Three Critical Success Factors for ‘Innovation Outsourcing’

With over 94% of Fortune 500 companies today choosing to outsource or offshore some of their business processes, there is no question that outsourcing as a practice area has come of age. In the last decade, the growth of knowledge process outsourcing (KPO) has proven that even higher level corporate functions – such as financial or market research – can be outsourced and offshored.

But what about “innovation outsourcing”? Innovation is often thought of as the ‘special sauce’ – that intangible quality which makes a firm unique. Can and should banks consider using external partners to deliver the innovation corporates are clamouring for?

 

What Corporates Need

Banks are under greater pressure to innovate than ever before. They have to contend with traditional ‘top-down’ challenges such as proliferating regulatory mandates or the unique local needs of new markets. Corporates themselves are under numerous industry pressures and are looking to banks to help improve working capital management, streamline the supply chain, and modernize payments/cash management processes. 

New disruptive technologies from firms such as Amazon or Alibaba are offering corporates and merchants a diverse range of new, innovative services. According to the Boston Consulting Group, “To be well positioned in 2020, corporate banks need to take a step back and develop a robust digital strategy starting from the client’s perspective, clearly defining how they can use digital technology to improve the client value proposition, reduce costs and improve risk management.”

So how do banks – who have traditionally relied on their scale and bricks-and-mortar dominance for a competitive advantage – suddenly innovate with the speed of a Silicon Valley start-up? One answer is innovation outsourcing.

Lest you think this sounds like a contradiction in terms, it’s important to recognize that some form of innovation outsourcing already exists in a lot of financial institutions. Increasingly, organizations are partnering with a variety of accelerators and incubators and even hosting hackathons, engaging the brightest minds in the industry to deliver breakout ideas. For example, MasterCard launched a Technology Hub in New York City in 2014, featuring a Developer Zone where developers and entrepreneurs collaborated via hackathons, conferences, meetups and other events.

By outsourcing technology innovation, banks can tap into the knowledge and expertise required for digital transformation and pursue an agile, outcome-oriented path to innovation.

 

There are three key traits to look for in an innovation outsourcing partner:

 

1. Skin in the game:
Both the buyer and supplier need to combine their efforts to innovate and be invested in the outcome. There’s no use in an organization developing its own plan and then handing off to a ‘low-cost’ provider to implement the idea. You need your builders involved from the start. Choose a partner who can work with you on an outcome-based approach to outsourcing rather than headcount and hours. Sharing in the rewards of innovation, your partner can ensure that their most experienced team members stay on the project throughout.

2. Pedigree:
Choose a partner who has experience in your space and with innovation. An outsourcing partner with deep industry knowledge is critical to sorting out large-scale, mission-critical legacy systems that have been compromised through rounds of customizations and integrations.

3. Multi-faceted talent
: When outsourcing innovation, look for a partner who invests in their people. Innovation can only be successful within complex organizations if your partner is truly a multi-faceted expert. Your partner should be investing in training their consultants and developers so that they intimately know your systems, processes and customer interactions. They need to be able to make connections between what’s happening in the industry and your own capabilities.

Corporates are Demanding Innovation

 

As the outsourcing pendulum swings from cost to innovation, banks should be focused less on maintaining their operations and instead on innovating, because that is what their corporate clients are demanding. A typical bank spends 70% of its IT budget on running the bank and 30% on changing the bank. But perhaps it should be the other way around.

Imagine a world in which organizations and banks spent 70% of their IT budgets on innovation – what could we achieve? Cost, lack of experience or knowledge, headcount – these are no longer relevant arguments on why organizations aren’t innovating. Seek out a smart, creative outsourcing partner who can help you pursue innovation and retain a competitive edge.

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