Year over year, Forrester hears from clients who are frustrated with their providers’ inability to provide innovation. In 2011, 60% of respondents to Forrester's Sourcing and Vendor Management Survey cited "Limited ability to define or provide innovation" as one of the top complaints when evaluating their suppliers. The frustrations behind these numbers include:

• “I have to push my suppliers for every bit of innovation they provide outside of the contract.” 
• “Vendors consider 'innovation' anything that involves selling me more stuff.”
• “They say it's innovation, but it’s not even specific to my business.”

Service providers, of course, are eager to market themselves as innovative. They’re competing in a market filled with scrappy upstarts — and they’re all striving to differentiate offerings. Yet they are also frustrated with innovation — the innovation demands of clients. The common complaints we hear from them include:

• “It’s rare that clients can define what they want when they ask for innovation.”
• “Our clients always tell us they want innovation. They are just not willing to pay for it.”
• “We can’t provide innovation for clients if they won’t put us in touch with their business.”

A third group of people (clients and vendors) step back from these two arguments and tell us it’s not relevant. To these people, innovation is not something a third party can provide.

At Forrester, however, we believe that reliance on third parties for innovation is not only possible, it’s essential to the evolution of your company’s technology strategy. This stems from two important trends: 

1. IT organizations can’t keep up with business technology demands. Business decision-makers are frustrated with their IT organization’s ability to deliver innovation. They need to find technology solutions that will help them gain a competitive advantage and bring these solutions to market quickly. If IT can’t deliver — or just can’t keep up — business professionals will work around them.
2. Service providers are shifting their focus to the business. Service providers see this trend, and realize they can market their solutions to those who have the budget. To do this, they’re creating more vertical-specific solutions (relying heavily on cloud-based delivery models) and marketing them to the business professional. As an executive at one India-based provider recently told Forrester, “If the last ten years were about establishing our credibility with IT, the next decade will be about enabling the client’s business interactions.”

So what’s the role of sourcing groups in this innovation process? It’s a big one, but one that few organizations have realized today. It involves facilitating new commercial opportunities based on the resources and capabilities within your third-party supplier network. It requires your organization to do a few key things:

1. Identify your company’s strategic innovation objectives. These objectives typically have a direct and significant impact financial objectives on the end-customer’s experience. 
2. Invest in trusted supplier relationships. The suppliers that are ready to innovate with you have established trust and credibility with your company and show interest in your innovation objectives. Other providers may be able to contribute to your innovation objectives but not at a highly strategic level. 
3. Shift your organization’s focus towards business capability alignment. The heart of sourcing involves making smart purchasing decisions.  Market your role outside of IT — and show how a strong supplier network can enable new innovations. 

At Forrester, we’re collecting more supplier-driven innovation best practices in preparation for our two-day Sourcing and Vendor Management Forum in Las Vegas and Paris (see the link below where my colleague Christine Ferrusi Ross discusses the event). At each event, we’ll cover innovation in the services landscape, innovation in supplier engagement models/contracts, and innovation in vendor management. We welcome your comments on this post. We hope you can join us at the event!