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INNOVATION OUTSOURCING

WHY?. WHAT?. HOW?. INNOVATION OUTSOURCING. AMIT KAPOOR. MBA – Class of 2007. WHAT is innovation outsourcing WHY is it necessary – a buyer and supplier perspective HOW can it be made possible, given the challenges. WHAT. WHY. HOW. Agenda. Importance to future business. WHAT. WHY.

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INNOVATION OUTSOURCING

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  1. WHY? WHAT? HOW? INNOVATION OUTSOURCING AMIT KAPOOR MBA – Class of 2007

  2. WHAT is innovation outsourcing WHY is it necessary – a buyer and supplier perspective HOW can it be made possible, given the challenges WHAT WHY HOW Agenda

  3. Importance to future business WHAT WHY HOW Process categorisation LOW HIGH HIGH Importance to current business High maturity process Key operational Strategic Outsourcing lifecycle Low maturity process High-potential (Innovative) Support LOW Core process Auxiliary process Adapted from: Ward & Daniel, 2006. Benefits Management, John Wiley & Sons Outsourcing innovative processes is the most challenging proposition & needs to be well-thought

  4. WHAT WHY HOW Evaluating the need for innovation outsourcing • Access to new knowledge and technology. • Insulation from risk of failure • Deliver increased business value • Market maturity in IT outsourcing. • Buyer inclination to grow value Buyer Needs SupplierNeeds IMPORTANT VERY IMPORTANT VERY URGENT IMPORTANT URGENT VERY IMPORTANT URGENT The onus of making innovation outsourcing happen lies with the supplier

  5. WHAT WHY HOW Challenges in innovation outsourcing Supplier capability and credibility Account Manager Goals Lack of capability Contracting terms not favourable Supplier margins shrinking Supplier’s lack of incentive Buyer’s difficulty in contract termination Buyer’s risk of sharing innovation strategy with supplier Potential of information misuse IPR issues Buyer’s risk of transferring responsibility Supplier’s risk of negative news exaggeration Outsourcing innovative processes is the most challenging proposition & needs to be well-thought Outsourcing - a whipping boy Possibility of Domino effect Overhead caused by flawless delivery pressure Any innovation sourcing model must mitigate these challenges while addressing buyer & supplier needs.

  6. WHAT WHY HOW CAPABILITY – Build capability INNOVATION GROUP TEAM ACTIVITIES TEAM PROFILE TEAM ATTRIBUTES • Diversity • Cross-functionality • Creativity • Innovation audit • Hidden needs analysis • Idea generation • Product roadmaps • Innovation experts • Sales support professionals • Domain experts Example: IBM Partnership needs investment

  7. Develop academic partnership To develop competencies within its own innovation group. To conduct supervised initial innovation workshops with customers. To keep the supplier abreast of latest management thinking on innovation, given that it is an evolving subject. Example: Cranfield Centre for innovative products and services. WHAT WHY HOW CREDIBILITY – Develop credibility AT SUPPLIER’S END AT BUYER’S END • Span boundaries higher up within buyer organisation • Create incentives for account managers to focus on acquiring higher end innovation work. • Prepare existing accounts for innovation outsourcing service offering. Academic attestation & assistance provides the quickest route to gaining credibility for suppliers.

  8. WHAT WHY HOW CONTRACTS – Innovate contracts WHAT’S OUT WHAT’S IN Strategic partnering Transactional / Tactical partnering Shared risk contracts Fixed-bid and T&M contracts IPR shared 50/50 between buyer and supplier. IPR ambiguity Post-contract termination date for profit split Post-contractual future profit split ambiguity Contract innovation will lead to lowering customer apprehensions about outsourcing innovation.

  9. WHAT WHY HOW Implementation timelines Preparation Phase Rollout of service offering Self-sustained growth Hire innovation group members Conduct innovation workshops with existing clients with academic support Identify academic partner Carry out service improvement based on initial client feedback Develop competencies in innovation group Work on innovation sourcing contracting terms Source new clients Conduct innovation workshops independent of academic support Prepare existing clients for new service offering through account manager Build innovation sourcing knowledge base Q5 Q1 Q2 Q3 Q4 The innovation sourcing model proposed is viable

  10. WHAT WHY HOW Thank you Question Time

  11. WHAT WHY HOW Backup slides

  12. Importance to future business FIGURE 1 – Process Categorisation LOW HIGH HIGH Importance to current business High maturity process Key operational Strategic Outsourcing lifecycle Low maturity process High-potential (Innovative) Support LOW Auxiliary process Core process Adapted from: Ward & Daniel, 2006. Benefits Management, John Wiley & Sons

  13. FIGURE 2 – Spending smarter A B Global industry average 100 100% 100 30% Dedicated to value creating IT 40% Dedicated to value creating IT 95% 80 83% 80 70% Operating existing IT 60 60 60% Operating existing IT 40 40 20 20 0 0 Lagging Leading Lagging Leading Source: “Business value creation through IT” (Accenture 2003); Gartner 2001 IT Spending and staffing survey

  14. FIGURE 3 – The product lifecycle curve applied to outsourcing

  15. FIGURE x – Application Development and Maintenance market

  16. FIGURE 4 – Average Deal size in the first quarters

  17. FIGURE 5 – Buyer’s value in a typical outsourcing deal Value Supplier’s goal Grow value of the relationship Buyer’s goal Point of divergence Continue growing volume Grow volume Grow Volume Buyer’s value from labour arbitrage Optimal Outsourcing ratio Outsourcing ratio Adapted from: Everest Research Institute, Bernstein research

  18. Units sold 1990 1999 2000 2002 Years FIGURE 6 – Innovation effects on Smirnoff’s product lifecycle Adapted from: Diageo Annual Reports

  19. FIGURE 7 – Pro-outsourcing vs. Anti-outsourcing articles Source: Deloitte Research Report (Calling a change in the outsourcing market)

  20. Source: IBM Innovation for Collaboration presentation, 2007

  21. FIGURE 8 – Summary

  22. FIGURE 8 – Innovation sourcing roadmap for suppliers Preparation Phase Rollout of service offering Self-sustained growth Hire innovation group members Conduct innovation workshops with existing clients with academic support Identify academic partner Carry out service improvement based on initial client feedback Develop competencies in innovation group Work on innovation sourcing contracting terms Source new clients Conduct innovation workshops independent of academic support Prepare existing clients for new service offering through account manager Build innovation sourcing knowledge base Q5 Q1 Q2 Q3 Q4 ACTIVITY CHART ON TIMESCALE

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