wordt. Door op deze manier naar de 5 cases te kijken hebben wij een zevental Enablers en Disablers voor innovatie kunnen ontdekken die alle cases in meer of mindere mate gemeen hadden. De Enablers en Disablers die we tegenkwamen waren:
WAT IS INNOVATIE? Definitie: introductie van strategieën, business processen of technologie, welke nieuw is voor de relatie en dat bedoeld is/waarvan verwacht wordt dat het leidt tot nieuwe resultaten voor het bedrijf. Soorten: * beter opereren van de IT * beter bedrijfsproces bv. Introductie RFID, ERP * strategische: uitbreiden van producten en dienstenportfolio voor bestaande klanten of voor nieuwe markten
WAT IS INNOVATIE? Definitie: introductie van strategieën, business processen of technologie, welke nieuw is voor de relatie en dat bedoeld is/waarvan verwacht wordt dat het leidt tot nieuwe resultaten voor het bedrijf. Soorten: * beter opereren van de IT * beter bedrijfsproces bv. Introductie RFID, ERP * strategische: uitbreiden van producten en dienstenportfolio voor bestaande klanten of voor nieuwe markten
Lessons learned
Lessons learned
Wij denken dat het op een aantal gebieden wezenlijk anders is..
Inleiding met uitleg van de karakteristieken van de subgroep. Dus uitleg over operational innovation, business process innovation en strategic innovation.
Uitleg van case aan de hand van model zoals door operational group gegeven. Dit zijn de door ons gevonden enablers
Lessons learned
Conclusie met de visie van de subgroep op hun specifieke laag