Nearshore Americas

Open Innovation: Are Latin America Captives Missing a Transformative Opportunity?

By Jon TontiInnovation, often extolled at a strategic policy level yet seldom built into employees’ job functions, has long since become an overused buzzword.  Yet there is little doubt that the radical embrace of ‘open innovation’ can yield transformative gains for companies looking to break free from the burdensome, transactional-focus of their operations. We talked with several experts on how much LatAm captive operators are seizing the open innovation wave.

Brad Dement, partner and financial shared services practice leader at Scott Madden, echoes a common expert opinion when he says that “…many US and EU companies have not gone far beyond the transactional processes” with their captives and that “…we are seeing more talk than action.”

We have recently been talking about how nearshore captives enjoy dynamics more conducive to innovative activities than their US peers. When experts lament the lack of innovation in nearshore outsourcing they are often referring narrowly to business process improvement-based innovation and not the radical product, service, or business model innovation, which is largely dormant in nearshore captives or buyer-vendor relationships.

More than an SLA Rewrite

It is true that redesigning service level agreements (SLAs) to create incentives for innovation, additional training to push employees to think innovatively and giving them the space to do so, integrated work teams, and a Chief Innovation Officer are all necessary components; however, they are focused on the internal workings of an operation and limited as such.

Multi-function shared services centers serving multiple markets with IT, HR, Finance, General Services, and Supply Chain being handled with the Global Business Services (GBS) hub dynamic expect business process improvement, but long for radical product, service, and business model innovation.

 As GBS hubs perfect business process improvement innovation and produce information from the intersection of the multiple functions and markets they are serving that information can be opened up.

All that information locked inside the captive might be underperforming in its ability to deliver rapid and consistent innovation internally and its exploitation externally is often an afterthought.

“Open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. [This paradigm] assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology,” says Henry Chesbrough, Executive Director of the Program in Open Innovation at UC Berkley, and widely considered the father of open innovation.

As GBS hubs perfect business process improvement innovation and produce information from the intersection of the multiple functions and markets they are serving that information can be opened up.

The Drawback of Overt Secrecy

“Companies can no longer keep their own innovations secret unto themselves; … the key to success is creating, in effect, an open platform around your innovations so your customers, your employees and even your competitors can build upon it, because only by that building will you create an ongoing, evolving community of users, doers and creators,” says Randall Rothenberg, editor of “strategy+business”  published by Booz Allen Hamilton.

Captives, Help With an Ambitious Agenda

A captive is ultimately capable of improving processes and services for internal use in the captive, creating new processes and services for export to the onshore company, adapting processes and products for local circumstances, and radical product, service, or business model innovation in the foreign market that will also be useful in other markets.

Expecting a captive to tackle that kind of innovation agenda on its own is a tall order, especially when it comes to more radical innovation so how do we amplify the possibility?

“It is relatively easy to access open innovation.  The majority of our 180,000 participants are in Brazil and Mexico.  The majority are also young between 18-26 years old so they are close to consumer technology and obviously have a good beat on the markets they are in,” says Juan Serrano, CEO of Futura Networks Colombia. Futura Networks developed their large network of participants from sponsoring week-long hackathons they call Campus Parties where thousands of young people converge on a dedicated space to focus on innovation, science, creativity, and digital entertainment.

While much of this crowdsourced model of open innovation is consumer solution driven it is because externalizing data in an easy and targeted way was very difficult until now.

“Even though we are almost in web 3.0 when it comes to open data we are in web 1.0 and we are just nearing the huge opportunity for collaboration and innovation as open data grows.  Right now companies are not opening up data in a way that is bringing them value.  We have created an end-to-end solution that allows companies to strategically share data so communities of innovators can utilize that data to build solutions for businesses and end customers,” exclaims Diego May, CEO and Co-founder of Junar, a recently launched cloud based platform for opening data to drive innovation.

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There are three convergent forces we mentioned that onshore companies and their captives will wrestle with and take advantage of if they want to lead.

  • Open Innovation – Crowdsourcing communities of bright people that can build solutions
  • Multi-function Multi-market Global Business Services Hubs trying to digest data at the intersection of HR, IT, Supply Chain, General Services, and Finance
  • Open Data

If a company can manage these converging forces to leverage internal and external opportunities surely it will find itself on the forefront of innovation and not just paying lip service to it.



Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.

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