The Cost of Risk Awareness

Filed in archive Opinions & Insights on June 16, 2008

Photo courtesy of iStockphoto, Image# 5134971


In recent years, it seems as if corporate decision making has become increasingly risk driven. This is unquestionably true in when we look at outsourcing deals. The deal documents for outsourcing agreements seek to accomplish two goals - worst-case-scenario risk shifting and ensuring that vendors are precluded from offering any innovation. For an interesting discussion of this phenomenon, Tim Cummins of the IACCM has authored an excellent short article, found here.

We often talk about deals being "lift-and-shift," but that may be a misnomer. Certainly, the services had room for innovation when delivered in-house. Most companies, after all, have "suggestion boxes" and reward employees for process improvement and money-saving activities. However, in most outsourcing deals, there is little room for suggestions from the vendor. The contracts make that clear.

As a result, the deal is fixed as of the time it is signed, creativity takes a back seat to repetition, and those adverse to risk are served, while innovation is stifled.

Interestingly, a different culture exists in Asia. While the Asian approach has many flaws - including often-abhorrent labor and safety policies - they also reward innovation, both in their deal-making and their deal-running. Is it any wonder why these innovators are becoming billionaires while western business seems to be caught up in a wave of shrinkage?

Maybe we can - or maybe we must - learn something about taking risks from our competitors in the east. For without innovation, the "idea economy" may prove bankrupt.