Innovation is again the hot topic for clients, as it was before the economic downturn. Clients have a renewed interest in innovation and business growth, and they seek services partners who can help. But what is innovation in this context?

In this context, clients seek business innovation. They want a provider who delivers new ideas and insights that will change business processes to drive revenue or improve business processes (for example, through product innovation, customer process innovation, supply chain innovation). They do not mean delivery innovation or continuous improvement, where the provider improves service delivery efficiency to drive lower IT cost and/or higher quality of IT service to clients (for example, through improved delivery processes, shared services, reusable assets). (Of course, they usually do want this as well — but this will not necessarily drive business innovation such as new products and processes.)

What do leading firms do to drive ongoing business innovation from services providers?

1) Put process around innovation. Organizations who successfully get innovation from their services providers put processes in place, from idea discovery to incubation to implementation to measurement. They also select services providers who have codified the innovation process. Ongoing innovation cannot happen by accident.

2) Use social media to collaborate at fast paces with customers, partners, and employees. Tools such as social networking sites, microblogs, and collaboration sites let firms gather ideas, evolve ideas, and rank ideas with a wide audience. 

Was the introduction of the Ford Model T an improvement or an innovation over the horse drawn wagon?

As an SVM professional, you may ask, “Why is this question important for me?” But as an ever-growing number of companies invest in innovation, they will realize a significant portion of this can come from the existing relationships with suppliers.

Forrester surveyed over 1,000 IT executives and technology decision-makers in Q3 2011 about which priorities will have the most significant impact on this year’s IT services spend. The top answer, at 56% of the respondents, was the need to innovate and grow their business. In fact, innovation rated higher than the ever-important lowering operational costs (40%)!

To execute on these innovation priorities, you — the SVM specialist — must understand the innovation potential of your suppliers and how to leverage this in the future. Success on this endeavor will require setting the stage. SVM pros need to understand the difference between a supplier-driven improvement — that we expect — and a service or business-focused innovation that needs investment and management. SVM pros can start with three key items: 1) Use an innovation screening checklist to understand who to partner with; 2) educate vendors on business priorities and key stakeholders within the business to enable innovation; and 3) manage delivery-oriented innovation as a part of your daily vendor governance.

Ever since offshore outsourcing became popular, employment visas — specifically the L1 and H1 visa — have been a source of debate. Indian vendors have needed them to make their offshore model work. US technical employees have feared them because they threaten to take away their livelihood.  

Well, here we are in 2012 and the debate is hotter than ever. The offshore vendors, attempting to accommodate tech-savvy clients’ agility and context requirements, require even more staff onsite in the US. Simultaneously, the US government, struggling to combat unemployment, shore up the dwindling middle class, and get through the 2012 election cycle, is cracking down on visa enforcement. For Forrester clients, this situation has become problematic as their vendors fail to land resources for mission-critical projects and the clients themselves are then compelled to use local contractors to fulfill their onsite needs (one reason staff augmentation vendors are seeing a big uptick in growth).

A couple of years ago, my then-colleague Patrick Connaughton wrote a market overview about service-level management tools, which included a discussion of specific toolsets intended to help customers manage both internal and external services-based relationships. Among the technologies in this space include Digital Fuel, Oblicore, Compuware’s APM, Enlighta, Appirio, and others. Such service-level management tools, as we described them then, reflects one key aspect of toolsets like Digital Fuel and Oblicore, to monitor service levels for both internal and outsourced delivery. But the technologies also have other capabilities, including the ability to create catalogs and manage financial implications of services consumption, both internal and external.

Since that time, challenges in service consumption, including measuring and managing services relationships, have only gotten harder, complicated by the widespread trend toward multisourcing and multi-supplier relationships and new categories of cloud-based services like IaaS on the other. Given these challenges, tools like those described above would seem to have some possible value. Big industry suppliers sure seem to think so: Since we wrote our last report, NewScale has been snapped up by Cisco and Digital Fuel was bought out by VMware, with the goal in part to help customers of virtual solutions and cloud services meter their usage and help charge back for consumption. In addition, KPMG acquired Equaterra, meaning that KPMG also took ownership of Equaterra’s EquaSiis, an outsourcing governance suite developed in conjunction with Microsoft. Oblicore was acquired by Computer Associates just months prior to our report. The acquisitions have in some cases meant a change in focus for the technologies acquired, to fit more cleanly to the broader product and services agenda of the acquirer.