I was reminded of this essential fact recently when I read a TechRepublic news story about GE’s huge investment to build a state of the art “green” data center on the same site in where the world’s first commercial computer was deployed in 1954.

It was the story’s headline that really grabbed my attention: “GE thumbs its nose at outsourcing, builds world-class data center.”

It’s eye-catching to be sure, but the wrong spin entirely, and the story itself explains why:

“The new data center was conceived and architected by GE’s internal IT department (along with a few strategic partners) at GE Appliances & Lighting in Louisville, Kentucky. The data center itself is located within the massive complex known as “GE Appliance Park.” Interestingly enough, the site has a distinguished history for IT innovation. In 1954, the Louisville GE complex became home to the first UNIVAC computer that was deployed in a private business. Before that UNIVAC at GE in Louisville, all computers had been part of government projects. That first UNIVAC was used to run a single business application: employee payroll.”

This tells me GE views IT as a core competency. As such – the company should NOT outsource.  GE has a long history of firsts and lots of expertise when it comes to IT and computing, so keeping its data center in-house is a logical and wise move.

It’s definitely not a snub to outsourcing, rather it confirms what outsourcing and Vested Outsourcing is (or should be) all about.

In a previous blog this week I wrote about how Hewlett-Packard  has decided to refocus its business model on cloud and IT solutions as a “core” endeavor while exiting the PC business by spinning off its Personal Systems Group. This is a tough “business happens” lesson and a return to a core competency.

As the saying goes: “Do what you do best and outsource the rest!” There has to be a clear reason and need to outsource.

Kudo’s to GE for keeping work in-house that is a core competency.

Innovation is easier said than done however, and a recent article by Stephanie Overby in CIO magazine underscores this. A survey of European CIOs found that 67 percent of IT leaders rely on outsource providers to turn ideas into new and improved processes, but only one-third of those same CIOs measure the impact of innovation delivered by service providers.

Overby writes, “Two-thirds of the CIOs said they would benefit from a framework for innovation, and half would be willing to pay more for an outsourcer that could help them formalize and maintain a successful innovation process, according to the research conducted by the United Kingdom’s Warwick Business School (WBS) and sponsored by offshore outsourcing provider Cognizant.”

Researchers interviewed 125 CIOs and 125 CFOs for the study and found that less than half of CFOs expected service providers to help turn ideas into new and improved processes and only 39 percent of them would be willing to pay higher rates for an outsourcer that could deliver proven innovation on a regular basis. Another case of getting what you pay for and not necessarily getting what you wish for.

As outsourcing activity picks up, the CIO article continues, moving beyond business-as-usual deals could benefit customers and providers, according to Ilan Oshri, WBS associate fellow and associate professor at Rotterdam School of Management and co-author of the study.

“Many client firms are still occupied with sourcing operations—trying hard to make outsourcing deals work, constantly monitoring SLAs and doing everything possible to avoid failure,” Oshri says.

That doesn’t leave much time or energy to nurture and implement innovative ideas.

While many CIOs hold onto the traditional notion that IT should outsource commodity work in order to focus on higher-value tasks such as innovation internally, Oshri says mature IT leaders approach outsourcing differently. “More sophisticated outsourcing clients seek innovation from their vendors,” he continues, “while newcomers to outsourcing hope that by outsourcing a function they will be able to free up in-house talent to focus on higher value activities.”

Oshri points to Shell as a company that has partnered with outsourcers to build a solid internal innovation function.

Vested Outsourcing’s Rule 5 says the governance structure between company and service provider should provide insight, not merely oversight. Innovation–and its cultivation–is a basic ingredient of a Vested agreement’s governance framework.

The Vested Outsourcing Manual, which Palgrave Macmillan will publish next month, focuses on creating and operating a collaborative ecosystem that rewards innovation and a mutual culture of continuous improvement.

Innovation is more than a wish or suggestion box hung outside the CEO’s office. In the Vested model it’s about nourishing and encouraging ideas and creating the conditions for innovation to flourish.

He points out that a primary reason people “dread” collaborating is due to the amount of time and energy it consumes and that they often feel pestered and pressured to use tools they think they can solve on their own.

Now here is my beef: How come so many people – especially those in the IT sector – define collaboration so narrowly to mean the “tools” that get people working together?

A case in point is a Kelton Research project that reported that more than 80 percent of survey respondents think that enterprise-wide collaboration is the key to their companies’ success, and 75 percent of them said their companies plan to increase their use of communications and collaboration tools, such as wikis, in the coming year.

But why do so many folks  have such a narrow technology and tool-based definition of collaboration?

I was glad to see Preston rightfully point out there are two kinds of collaboration: “The kind that stimulates new ideas, solves problems, enhances teamwork, and distributes expertise; and the kind people use to cover their butts and show off in front of their peers and bosses. The first kind tends to propagate naturally, feeding off the culture of an organization; the second kind happens when the methods and tools are force fit, rendering collaboration an exercise unto itself.”

Preston goes on to point out (and I agree)  that if people have to be pestered to use a particular tool or technology to get them to work together ultimately it will likely be unsuccessful, especially if it adds additional steps to what people perceive as a perfectly functional way to work together.

So if people “dread” collaboration, why is Vested Outsourcing gaining in popularity? It’s because it addresses the first kind of collaboration that Preston describes. It goes beyond tools and technology into deep problem solving using distributed experience.

Vested Outsourcing and the Five Rules lay the foundation for successful collaboration that creates an atmosphere and ecosystem of innovation, teamwork and shared incentives. If you are working together to focus on desired outcomes (Rule 1) that are clearly defined and measurable (Rule 3) under a governance structure that engenders insight and not just oversight (Rule 5), then that, my friend, is true collaboration!

It was the Cat in the Hat who said, “It’s fun to have fun but you have to know how!” In the same vein, it’s fun to collaborate, but you have to know how!

And that means moving beyond the contemporary IT definitions of collaboration of applying tools and technology for people to work better.

Questions abound, but here’s one: Is pushing for the for the lowest cost, transaction-based contract – mainly by enhancing profit margins at the expense of the people in your supply chain that are making you rich – a sustainable model?

Taiwanese IT giant Foxconn is one of Asia’s major contract electronics manufacturers, supplying components for computer companies such as HP, Sony, Dell and Apple. Its facility in Longhua, China employs about 300,000 workers, but since January at least 10 workers there have jumped to their deaths from the roof of the four-story dormitory on the Foxconn complex. At least two more deaths at Foxconn have been reported, one a suicide at another company location and the other a death from exhaustion. Statistically speaking the number of suicides at Foxconn is not unusual for young people in China, but the frequency of them this year is capturing worldwide attention and scrutiny. It is estimated that 90 percent of Foxconn’s workers are between 18 and 24 years old. They typically work 12-hour shifts and share living quarters with up to 10 co-workers.

While it’s probably inappropriate to blame the suicides solely on Foxconn working conditions, the symbolism of their actions is unmistakable. It set off protests in Hong Kong and Taiwan. Last month, nine Chinese social scientists published an open letter to Foxconn saying that the deaths “force us to question the future of the ‘factory of the world’ and the new generation of migrant workers.”

In recent days Foxconn has raised wages at plants in China by a total of nearly 70 percent, but even with that increase, workers’ monthly salaries are up to 2,000 yuan or $290! Excuse me, but that’s an embarrassment for both Foxconn and its high tech partners even  if those wages are, as Foxconn says, considered compliant with international standards. A Financial Times report yesterday said Foxconn expects its customers to help pay for the wage increase.

This turns the lens squarely on the supply chain management practices of the major U.S.-based tech firms that contract with Foxconn.

Meggin Thwing Eastman said in a recent RiskMetrics blog post that, “No one knows why these problems are coming to a head right now. But that doesn’t mean that these tragedies were entirely unpredictable. The historical record shows that some of the world’s most admired companies have effectively built poor labor practices into their business models. Now external pressure may force a change.”

Outsourcing to China’s huge manufacturing centers makes ultimate sense in a globalized world. But there is a downside exposed by the Foxconn story: Outsourcing is often criticized for the loss of domestic jobs and manufacturing ability as well a major reason behind China’s long-standing poor working conditions and awful human rights record.

Whether that view is fair or accurate is mostly irrelevant now because while the Foxconn saga is still playing out, it’s likely to become a watershed moment in the world of outsourcing that changes the way outsourcing deals are concluded. At least it should; a wake-up and a shakeup is needed.

Vested Outsourcing’s collaborative win-win approach to achieving desired outcomes is a very relevant and attractive model. Outsourcing might become more expensive for companies doing the outsourcing but their vendors’ workforces might just be happier, more productive –  and alive.