TLDR: There is a critical need for continuous innovation in service contracts. It’s not enough to maintain the status quo; service providers must proactively seek improvements to meet evolving client demands and leverage technology at every stage of the contract lifecycle. This strategic approach enhances efficiency, boosts client satisfaction, and differentiates providers in the market. Integrating innovation into core business processes ensures sustainable growth and a competitive edge through the creation of dynamic and responsive service models that consistently adds value.
During the procurement of a service contract, innovation has the ability to differentiate a service offering from the supplier whilst simultaneously delivering additional value to a client. Once the award is given however, effort on innovation normally lags. It does typically raise it's head in earnest following the mobilisation and transformation phases, then gradually escalates throughout the remaining duration of a contract. Innovation, it seems, is rarely continuous. But should it be?
Increasingly innovation is being requested by clients as an intelligent mechanism to reduce cost and maintain quality in controlled ways. Additionally, as contract durations for service projects typically extend to 3 and 5 years and beyond, there are concerns that the most attractive option chosen by the client at the procurement stage will be rapidly outdated as markets and competitors change quicker than their chosen provider permits. The accommodation of innovation as a stated tender requirement may give some comfort that the provider will undertake to adapt their offering to suit market advances, but this can be difficult to assess or enforce due to the subjective nature of the topic.
Without an embedded approach, it is highly-probable that a focus on innovation will be secondary to the core obligations of the contract. The below graph demonstrates how this would look in terms of innovation impact versus innovation effort over time.
Figure 1: The comparison of innovation impact and effort within a contract where innovation is considered secondary to core objectives
Most multi-year service contracts will follow a similar pattern to this, where effort in the early stages is low, ramping up over time in response to client pressure and the threat of replacement at the reprocurement stage. Conversely, the potential impact of innovation is high from the outset, as processes, procedures and policies are being established. As working practices become ingrained and habits form, they’re less likely to be significantly altered for the remainder of the contract.
In understanding this behaviour further, the phases of a typical FM contract have been listed and described below.
- Mobilisation
- Ramp-up
- Steady state
- Conscious change
- Renewal
Mobilisation
Focus in this stage is on getting the contract up-and-running to the ascribed plan. Resources are fully focused on tasks such as implementing and managing the contract outcomes, making essential changes and installing support systems and processes. While there is opportunity for an element of tinkering to make sure things run smoothly, little innovation occurs as individuals are focused on transitioning to a new or revised operating model as a priority.
Ramp-up
Following on from mobilisation is the ramp-up period where efforts are spent on getting to a position of operational consistency. Attention is taken up on problem solving areas that are under-performing or on elements that require further thought and consideration to operate in the manner anticipated. There is often a great deal of creative thought by the whole team at this stage, but this is focused on delivering the operational solution proposed from the outset as opposed to generating improvements. Innovation is really concentrated on reaching normality.
Steady State
This is normally the longest stage of the contract where operational delivery has stabilised and efforts are on improving secondary targets (in terms of time – not importance) around service quality and KPI metrics. Innovation during this stage is either concentrated on incremental improvements or on adhoc problem solving. During steady-state, norms are established that allow comparison of month-to-month performance results.
Conscious Change
More emphasis is placed on innovation around two-thirds of the way in to a contract or when triggered by an event (e.g. staff change, customer challenge, profit reduction, legislative requirements or non-performance). Creep in terms of scope and scale have set in over a period of time and potentially some complacency from the client, end-users, supplier, or the supply-chain will initiate a demand for change in some way. External pressures from legislative change, market conditions, or resource constraints will also impact on the services. Effort is made on making improvements to satisfy the demands of the challenge. Where routines are embedded, there is a focus instead on process improvements, resource re-engineering, or supply chain alternatives as opposed to deep-rooted and radical alternatives to service-delivery.
Renewal
The supplier is aware that market competition has moved forward and looks to encompass learning from other contracts and market exposure to devise alternatives for service delivery. Innovations are more radical at this stage and tend to require engagement from the client. Aware that a competitive tender is looming, efforts to innovate are increased so that competitive advantage can be developed and, where appropriate, to influence the client to extend the contract without going to market.
The alternative to undertaking innovation in this way is something we term integrated innovation. Where innovation is normally dealt with on an adhoc or inconsistent basis triggered by events, an integrated approach embeds behaviours at the core of service delivery, underpinning core processes with a framework for collecting and advancing ideas at every level of contract delivery.
An integrated approach considers several elements in its approach. These are shown in Figure 2 below.
Figure 2: An integrated approach to innovation depends on a number of interdependent areas of innovation
These elements are described briefly below.
- Innovation Strategy: the overarching objectives for innovation i.e. cost reduction, continued improvements in resource use, error reduction etc.;
- People and Culture: the training, support and recognition of individuals and groups to fulfil the requirements of the underlying innovation strategy;
- Operational Environment: the context within which innovations are considered.
- Challenges / improvements / solutions: ideas generated as a result of specific challenges (problems that need to be overcome) or by stakeholder feedback. ;
- Ideas: the accumulation of ideas or proposals aimed at change and improvement;
- Prioritisation of Ideas: the selection and progression of ideas based on predetermined criteria;
- Implementation of Ideas: ideas adopted into the operational delivery model;
Applying an integrated approach supports innovation from the outset, encouraging meaningful feedback and interventions to overcome routine challenges whilst identifying opportunities for significant improvements. Embedding it produces something akin to Figure 3 below.
Figure 3: An integrated approach to innovation provides a continuous focus on innovation throughout the contract duration
The benefits of an integrated approach are multiple, and include:
- Continuous added value is delivered to the client from the outset, benefiting relationships and the operational environment.
- The supplier becomes deeply embedded into the client’s organisation, providing greater opportunities for contract extension.
- Learning from one location or contract can be captured and extended to other locations and contracts.
- Individuals become more committed to problem solving and generating new ways of operating that drive value.
- Morale is improved.
- Outcomes are enhanced, such as profit, organic growth, lower workforce attrition rates, and improvement to safety.
- Competitive differentiation in the marketplace is established and maintained.
Despite these benefits, there is often a reluctance to adopt an integrated approach to innovation. This could be down to the following:
- Innovation normally equals change and change can be deemed as negative.
- The belief that innovation is already occurring at an effective level.
- The client shows no desire to discuss innovation.
- A misunderstanding of what innovation is and how to manage it.
- There is a belief that innovation can be time-consuming, costly and resource intensive.
- The contract is fixed and offers no incentive or opportunity for change.
- Nobody listens or there is no recognition for innovation.
To overcome this resistance, an integrated approach can be implemented in stages, with a focus on a specific operational group or property to determine values and benefits as part of a pilot project.
Ultimately though, the drive for innovation needs to be supported by leaders within the client's or supplier’s organisation, and unless a willingness to evolve to an integrated approach is supported at the highest level, any efforts to innovate may be reduced to sporadic and isolated incidents of incremental improvement.
Keyne can help
If you need help with embedding innovation within your service contracts, get in touch for an informal chat and some more insights on enhancing contract performance and retention rates.
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