Strange Bedfellows No More: Researching Business Process Outsourcing and Dynamic Innovation

This chapter answers the question: How do clients and BPO service providers work together to foster dynamic innovation? The chapter is based on research conducted in 2011 and 2012 and includes 202 survey responses and 48 in-depth interviews in 24 client organizations. 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. The research finds that leadership pairs are key drivers of dynamic innovation. Leadership pairs jumpstart the dynamic innovation process by starting with innovation incentives. The most effective innovation incentives are mandatory productivity targets, innovation days, and gainsharing 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 ‘painsharing’, and benchmarking. Delivering innovations requires acculturation that is, establishing a collaborative culture. This acts as a foundation for practices that inspire, fund, and inject cycles of innovations in the client organization.

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