How to Sustain Innovation

Think of HRO innovations as a marathon and not a sprint. For providers to deliver continuous improvements effectively, they will need to make the right investments and get some concessions from the buyers.

by Gianni Giacomelli

Innovation is outsourcing’s new buzzword. It’s a lot easier to talk about it than to do it. This is what a few industry observers and clients lament about HRO.
The problem starts with defining it. To me real innovation is stuff someone can eat with at the end of the day. In HRO, innovation is the advancements in service delivery processes and infrastructure (often enabled by new or improved technologies) to increase efficiency and process quality and reduce process risk.

Anything else puts people on an involuntary diet. Examples include web-based self-service delivery to process users and business partners, e-invoicing, and e-payment as complements to traditional billing, and modern call-center technology supporting personal handling of service requests.

The other, bigger problem so far has been trying to make innovation happen. I am not a lawyer so I do not believe that all bad things can be fixed with contracts. Clearly, it is difficult to contract for innovation, because by definition innovation is often not definable in advance. Customers have leveraged incentives (e.g., gain sharing) and stipulations (e.g., rate of continuous improvement or change of minimum performance level based on past overachievements), but these are not effective in all situations.

What always works is attention to the “fundamentals of innovation.” First, ensure that there are enough resources to be spent on innovating. I mean funding in the first place—generated by the provider’s effective harnessing of economies of scale, process optimization, and labor arbitrage. Second, minimize the hurdles to innovation; for example, not just a “partnering attitude” but also mutual understanding of financial and organizational constraints and levers. Ingrain innovation in governance mechanisms, and invest in a technology platform that will keep pace and make new tools available quickly and effectively. Also, ensure that the provider has a strong collaboration with the software vendor so that design, implementation, and operations of process and related applications take place smoothly.

You bet, technology can support or hinder innovation of HR business practices; it is up to the customer and the provider to decide which is going to be their fate. For example, self-service tools greatly reduce the load on call centers and even HR experts. If you dilute their impact, for example, by limiting the integration into the data back end, which results in fewer real-time queries, you will end up with skyrocketing service delivery costs.

You don’t constantly need to be on the “bleeding edge,” but make sure that any innovation available can be put to fruition efficiently and effectively to the current HR business practices. Avoid the “banana skins” associated with implementation and operations that can unsustainably inflate the cost structure. This means technology vendors must show that they are working together with BPO providers to make that happen. It is ironic how BPO—itself innovation in management practices—has become a victim of “traditional” system integration and process reengineering practices.

Here are some considerations to avoid:

• Insisting on a customized solution when it is not absolutely necessary. The supplier wants to syndicate across his customers. If the buyer insists on a bespoke solution at all costs, the provider mght not be able to leverage innovation skills or investments. Customer and provider need to take care that the process/technology platform is implemented with as little customization as possible.

Building silos. Encourage cooperation between the executives responsible for the business processes and those handling technology design. The technology platform must ensure tight integration between the provider and customer’s retained organization because inflexibility often stems from the interface points. Think end-to-end process and technology.

Refusal to recognize that money makes the world go round. That means the provider doesn’t have enough money to pay for innovation because it can’t afford to save costs by harnessing the requisite economies of scale, process optimization, or labor arbitrage. In the end, either buyers allow the provider to standardize and hence save costs, or they have to give them extra money to finance innovation.

Think long term; this is a marathon, not a sprint. To accelerate along the way, you need to have the right build and enough calories to invest. Otherwise, your innovation efforts will look like the energy burst a can of Coke gives you: it fizzles away very quickly and leaves you panting in the end.