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Business process outsourcing and dynamic innovation

Mary Lacity (College of Business, University of Missouri-St Louis, St Louis, Missouri, USA)
Leslie Willcocks (Information Systems and Innovation Group, London School of Economics and Political Science, London, UK)

Strategic Outsourcing: An International Journal

ISSN: 1753-8297

Article publication date: 11 February 2014

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Abstract

Purpose

This paper aims to answer the question: how do clients and BPO service providers work together to foster dynamic innovation? Dynamic innovation is a process by which clients incent providers to deliver many innovations each year that improve the client's performance in terms of operational efficiency, process effectiveness and/or strategic impact.

Design/methodology/approach

The paper is based on research conducted in 2011 and 2012 and includes 202 survey responses and 48 in-depth interviews in 24 client organizations.

Findings

The most effective innovation incentives are mandatory productivity targets, innovation days, and gain-sharing at the project level. Threat of competition and special governance arrangements for innovation also positively influence innovation. The least successful incentives for innovations were found to be innovation funds, gainsharing at the relationship level, what has been called “pain-sharing”, and benchmarking.

Research limitations/implications

The 24 BPO relationships do not represent a random sample, but rather a convenience sample. The authors aimed to understand emerging best practices from high-performing BPO relationships, thus the paired interview samples are purposefully biased towards higher-performing relationships.

Practical implications

Delivering innovations requires a process the authors call AIFI – acculturating, inspiring, funding, and injecting. The research finds that leadership pairs are key drivers of the dynamic innovation process. Leadership pairs jumpstart the dynamic innovation process by starting with innovation incentives. Even so, just having one right leader makes a positive difference. The positive difference is stronger if that leader is on the client side rather than the provider side. With no right leaders, the practices that the authors describe are less efficacious but still have positive impacts on the levels of innovation experienced.

Originality/value

In the ITO and BPO literatures, researchers have under-examined the more strategic drivers of outsourcing, including innovation. This research examines the process and practices that deliver dynamic innovation in client organizations.

Keywords

Acknowledgements

This paper will appear in the proceedings of the 4th International Conference on the Outsourcing of Information Services (2014), Hirschheim, R., Dibbern, J., and Heinzl, A. (Eds) Springer. A shorter executive version of this paper was first published in Lacity, M. and Willcocks, L. (2013), “Beyond cost savings: outsourcing business processes for innovation,” Sloan Management Review, Spring Issue. The authors also thank and acknowledge their research sponsors, Accenture, Orbys, and BPeSA.

Citation

Lacity, M. and Willcocks, L. (2014), "Business process outsourcing and dynamic innovation", Strategic Outsourcing: An International Journal, Vol. 7 No. 1, pp. 66-92. https://doi.org/10.1108/SO-11-2013-0023

Publisher

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Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

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