Outsourcing Innovation: A Path to Competitive Advantage
Article Content
Outsourcing Innovation
Business Scorecard
Evaluating Fit
Benefits & Risks
Tools to Bridge the Gap
Outsourcing Planning & Evaluation Tool
Outsourcing innovation can make sense when the innovation does not represent a core competency. But when the deliverable (innovation) represents a core competency it is often strongly recommended that it be created, developed, and designed in-house.
Business Scorecard
The business scorecard is used for planning and ongoing operation’s level performance evaluation purposes. Adapted based on the business’ model, industry, and strategic priorities, the business scorecard targets what are considered key performance indicators for your business.
Emphasizing four core domains, the business scorecard can also be used for evaluating the impact ongoing initiatives, projects, and enterprise level deliverables across the business model.
Competencies that create a competitive advantage, and are central to the company’s value
proposition, need to be owned directly by the company. Those that are outsourced can be readily copied, or sold to competitors thus diminishing the company’s competitive advantage.
Even if the company is outsourcing innovation that does not represent an internal competency it can undermine competitive advantage.
Evaluating the Benefits & the Risks
Evaluating the risks involved in the outsourcing process requires a cross-system approach. This approach includes subject matter experts and key stakeholders. It also involves those held accountable for both the decision and the execution of that decision. The discussion should include consideration of:
If the innovation represents a core competency that should be owned?
If the innovation could be executed adequately by the parent company?
What/if/how existing legacy constraints could interfere with the execution of the new strategy?
The pros & cons of outsourcing vs insourcing?
If there is sufficient buy-in, resources, and leadership to execute the new strategy internally?
Does the strategy create a genuine competitive advantage valued by existing/potential customers?
Test Your Knowledge
The following tools can be used to evaluate whether innovation should be insourced or outsourced, depending on your company’s readiness. When reviewing your business for each area, consider the Current State, Future State, and strategies recommended to bridge the gap.
Conclusion
There is no simple answer about which is best. Should a company outsource or internalize the components necessary to advance to the next level? The chosen answer will often depend on the company’s attitude towards risk. It also depends on existing assets and the ability to execute or incorporate new strategies. Neither answer is likely to produce a plug-n-play result, with both requiring significant investment, change management, and communication to leverage.
