Strategies for outsourcing innovation

In this age of outsourcing and partnering, the leaders of many companies have been asking themselves, "Should we outsource our innovation?" According to Tony Davila, Marc Epstein and Robert Shelton, writing in their excellent book, Making Innovation Work, that's the wrong question.

In this age of outsourcing and partnering, the leaders of many companies have been asking themselves, “Should we outsource our innovation?” According to Tony Davila, Marc Epstein and Robert Shelton, writing in their excellent book, Making Innovation Work: How to Manage It, Measure It and Profit From It, that’s the wrong question. The questions to ask are, “In which parts of our innovation should we partner? How much should we rely on partners, and how much should we take on ourselves?”

There’s no question in the authors’ minds that partnering is a smart innovation strategy. Gone are the days when large companies can rely entirely on their internal R&D labs to generate all of their innovations. Today, outside partners – including customers, universities, channel partners and others – are an essential part of the innovation-savvy organization’s portfolio, according to the authors:

“Partnering is a standard and potentially valuable part of the innovation toolbox. Reaching outside for additional resources, ideas, expertise and different perspectives can be highly valuable when combined with the internal ability to understand and use what your partners bring.”

They cite a number of successful examples of open innovation partnering structures, including:

  • Operating small labs near university campuses (to promote an interchange of ideas between the labs’ staff and professors and graduate students at the universities),
  • Selling commercially viable ideas to both customers and competitors,
  • Selling the use of your company’s logistics and distribution systems to competitors (which lowers your overall costs due to economies of scale),
  • Hiring idea brokers to scout for new product ideas, using customers to beta test your new products (used widely by the software industry), and
  • The open source software movement (where numerous developers contribute to develop exciting new software applications, challenging traditional models of innovation).

The authors also point out that bringing a new product to market is such a complex process today that it inevitably requires collaboration with many organizations, and that each partnership requires special care and handling to ensure that it operates effectively.

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