More Companies Outsourcing Innovation: But what does it mean to you?
A recent Economist Intelligence Unit survey talks about how Outsourcing and offshoring of innovation are set to increase despite concerns about loss of control. A recent article quotes the report stating “Increased competition, the cost and complexity of innovation and a surplus of ideas are encouraging many companies to restructure their approach to research and development,” says Rob Mitchell, editor of the report. “Our survey shows a considerable shift towards greater outsourcing and offshoring of R&D in what we term a global innovation network model, despite concerns about loss of control over a function that is often considered core to a company’s identity.”
It was interesting to read about Ann’s views on this report stating “The EIU expects the number of companies with at least some R&D activity occurring overseas to increase from the current 65 percent to 84 percent by 2010. The number of companies outsourcing R&D to third parties is also expected to grow from 64 percent to 75 percent.”
Agreed, Organizations and executives are certainly looking to leverage external skills and talents when it comes to innovation; and the idea here is not very radical. Even a couple of years ago, the business press had begun talking up “Outsourcing Innovation” For instance Business Week ran an interesting article stating “First came manufacturing. Now companies are farming out R&D to cut costs and get new products to market faster. Are they going too far?” Even further back, James Quinn wrote about “Outsourcing Innovation: The New Engine of Growth” in MIT’s Sloan Management Review
What has changed in recent times is the greater confidence of corporate leaders [in sourcing nations] in the ability of offshore partners to deliver projects and work from halfway across toe globe.
Researchers are certainly looking at different aspects of outsourcing Innovation. For instance, Prof Kevin Desouza blogs "Most organizations have realized that they cannot reach business goals by conducting all activities internally. Cooperating with business partners and leveraging the know-how found in an organization's midst is a salient determinant of competitive successes. Many organizations struggle to increase the intensity and success of partnerships."
During my interactions with technology executives and leaders, I find that they are looking beyond such publications touting Innovation Outsourcing. Essentially asking “what does this mean to me and my organization?” or “how do I ensure my team also leverages such practices and applies them in our context?
And this was the topic of my previous blog, talking about my Cutter IT Journal paper where I also illustrate a case study on ‘IT Innovation’ by establishing a Globalized Center of Excellence (CoE). The case study I wrote about was based on an engagement with a large client where our (Infosys’) globally-collocated team collaborated with the client’s team to establish a CoE. The goal was to foster and manage a culture of ‘technology innovation’ while leveraging a globally distributed team. For specifics of this case-study you could refer to the Cutter article and of course buzz me.
Comments
Thanks for linking to my Blog. At the Information School of the University of Washington we have an ongoing project on outsourcing innovation. We are examining the question: when should companies outsource their innovation capabilities? Also, we seek to identify practices for managing outsourcing of innovation capabilities (for e.g. the amount of in-house capabilities that an organization needs to maintain). If others at Infosys are interested in this issue, we should talk and engage in creative collaborative research.
Posted by: Kevin C. Desouza | April 2, 2007 11:33 PM
Before considering outsourcing, companies should look internally at departments, individuals who can drive innovation with scale. Especially in organizations that have more than 10,000 employees, it gets difficult for the decision-makers to know the level of innovation in their own organizations. Unless, of course, they are guided by data from all levels.
Posted by: Sita Bhatt | April 3, 2007 04:24 AM
Hi Sita,
Thanks for the comment. You are right, large organizations should also look internally while also seeking best practices from outside. Prof San and I have also briefly touched upon this topic in our Cutter IT paper.
Posted by: Mohan | April 4, 2007 02:09 PM
Thanks Prof. Desouza,
I will introduce you to my colleagues at SETLabs who will ideate further on this topic.
Posted by: Mohan | April 4, 2007 02:13 PM
Innovation totally depends on the people working in your team... very nice post Mohan... thanks
Posted by: outsourced product development | October 8, 2008 06:58 AM
This is an old conversation but just as relevant today as a couple of years ago. In order to really get to the issue of when to outsource innovation and when to invest time and energy internally, we need to parse innovation discussion further.
If the innovation needed is in the core area of the company, where company has existing core competency then it behooves the company not only to look very carefully internally to see if there are leaders who have skills and imagination to drive that innovation but also consider new investment to build the needed skills for their long term competitiveness. However if the innovation area is an area where some one else has deeper knowledge and the intellectual knowledge developed is not core to the company's existence then they must look seriously to outsource with a partner who can bring skills, knowledge and scale to them.
Examples of this thought process are an automotive company looking for the coolest possible navigation software. It is better off getting a SW specialist to build it for them than build a SW business with in its own workforce. They do not have SW mind set, their management are unlikely to be experienced in managing a creative SW workforce and the whole creative process needed to build a world class SW product. They better focus on designing engines, auto bodies, safety, world class manufacturing and distribution processes etc than complicate their lives more by creating a SW business with in their structure. On the other hand an ISV is not likely yo outsource its next core product to a vendor. The ISVs will outsource stable and declining products but not their future, because they have the skills, they have the culture and because building SW is the reason for existence. Outsourcing innovation in this area will be insane for them, unless they want to just become a distribution company not a SW company.
Posted by: Somesh | February 9, 2010 07:21 PM