Outsourcing Innovation: Evaluating Fit

Article Content

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.

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 that includes subject matter experts, key stakeholders, and 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?

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: Outsourcing or Internalizing the components necessary to take the company to the next level? The answer selected will often depend on the company’s attitude towards risk, 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.