Outsourcing Innovation

More companies are outsourcing innovation which is in part due to global markets, geographically dispersed subject matter experts, and a faster emergence of disruptive technologies.

Companies may also choose to outsource in an effort to lower their research and design costs or when they are trying to tap into a market that they have little knowledge or experience. Sometimes they may outsource simply because the project does not fit strategically with their core competencies or to avoid internal bureaucracy and politics or because they have limited resources.

Done well outsourcing innovation has the potential to reduce risks, reduce cycle times, and lower innovation costs.

Research by Linder, Jarvenpaa, and Davenport in their 2003 paper “Toward an innovation sourcing strategy” highlights that 45 percent of innovations originate from external sources and this figure is nearer the 90 percent mark for service-based industries.

SUCCESS DRIVERS FOR OUTSOURCING INNOVATION

• Building a high degree of trust and strong communication channels with your innovation partner. Meet and communicate regularly and build trust by doing what you said you would do.
  
  
• Ensuring that your partner has the appropriate knowledge, competencies, and resources to complete the project. Check for evidence of competence by analyzing your partner’s efforts on previous projects.
  
  
• Ensuring that you as the purchaser of the innovation have enough related knowledge. Outsourcing a project in which you have no related knowledge is highly risky.
  
  
• Having the problem clearly defined. This is a success driver for most projects but needs to be mentioned as it is essential for an outsourced innovation project in which the uncertainties are much greater. Define the problem, define the business case, and define your success metrics, goals, or targets. To reduce the likelihood of disagreements further down the road define these in a legal drafted statement-of-work and master service agreement documents. Meet with your partner to discuss and ensure an understanding of the statement of work prior to signing.
  
  
• Define the key stakeholders of the project and enable communication channels to these stakeholders on a regular basis.
  
  
• Employ an experienced project manager to manage the project. The project manager can report back in monthly or weekly meetings on progress related to defined milestones.
  
  
• Involve your customers: Reach out to them for ideas, requirements, and expectations. However, be aware that they can be a source of risk for radical innovations.