Are You Getting the Most Out of Your Innovation Fund?

Most outsourcing contracts come with fine print that stipulates extra resources for a so-called innovation fund. Unfortunately, these funds most often go to pay for business as usual or expire before they can be spent. For it to be any other way, the enterprise client and the service provider must establish a forum aligned to the client’s roadmap and strategy and gather that forum on an ongoing basis.

The fact is, an enterprise sourcing buyer must be proactive. Providers will want to bring innovation, which may not match the client’s objectives of the moment. The client must take a lead role by inviting the provider to present ideas around the technologies it wants to learn about or try, asking the provider to share industry best practices and processes or bring in SMEs from outside the account to discuss innovative technologies and solutions. It’s critical that the enterprise client and the service provider have a common definition of what innovation means in the client’s environment – whether the desired innovation is large or small in scope. 

Innovation should solve a business problem – even if that problem is only identified in the context of the innovation idea. This means it must involve business stakeholders. Enterprises can define “big I” innovation and “little i” innovation as follows:

• “Little i” innovation should focus on continuous improvement, with more frequent successes and consistent utilization of the fund. A continuous improvement approach allows an enterprise to try out new ideas that bring real benefits without significant disruption and get comfortable with all that goes into funding and executing it – and to “fail fast” and correct to get the best results. A typical initiative might focus on automating processes. The continuous improvement model is an attractive alternative to costly and complex projects that have a high risk of failure.
• “Big I” innovation should focus on introducing new technology to the environment. These initiatives are typically longer in duration, more costly and higher in risk. These efforts might include the exploration of the feasibility of digital or cloud initiatives or the evaluation of new software or hardware. Keep in mind that “big I” innovation should still focus on solving a business problem or need.

How to manage an innovation fund

Enterprises interested in making the most of their innovation funds should consider these steps:

• Create an innovation committee that includes appropriate business stakeholders to get a broader prospective or ideas for initiatives from different areas of IT and the company.
• Ask business users for input on innovation or continuous improvement ideas from their daily work environment.
• Understand what your provider can offer and focus them on promoting the offerings that align with your strategy or roadmap.
• When it comes time to execute a proof of concept (POC), develop a proper business case that includes provider proposals based on successful presentation of all relevant details. Confirm receipt of all costs, including implementation, expected benefits, client dependencies, timeframes, return on investment and measurement of success.

How to govern an innovation fund?

To maximize the value of the fund, make sure the governance structure is airtight. Follow these four guidelines:

• Jointly report with the provider regularly on updates and outcomes of innovation projects.
• Create an innovation fund tracker for monitoring the consumption, types of projects and users of the fund.
• Evaluate innovation projects based on their outcomes and update the business case accordingly.
• Celebrate and publicize the success stories to inspire new ideas.

ISG’s Sourcing Solutions team helps enterprises develop or review governance programs to make sure clients get the greatest value out of their innovation funds. Contact us to learn more.