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Report From India: Outsourcing For Innovation

A lot of companies do outsourcing for IT services. But can outsourcing deliver true tech-enabled innovation? British Petroleum CTO P.P. Darukhanavala thinks it can, but warns "sourcing for innovation" requires a much different approach, far more partners, and a hand-picked staff of people focused on the effort.

Darukhanavala, who's a VP and CTO for BP's digital and communications technology, spoke at this week's Nasscom conference for India's IT industry, in Mumbai.

BP outsources the majority of its IT operations, with about two-thirds of its $3 billion-a-year IT budget spent with outside vendors. That's conventional "sourcing for services." But BP also has started "sourcing for innovation," where it tries to work with other companies to take an idea to adoption within 18 months. The two processes have little in common, BP has learned.

"In services, we focus on a few key suppliers and build close relationships," Darukhanavala says."This is exactly the opposite -- literally thousands of places we go for an external innovation ecosystem."

Darukhanavala didn't spend much of his presentation detailing projects BP has accomplished, but briefly noted a few, like wireless projects to track employee tasks and measure machinery to reduce downtime. All involved multiple vendors. "The ideas don't exist in one place, so we spread the net as wide as we can," he says.

BP taps its existing vendors, but also uses tools such as InnoCentive and Nine Sigma, which are designed to toss problems out to an open network of specialists in business and academia, hoping they'll bring fresh thinking to a business problem in return for some compensation if an idea's used. When a plan takes shape, BP plays the role of broker, often bringing in big and small vendors and protecting the interests of smaller companies or individuals who brought a spark to the process. "We're making sure the big guys don't squash the little guys," Darukhanavala says. "We referee some of these things."

It requires risk-taking by the vendors, since these start as pilot projects at best. "Suppliers that aren't willing to take the risk don't play in this game," he says. "Innovation is not a transaction." But the upside can be substantial; some have turned into multimillion dollar businesses for the companies involved.

Critical to the "sourcing for innovation" effort is having the right people on the team. Darukhanavala has built a team of about 20 people to drive this innovation effort, focusing on "hybrid" people with technology depth and also a hands-on, front-line understanding of what business problems employees face. Getting the group's size right has been a big point of debate -- too small, they'll never get anything done, too big and it becomes a bureaucracy. Fifteen to 20 people has proven to be about right.

A lot of the conversations here at Nasscom turn to innovation as the Indian IT service providers try to avoid becoming just a cost-driven commodity, and buyers look to get more bang out of their outsourcing relationships. Few have built the kind of deliberate, targeted process that Darukhanavala has for concentrating innovative thinking from the outside on specific BP business problems.

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