Top Strategies for Innovation in Outsourcing: Expert Insights

1. Encourage Outcome-Based Models

Traditional service level agreements (SLAs) often limit flexibility and stifle innovation. Moving toward outcome-based contracting enables both you and your provider to focus on achieving shared goals. During our recent work with Toyota, we redesigned their outsourcing model to include outcome-driven metrics, leading to significant innovation in their cost control processes.

How to put this into practice:

• Redefine metrics: Work with your provider to create measurable, outcome-driven KPIs that reflect your business goals rather than just service delivery benchmarks.
• Create flexible agreements: Include contract clauses that allow both parties to adapt as project goals evolve, ensuring your provider can innovate without being bound by rigid terms.

2. Create a Culture of Continuous Improvement

Fostering a culture of continuous feedback is essential for driving long-term innovation. This strategy played a crucial role when we partnered with a public safety company to overhaul their order-to-cash process. By engaging teams in regular reviews and adjustments, we helped reduce their process time from months to under 30 days, while empowering the teams to suggest ongoing improvements.

How to put this into practice:

• Establish regular reviews: Implement weekly or monthly performance reviews with your provider to identify what’s working and what isn’t. Use these as opportunities for real-time adjustments.
• Empower your teams: Encourage cross-functional team members to share suggestions and insights for improving processes and efficiency, fostering an environment where feedback is valued.

3. Incentivize Innovation with Your Partners

One of the most effective ways to inspire innovation in outsourcing is through shared risk and reward models. In our recent collaboration with Toyota, we discussed how structuring contracts with innovation incentives led to groundbreaking solutions that wouldn't have emerged under traditional contracts. When you reward providers for innovative thinking, the results are transformational.

How to put this into practice:

• Introduce performance-based rewards: Design contracts that offer bonuses or shared savings when providers deliver innovative solutions that enhance efficiency or reduce costs.
• Run innovation challenges: Set up periodic innovation challenges with your provider where both parties can submit ideas for cost-saving, efficiency improvements, or product innovation, with a shared reward for successful implementation.

4. Enable Agility with Cross-Functional Teams

Breaking down silos between departments can dramatically improve agility. When K&B Global worked with a client setting up a global delivery center, we saw firsthand how cross-functional collaboration between IT, sales, and finance teams sped up implementation timelines and drove creative problem-solving, helping them leverage resources from a new Latin American delivery center.

How to put this into practice:

• Create cross-functional teams: Ensure your provider integrates teams from multiple departments (e.g., IT, operations, and finance) to streamline decision-making and promote holistic problem-solving.
• Schedule regular joint meetings: Organize weekly or bi-weekly cross-functional team meetings with all stakeholders to address roadblocks, share progress, and align on priorities.

5. Leverage Digital Tools for Agile Contracting

Finally, integrating digital tools into your outsourcing strategy can provide real-time visibility, ensuring that both parties stay aligned and can pivot as needed. For example, with one of our clients, we focused on streamlining their project management process to address concerns about quality, budget adherence, data security, and privacy in outsourcing, while allowing for flexibility in project scopes.

How to put this into practice:

• Adopt project management tools: Implement tools like Jira, Asana, or Trello to manage projects and track progress. This transparency helps both parties stay on the same page and adapt quickly to changes.
• Use collaborative dashboards: Set up shared dashboards where your team and your provider can track KPIs, timelines, and milestones in real-time, ensuring alignment and quick decision-making when necessary.