12. Innovation Through Outsourcing

There are many reasons why companies of various sizes see the benefit of outsourcing particular aspects of innovation, here defined generally for a business context as deploying new and creative ways of achieving productivity or topline growth (Coulter & Fersht, Service providers siloed by vertical industry are stifling innovation with clients. HfS Research, 2010). Quinn’s (Sloan Management Review, 41(4), 13–28, 2000) list of reasons includes limited resources and capabilities within the organisation, a shortage of specialist talent, management of multiple risks, attracting talent in the company’s non-specialised areas, and getting to market faster. So how can companies achieve innovation through the various ways of sourcing? Often they have an ad hoc approach to innovation, or what Linder et al. (Sloan Management Review, 44(4), 43–49, 2003) call a transactional approach. This approach, however, frequently fails to leverage organisational learning and develop innovation capabilities within the client firm as they work with suppliers. Clearly, an ad hoc approach cannot create a culture in which external contributions are accepted or welcomed. Moreover, it is difficult to measure innovative processes and outcomes when companies innovate on an ad hoc basis.

In this chapter, we look at how organisations go about achieving innovation through outsourcing in a systematic manner. This sets the context for our major, more restricted focus on whether, and, if so, how, IT and business process innovations can be achieved through using external business and IT service providers. We want to stress that we are not talking about sourcing innovation through offshore R&D centres (discussed in the context of offshore captive centres in Chap. 11), but rather about outsourcing engagement where the client is seeking to achieve innovation. The chapter starts by detailing the debate around whether innovation can be outsourced and, if so, under what conditions. We then look at the case for internal control and research on how outsourcing innovation can become an organisational practice in outsourcing arrangements. As such, this chapter focuses on the following topics: