When to Outsource Innovation?

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Outsourcing > Best Practices > When to Outsource Innovation?

When to Outsource Innovation?
Cornelius Streit, Manager, Singapore, Moderator
According to Michael A. Stanko, Jonathan D. Bohlmann and Roger J. Calantone in the article “Outsourcing Innovation” (Executive Adviser, November 2009), outsourcing research and development and the creation of new products can help companies to slash costs, speed development time and tap into talent outside the company. Based on an analysis of 359 companies, following four situations call for outsourcing innovation:
1. When companies would need to add lots of new knowledge to innovate.
2. When intellectual property is not well protected in the industry and new ideas can spread quickly from company to company to limit spending.
3. When companies have had lots of experience with outsourcing, as they are able to better manage the situation to produce effective results.
4. In the early stages of a project, when there are lots of technical hurdles to be overcome and the outcome is far from certain.

When to Avoid Outsourcing of Innovation
Abhishek Tiwari, F&A Professional, India, Member
Though sometimes be the best option, outsourcing may not be the best choice for innovation:
A. If an innovation is critical to a shortly scheduled product launch, outsourcing should be avoided.
B. If innovation can be done by a single individual, outsourcing can be avoided.
C. If innovation is inexpensive, outsourcing should be avoided.

When to Outsource Innovation
Harpreet Singh, Student (MBA), India, Member
Outsourcing is excellent idea, specially in environment where competition is very high, it helps in reducing cost of production for companies and provide them cost efficiency to face competition and it provides growth to countries economy.
But, as far as outsourcing of innovation is concerned it is not advisable to outsource innovation or inventions because there is really any opportunity for creativity and implementation of new ideas.
Secondly there are other crucial factors like environment of countries, availability of skilled people, and time period how long one can continuously go for outsourcing.

Collaboration better than Outsourcing Innovation
Arturo Granados, Partner, Peru, Member
Outsourcing is perfect for a company that produce commodities, like mining. Because companies in the same industry do not compete.
Most of the time, innovation is done with university collaboration and with certain institutes. This sort of collaboration empowers not only research, it also develop new ways to do business.

Outsourcing Innovation is a Bad Idea
David Matthews, Scientist, United Kingdom, Member
Daft idea, if you don’t do any internal innovation specifically R&D then you lose absorptive capacity. The firm will not be able to recognise the benefit of an innovation or its context in the outside world. Do your own R&D and use the knowledge gained to recognise value and buy up other companies/ip that contain value.
Innovation is a core capability - Do it in house.

When to Outsource Innovation
Darren Harrop
Many organisations do not have the in-house skills to deliver an entire innovation project. On that basis, rather than carry additional risk exposure, outsourcing all or parts of a project is often a very sensible idea.
Offshore outsourcing is particularly suitable for reducing cost, as long as the right partner is selected. Outsourcing is often used as a way to commoditise skills, driving costs down. It can be an effective way to mitigate cost and risk within product development.
As for security and intellectual property rights, an effective way is to avoid bundling the project into a single site. Within Epiphany, we use our own outsourcing capabilities, but because of the nature of our work we often split projects into discreet parts spreading them geographically. This adds another layer of protection.
Overall, there is no doubt that in the right circumstances, outsourcing innovation, research, or development can be the right thing to do. But I think this view is not new, rather, it is widely held.

When to Outsource Innovation
Elena Palkina, Manager, Russian Federation, Member
To my opinion, inno-outsourcing is suitable for the big companies. Any way, this process should be held and controlled by a customer in order to protect IP.

Outsourcing Must Be Monitored
PELMONT, Consultant, France, Member
Outsourcing innovation is a key for product development, and so for business development. Nevertheless, outsourcing must be monitored.
Monitoring: fixing objectives, milestones and deliverable, but also provide reversibility.
In this way, outsourcing can be a real added value for any company.

Selective Outsourcing Innovation
kvssiyer, Consultant, India, Member
True outsourcing innovation reduces cost of innovation but also minimises the flexibility of the extent and scope of innovation. So judicious selection of participants and items to be innovated need considerable thinking and extensive discussion within the company.

Outsourcing R&D: Hard to Find Know-How
Ceferino Dulay, Jr., Philippines, Member
On the surface, outsourcing R&D and product development may seem cost-effective but there are many other things that come in play.
If a company stays close to its knitting, the know-how may not even be found outside. For example, product extensions and those where existing equipment will be used are better done in-house.

Insourcing of Innovation
Allemeersch Johan
I would prefer to use insourcing of innovation, where I don't have own resources. Why should you outsource innovation? To only keep the old process and products in house? How will you survive on the long term? At a certain moment you don't add any value anymore to your customer.

Outsourcing R&D
Elena Palkina, Manager, Russian Federation, Member
I'd like to point out that investments in innovation (R&D) can be extensive nevertheless they not always ensure return of the capital employed (nobody knows when and what result will be achieved).
So, I think, in the case of successful research (even if it seems to be out of required pay-back period of investment) the management of a company can sell the rights on IP to other firms but in a defined period of time. This will allow, on the one hand, the company to be more competitive than its rivals, on the other hand - by further selling the rights to use this IP - to ensure profitable initial investments.

Outsourcing Innovation
Svein Ulset
Many oil companies regularly outsource innovations (new technology). These are developed in joint R&D project with upstream suppliers. Oil companies buy, sell or share property rights in the new technology with the end purpose of creating competition among suppliers in producing and selling the new product, later also to rival oil companies.
The sponsoring oil company may acquire the exclusive right to use the product for a limited period of time before it is also sold to competing oil companies. Thereby the sponsoring oil company will get a head start over their competitors, not only from participating in the R&D project, but also as first innovative user of the new technology.

Outsourcing R&D is Needed
Simon Gray, Manager, Switzerland, Member
Due to increasing complexity it is close to impossible for any single organisation to maintain specialisation in a growing range of fields. The answer for large organisations (with long-term development strategies) is open innovation in the pre-competitive stage.

Outsourcing Innovation and Transformation
Prashant, Business Consultant, United Kingdom, Member
Innovation can be of three types:
1. Innovation in values, ex- marketing, advertising
2. Innovation in usage, ex- phone
3. Innovation in product/ service, ex- cars, cornflakes etc
If the company operates in a highly competitive environment and doesn't have the current or potential capability to capitalize on these attributes internally, outsourcing innovation can be an option.
A prerequisite and mandatory determinant here is the outsourcing model. It would be wise not to confuse outsourcing with transformation. The nature of contract, level of controls over outsourcing partner/s and people involved is an integral component.

Outsourcing Innovation Minimizes Cost but Hampers Morale
L. Harnamsing, Mauritius, Member
Outsourcing is good for organisations when it comes to maximising profits or minimising cost because it has a direct relation with the competitive environment organisations are facing. The other side of the coin, may be that when organisations start outsourcing their so-called non-value adding functions, the employees are laid off and other employees are scared of their future condition. This leads to low morale of the human resources, thereby hampering innovation.

Outsourcing Innovation
hamid mohamed ahmed, Accountant, Sudan, Member
Most organizations are operating in a very competitive environment and to stay alive through the dangers of competition the organization should build and support competitive advantage to reduce cost or differentiate products, outsourcing of innovation is a management tool to gain competitive advantage through reduction of costs and improving quality, but organizations should be cautious to protect their intellectual property, security and confidentiality of their affairs.

Outsourcing of Human Resource
desu rama mohan, Professor, India, Member
The concern should be getting enough intellect who are committed to sustainable growth of an organization, protecting the individual rights and confidentiality.
Organizations are in search of committed, knowledgeable people and may not be willing to share in this competitive era. But for a social cause the innovation may be shared with others.

Outsourcing of Innovation is Outsourcing your Core Business
PAT O REILLY, Ireland, Member
To outsource can have advantages and disadvantages. To outsource a service which you can undertake yourself is negative thinking - good management practice should be able to do the work and provide the service just as efficiently and more effectively.
To outsource innovation fully is like giving over the core competence of your company to someone else. Bringing in a facilitator and some lateral thinkers for a number of workshops would be more effective and would be in line with best practice in relation to information management.

Outsourcing Situations
SIVASUNDARAM, Student (MBA), India, Member
Three situations when outsourcing should be done:
- When internal resources are dry.
- When there is an immediate need for a drastic change.
- When the company has a short time period and a long budget and the guts to open up the internal functions to the outside parties.

Outsourcing Has Become Easier and Cheaper
Natasha Shamlou, Student (MBA), Iran, Member
According to Jeffrey Phillips Raleigh in June,10.2010: over the last 20 years or so, as global barriers fell and telecommunications and information infrastructure increased, it has become easier and cheaper to outsource some function. Today, we are reaching the point where anything that can be reduced to information can be outsourced.
So, to some extent, we are building our own gallows, demonstrating the best methods and models for innovation, and consuming the products created by others using our techniques. If that is the case, we have to continue to invest in innovation and develop new techniques and new insights that continue our lead-in R&D yes, but in all facets of innovation. The alternative is stagnation, loss of innovation leadership and being forced to compete as a high cost, low innovation economy. Not the best situation to find oneself in.

Outsourcing Innovation? NO -- Co-Sharing: YES
Alonso Acosta, Manager, Venezuela, Member
Innovation is too critical a competitive advantage to be fully delegated to a third part, co-sharing might be a wiser choice so as to be able to tap in to external creative sources and know how, but external available talent has to be available. Choosing the right partners will be key.

Outsourcing Innovation... Can you outsource learning?
Norm Nopper, Managing Director/Consultant, Canada, Member
Cornelius, I’d never seen the phrase “outsource innovation” until your post. It struck me as strange because those two words just don’t seem to go together. It’s a thought provoking question.
Being an open minded fellow, I read through everyone’s responses. And while some people have laid out good arguments that it is possible and even preferable, I remain unconvinced.
Innovation is learning. Can we outsource learning? We can outsource – or collaborate on – research, and companies do that all the time. But innovation is the development of new core competencies, and the source of ongoing competitive advantage. To borrow a phrase from Toyota, that’s where you must “defend your own castle yourself”. I must do my own learning and innovating if I am to benefit from it.

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