By Claire West

Companies are now using outsourcing to innovate, rather than just seeking to ‘lift and shift’ business functions, according to Innovation Reality a new study from sourcing advisor, Aecus.

Innovation in outsourcing today takes many forms. Whilst the incremental ‘Continuous Improvement’ of outsourced functions is still the priority for nearly one third of businesses leaders (32%), other innovation approaches are rapidly taking hold.

Almost a quarter of businesses (23%) are pursuing ‘Project Innovation’, in which the provider and client work together on a significant initiative to improve the efficiency or effectiveness of the outsourcing.

Some businesses are setting their sights even higher, with 14% prioritising ‘Radical Innovation’ with their outsourcing partners. This represents very significant changes to the way a service is delivered such as the implementation of a major new technology or global delivery model.

Most significantly nearly one third of leaders (31%) are hoping their outsourcing partners can drive ‘Business Innovation’. This goes beyond improvements to the cost and quality of the outsourced service, providing benefits to the wider business such as increasing revenues or improving products and services.

Paul Morrison, Head of Outsourcing Innovation at Aecus, comments: “Companies have always sought innovation from their outsourcing partners, but now we’re seeing it come to fruition. CXOs are rapidly raising their sights from simple process improvement, to explore how their partners can change their businesses for the better. It’s the increasing maturity of outsourcing buyers and sellers, along with technological change, that’s making this possible.”

Outsourcing buyers are pursuing an impressive array of different innovation objectives through their outsourcing arrangements.

The majority of CXOs (90%) believe that their outsourcing agreements can help them improve products and services, four fifths (86%) believe they will help to retain customers, and a similar proportion (85%) are hoping to achieve top line revenue growth.

The study suggests that many businesses are already making progress. Over half (54%) state they have already achieved improved customer satisfaction, while a similar number (45%) believe that innovation has had an impact on their revenue growth.

In spite of early successes, the study uncovers organisational shortcomings that could derail efforts to innovate. Many organisations lack the formalised capabilities to ensure regular and consistent innovation results.

For example, almost a third (31%) of CXOs do not think they have the knowledge in their business to manage suppliers for innovation, whilst two fifths (40%) say that their contractual agreements with their outsourcing partners are not currently set up for innovation.

Paul Morrison, comments: “It’s clear that CXOs have a huge desire to reap the rewards that can come from innovating through outsourcing. Where it is happening, businesses are seeing real results in terms of customer satisfaction, improved processes and increased revenue.

“However, despite this progress there are still hurdles to overcome to ensure organisations achieve the best results. To maximise the impact innovation can have on a business, it is absolutely vital to invest in the right capabilities, and implement the right framework of suppliers, incentives and governance. You reap what you sow in outsourcing innovation. ”