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Over the Christmas break, one of my CoreNet teaching partners from Deloitte Consulting sent me a copy of their Advisory Services’ 2008 Outsourcing Report. I found it to be a validation of what we teach in the CoreNet class on Strategic Sourcing as well as a strong personal motivator for me for 2008. The report deals with outsourcing across all disciplines but is directly applicable to corporate real estate.

One thing that struck me immediately was the contention that service providers should not be regarded as simply a way to lower costs but as partners in innovation. Amen to that! One of the most frustrating aspects of this business is the amount of potential benefit we end up leaving on the table because we can’t get our clients to look past their annual operating budget and to the bigger picture.

For 2008, I’m focused on creating success by designing the right model. When a company outsources its corporate real estate simply to reduce costs or to reduce headcount, the end has essentially been achieved. Both goals are fairly demonstrable and relatively short-term focused. The client will typically achieve savings (what I call “low-hanging fruit” savings) and will usually streamline staffing. However, once these are satisfied, the sentiment usually is: what’s next? In the context of the typical design of outsourcing contracts, there is no “next”–like my car’s annoying navigation system says, “you have arrived at your destination.”

A better design is created when the service provider has a deep enough understanding of your business to know the strategic drivers that govern it as well as the areas where management is undecided and open to more dialog. Most service providers will learn enough to know about your business but without a different model most won’t get far enough immersed to tell you where the business is going, why and what might be done to mitigate risks.

Ask yourself why you outsourced in the first place. Was it ROI? Was it service levels? Was it for personal issues (eg: job security)? Chances are you didn’t hire a service provider purely for their innovation. That is because innovation is a hard sell to your management and it’s a hard sell for a service provider. But, with the right outsourcing design, it is a relatively easy thing to deliver. In fact, a trend I see in the business is for service providers to evaluate clients based on their readiness for innovation. I know that we will be evaluating our future client opportunities on the potential for us to be innovative with and for them. We may decline responding to RFPs if we feel we wouldn’t be effective on delivering the innovation we know we can bring.

A second issue related to innovation and creating a better design to allow for innovation is contract flexibility. As I mentioned earlier, we want to be innovative but the constraint is often the underlying contract. Often, the client’s response to opportunities for innovation is to stop “nickel and diming” them. Sure, innovation takes risk but the rewards can be significant. Consider that a firm I once worked for paid $500K in fees to a management consulting firm. The outrage was evident–everyone in the organization was incensed that the company would pay such a fee. However, after the dust settled, the organization was roughly 2/3 the size, new and more efficient processes were in place and the division went from being a $74-million cost center to a break-even division over three years. Looking back, I’d take that gamble every day.

Your investment in innovation may never be that pricey but it tees up a great question as we enter 2008. Have you settled for a service provider that has, in turn, settled for you as a client? If so, maybe a new year’s resolution may be to succeed by design. If you really want to innovate, if you really want to create a competitive advantage, if you really want more I urge you to read the Deloitte report (available at www.deloitte.com then resolve to look for a service provider that can bring innovation. Request it in your RFP; incorporate it into your contract; be prepared to make an investment to get it; and reap big rewards. It’s all about design.

Vik Bangia is senior vice president for the corporate solutions group of United Properties in Minneapolis. The views expressed in this article are the author’s own.

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