In today’s fast-paced business world, the pressure is always on to innovate. Companies know they need to continuously develop new products, services, and ways of doing business to stay competitive. But constant innovation is hard – especially when resources are limited. How can an organization juggle the day-to-day while also looking to the future?

This is where business process outsourcing comes in. Handing off non-core business activities to specialized outsourcing providers can free up bandwidth, provide an outside perspective, and ultimately enable more innovation. In this article, we’ll explore how smart outsourcing strategies can remove roadblocks and empower organizations to bring innovative ideas to life quickly. 

First, we’ll look at some of the traditional benefits of outsourcing. Then we’ll discuss specific ways it can pave the way for innovation. We’ll also cover best practices for leveraging outsourcing to spark creativity, while avoiding potential pitfalls. Finally, we’ll consider emerging trends that point to outsourcing becoming an even bigger innovation accelerator moving forward.

So read on to learn how the right outsourcing approach can shake up even the stuffiest company and set it on a path to industry-leading innovation!

The Benefits of Business Process Outsourcing

Before diving into innovation specifically, let’s look at why companies outsource in the first place. Some of the top motivations include:

Reduced Costs 

Outsourcing lets companies shift fixed costs to variable, gaining flexibility in expenses. Specialist outsourcing firms can use economies of scale to complete repetitive tasks faster and cheaper compared to in-house resources.

Improved Efficiency

Experienced outsourcing providers bring expertise from years of specialization. Their honed processes and focus on consistent execution remove bottlenecks and streamline operations.

Access to Specialized Expertise

Outsourcing opens up skills, technology and knowledge from outside an organization. Providers offer exposure to industry best practices and technical capabilities above and beyond what may be available internally.

Increased Focus on Core Competencies  

Outsourcing the tactical stuff enables concentration on the big-picture, value-adding activities central to the business. With non-core processes covered, resources can focus on the initiatives that really move the needle.

So in summary, outsourcing provides bandwidth, efficiency, capabilities and focus – critical ingredients for innovation. Now let’s look at specific ways it fuels innovation.

How Outsourcing Enables Innovation

On top of the general benefits above, several aspects of outsourcing directly feed innovation:

Frees Up Resources for Innovation

Every hour and dollar spent on commodity activities is time and money not invested in innovation. Outsourcing transfers execution of routine tasks to outside experts. This liberates resources for breakthrough improvements and new initiatives.

Provides Objective Outside Perspective

Experienced outsourcing providers have seen countless client scenarios across an industry. This bird’s-eye view reveals improvement opportunities company insiders are blind to. Outsiders also bring an independent point of view to challenge orthodox thinking.

Allows Testing and Experimentation 

Outsourced functions offer low-risk environments to test new approaches. Innovations can be piloted without disrupting core operations. If they work, great! If not, no harm done. Providers’ specialized resources facilitate rapid experiment iteration too.

Enhances Speed and Agility

Innovation isn’t useful until it’s implemented. Outsourcing’s flexibility and variable costs allow capacity to scale up or down quickly. Providers’ process expertise also enables faster change cycles to get innovations to market ASAP. 

In these ways, outsourcing can power innovation by clearing hurdles, supplying new perspectives, and enabling agility. But how can companies apply outsourcing to actually drive more innovation day-to-day?

Best Practices for Innovation-Focused Outsourcing

To squeeze the most innovation juice from outsourcing, keep these tips in mind:

Prioritize Strategic Partnerships 

Transactional, mercenary relationships won’t cut it for innovation. Seek providers who share your goals and commitment to mutual success over years, not months. Thoroughly vet culture fit and specialized capabilities.

Communicate Goals and Strategy

Clue providers into your business context, objectives and types of improvements you want to see. Maintain an ongoing strategic dialogue so the relationship evolves with your innovation priorities. No surprises!

Ensure Process Visibility and Control

While empowering providers, maintain clear visibility into their performance and risk indicators. Retain control over process changes to ensure alignment with innovation goals. Oversight prevents misalignment.

Build in Flexibility and Options

Innovation is nonlinear – new ideas require room to pivot. Stage rollouts of innovations, outsource modular process components, and keep some capabilities in-house. Preserve wiggle room.

Focus on Knowledge Transfer 

Treat outsourcing partners as extensions of your team, not black-box vendors. Make sure learning flows both ways, embedding provider expertise while sharing your strategic vision. Sustained knowledge sharing unlocks lasting value.

Get these elements right to catalyze outsourcing into a real innovation force within the organization.

Potential Risks and Mitigation Strategies

Every silver lining has a cloud. Be aware of these challenges with outsourcing:

Loss of Control 

Outsourcing by definition cedes control of certain activities. Without proper governance, providers’ actions may diverge from innovation objectives. Maintain involvement through ongoing reviews and clear communication.

Decline in Service Quality

To cut costs, providers may trim service quality in non-obvious ways that inhibit improvement. Explicitly incentivize quality and innovation in contracts to avoid “race to the bottom” dynamics. 

Hidden Costs

Complex outsourcing setups can mask budget overruns offsetting hoped-for savings. Build financial controls and transparency into contracts to avoid surprise costs. Routinely review budgets and pricing.

Knowledge Drain

Over-reliance on vendor expertise causes internal knowledge to stagnate. Codify and transfer knowledge through documentation, training and job rotations. Maintain some in-house capabilities.

Security Risks 

Outsourcing exposes systems and data, especially for IT and digital processes. Mitigate by conducting rigorous provider security reviews and implementing access controls and data minimization practices.

With appropriate precautions, these risks can be managed without sacrificing outsourcing’s innovation benefits. Approach risk jointly with partners.

The Future of Outsourcing and Innovation 

Several emerging trends point to outsourcing playing an even bigger innovation role moving forward:

– Accelerating pace of change across industries increases the value of outsourcing’s agility.

– Process digitization enables more embedded, seamless outsourcing relationships.

– Declining differentiation from back-office functions spurs outsourcing a wider array of activities.

– Maturing outsourcing providers expand specialized expertise available externally. 

– Commercial models like gainsharing now directly tie outsourcing impact to innovation outcomes.

Visionary companies recognize outsourcing as more than an operational play – it’s an innovation multiplier. Organizations that leverage outsourcing to support constant invention and reinvention will thrive in coming years.

Conclusion

Innovation is tougher than ever, but essential. Thoughtfully applied, business process outsourcing can turbocharge innovation by providing bandwidth, resources, objectivity, expertise, flexibility and speed. But simple cost savings mentality won’t cut it. Real innovation results require collaborating with outsourcing providers as true strategic partners.

With the right relationship structure, governance, incentives and knowledge sharing, outsourcing becomes more than an operational efficiency – it becomes a launch pad empowering an organization to repeatedly leap ahead of the competition. A little outside help could be just what your company needs to unlock innovation at scale. The future awaits!