Smartsourcing: The New Way To Drive Innovation

June 11, 2006
Companies who seem to get it right are those that can make innovation systemic and systematic.

In his new book, "Smartsourcing: Driving Innovation and Growth Through Outsourcing," Thomas M. Koulopoulos, CEO and founder of Delphi Group, the technology and management advisory firm of Perot System, believes that companies must shed non-core business activities. This type of outsourcing, smartsourcing, will allow companies to focus on innovation which at the end of the day is what differentiates one company from another.

The following is a discussion based on the principles of his book.

Q: You cite that only 10% of organizations have innovation management programs in place. Can you give an example of a good program and its effect on the company?

A: First off all we have to accept that innovation is a process not an event. All too often we think of innovation as a moment of inspiration followed by an invention; the moment Edison's light bulb came to life. The grandeur of those moments tends to eclipse the 1000 times Edison's light bulbs did nothing.

In my own dealings with large organizations I've seen time and time again that those companies who seem to get it right are those that can make innovation systemic and systematic. In other words it is part of what they do every day not once a decade.

Marketing programs and periodic spurts of growth will capture the limelight and make it look as though these companies suddenly came upon the best thing since indoor plumbing, when in fact they have been innovating behind the scenes for many years.

Even the classic consumer success stories such as the iPod or its old technology predecessor the Walkman fall into this category of products that give the illusion of invention. More to the point, these popular icons of invention are actually second or third movers at best. Apple did not invent MP3s, Sony did not invent the transistor radio, Microsoft did not invent the browser, etc., etc. These players do not lead the field in defining a new market, but when they decide to enter it their persistence reshapes it in their own form.

Q: How is it that GE has outsourced 100,000 jobs yet continues to increase its U.S. employment? Can its ability to innovate explain its employment situation?

A: The GE story is a pioneering one. In the book I talk about GE's initial foray into outsourcing and offshoring and Jack Welch's 70:70:70 rule, which simply said that GE would outsource 70% of its backoffice, 70% of that would be offshored, and 70% of that would be offshored to India. GE estimated that its efforts in outsourcing resulted in a savings of $300 million per year! By the way, GE did not just go for cost cutting, they also offshored part of their research to India, creating what they have called the "highest IQ per square foot" office in the world. Yet while all of this was going on GE continued to vigorously grow employment and research activities in the U.S.

Many people look at what GE did and cringe at the repercussions of sending so much offshore. Why? Do we have so little faith in the U.S. workers ability to differentiate their skills and value on a global platform? The data so far speaks for itself. According to the U.S. Bureau of Labor Statistics, outsourced jobs increased from 6.5 million in 1983 to 10 million in 2000 while insourced jobs (jobs that the rest of the world send to the U.S.), were up even more -- 2.5 million to 6.5 million.

GE created a global ecosystem that fueled its growth, creating more opportunity for it's operations worldwide, including U.S. It's not a zero sum game. Going offshore gives companies the ability to focus themselves onshore on what they do best.

Smartsourcing is about creating this sort of obsessive focus, its about looking beyond the myth and hyperbole that surrounds outsourcing and offshoring and instead answering the critical question about how we will continue to thrive in a global economy. That is the choice -- do we thrive -- not, do we play.

Q: You talk about an innovation deficit in which knowledge and information don't necessarily correlate to innovation. Can you explain and offer solutions for the future?

A: There is a prevalent misconception that more information, or even more knowledge, somehow increases the rate of innovation. It's not a direct correlation. It's like saying that more horsepower creates better drivers. In nearly every field we are today faced with overwhelming amounts of information. Yet if you look at the impact of this information you are often faced with a striking contradiction. As I show in the book, there are many areas where innovation actually seems to be slowing, despite increasing information availability. This is anathema to many of us who live and die by our access to information.

The solution lies in our ability to "innovate innovation." We need to move innovation from a pure art form to a discipline. There are tools, methods, techniques that can be used to do this, but few of us have been trained in them. For example, answer the following question: what method do you use to come up with new ideas in your organization? The vast majority of people will answer, brainstorming. Push them for another method and they go blank. While brainstorming is a great technique it is far from science. There are at least a dozen techniques and tools that organizations can use. In the book I even talk about how kids in K-12 are being taught these techniques in order to become world-class innovators. There are also tools from new companies, such as Mind Matters and Gen 3 that help to manage the innovation process.

Q: Can you speak to the issue of education as it applies to our future college graduates?

A: A number of years ago I had lunch with the late Peter Drucker at his home in Claremont. Among all of the things we talked about one has always stood out in my mind. I asked Peter if he thought information technology had resulted in productivity gains. With his characteristic style he launched into a history lesson about the post WWII GI bill. I wasn't sure he had heard my question at first. It soon became clear that he was clearly of the opinion that productivity gains in the U.S. economy -- - and in virtually all economies -- came from an emphasis on education. Technology was just a tool -- horsepower if you will -- education was the catalyst. I began the book with that point and I ended on the same theme.

Just as I was wrapping up the last chapter I happened to be invited to attend a global competition of K-12 innovators at the University of Tennessee. As I sat and watched some 8000+ youngsters from around the world demonstrate teambuilding, creative problem solving, and innovation skills that I could only wish most of my colleagues knew, it occurred to me that the only way for us to compete on the global stage now being set was through a concerted effort to create an innovation generation.

This means reengineering our schools and curriculum to acknowledge the changing reality of the marketplace and the skills that they, and we as a nation, will need to be leaders in the decades to come. The intense global competitive pressure that this new generation will face is difficult to comprehend, as are the new ways in which this innovation generation will work. It's a daunting task but it is not optional if we are to create a nation worthy of these great young minds.

Information on "Smartsourcing: Driving Innovation and Growth Through Outsourcing" can be found at

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