A CIO for a large energy company in the Midwest was telling me about a series of outsourced services the company receives from a handful of major IT services providers. The energy company outsources nearly all of its IT infrastructure support and services, with the rationale being that the company's business is to provide power to consumers and commercial customers, not IT services.
What interested me most about the agreements the energy company has in place with the IT services firms is that the providers are incented to identify areas of opportunity to drive innovation - not only in terms of how IT operations can be run more effectively but also how IT can be applied to business innovation, such as opportunities with smart grid technologies that can be applied.
The energy company structured a set of financial terms aligned with innovation targets and opportunities with each of the outsourcers. Under these arrangements, if Outsourcer A recommends a new approach for providing data center support services that's more cost-effective than the operations that are already in place, both Outsourcer A and the energy company share the financial savings that are generated.
It's an arrangement that's worked out well for each of the parties involved, according to the CIO. Even in the first year or so of the agreements, the deals have generated mid six-figure savings on the IT operations side while providing the energy company a steady stream of ideas for applying smart grid technologies to better serve its customers.
Although a growing number of companies are now relying on outsourcers to help drive innovation, fewer have taken steps to try to measure the returns. According to a recent survey of European CIOs, 67 percent of IT leaders say they depend on outsourcers to generate new ideas that can lead to innovation. Yet only a third of the respondents measure the impact that's being provided, according to a study conducted by the Warwick Business School in the U.K., sponsored by Cognizant.
WBS researchers interviewed 125 CIOs and 125 CFOs. Fewer than half of the CFOs interviewed said they expect outsourcers to turn ideas into new and improved processes while just 39 percent said they'd be willing to pay more for service providers to provide proven innovative ideas on a regular basis, according to a CIO.com story on the study.
If your company spent millions of dollars annually for service providers to deliver operational support, wouldn't it be worth considering some additional investment (within reason) or incentive structure for outsourcers to suggest new ideas that could save your company money based on their vast experience in working with other customers across multiple industries? Obviously any premium that would be attached to driving fresh ideas that could lead to innovation would have to be properly aligned with the potential business upside that could result from operational improvements, new revenue streams, etc. But this also represents the kinds of opportunities that CIOs are looking to explore and take advantage of, particularly as they look to IT services providers as true business partners.