The demand for innovation is growing at a pace that many companies – even very large ones – are unable to keep up with. The solution may be delegating the tasks of the research and development department to specialized external companies. What is innovation outsourcing and how do companies benefit from it?
Until recently, companies entrusted the modernization of products and internal resources only to their internal R&D teams. The alternative was the possible purchase of the necessary technology, e.g. by buying start-ups. Increasingly, however, companies are deciding on a new form of cooperation, which is outsourcing innovation. That means subcontracting part of the tasks related to the conduction of research and development of the company.
The main drivers of the development of innovation outsourcing
It would be an understatement to say that the current market situation supports the development of innovation – it even forces it. Short slowdowns (e.g. collapse in the markets in 2008 and the crisis caused by the Covid-19 virus epidemic) are interspersed with years of intense expansion in this area. A slowdown alone does not mean that companies will completely withdraw from the investments in research and development. Rather, the priorities are changing. Companies are looking for new solutions to survive the crisis to return to the game and develop their products even more intensively when the market situation becomes more favorable. Those companies that start too late will fall far behind their more dynamic competitors, who are able to use the three main forces that currently drive the development of innovation and favor its outsourcing:
The enrichment of societies creates demand for goods and services that better reflect the needs of customers. To satisfy these desires, you should not only develop current products but look for new solutions. Currently, however, even large companies are not able to develop their teams so quickly to keep up with the need for innovation. The number of possible technological combinations is so large that one company is not able to test all options independently. It is then necessary to employ a partner who understands the market, can anticipate consumer needs and behavior, create new products, and suggest new business models.
|2. Access to specialists and knowledge bases, interaction options
Thanks to the Internet, access to specialists and knowledge bases is much easier, and the possibilities of interaction between entrepreneurs and people with relevant knowledge have increased.
Some 20 years ago, finding a person with the right competencies was associated with an expensive and long-term recruitment process, in which the highest cost was to reach the right target group.
Today, all this information is widely available thanks to portals such as LinkedIn or academic sites, and specialized portals and databases gather huge amounts of information useful during research.
The skillful use of expanding interaction networks allows you to eliminate the need to create your own R&D teams and delegate tasks to highly specialized companies offering outsourcing innovation.
3. New motivators
The latest project management techniques, special funds to promote innovation, and the emergence of new technologies to facilitate communication are motivating factors for entrepreneurs. For investors, each of these elements individually reduces the entry barriers to markets (especially in European Union countries) and promises to multiply profits. The use of several factors at the same time is often possible only with the help of specialized external companies, outsourcing innovation is, therefore, a lever and allows you to optimize profits with a minimum own contribution of companies.
Advantages of outsourcing innovation
We have already mentioned several reasons why you should consider the innovation outsourcing model. However, this does not exhaust the very long list of advantages of using R&D outsourcing services. What else can you gain by outsourcing innovations?
1. Access to relevant specialists
We described how the Internet allows you to reach specialists. Often, however, companies only starting to develop their technological facilities do not know who to look for at all. Determining who and to what extent is to be responsible for the elements of individual processes can take months. It’s a time that competition gets as a gift.
The situation is even worse in many narrow areas in which specialists are difficult to access and their services are expensive. What’s more, if innovative services are not at the center of the company’s operations, the chances that really talented engineers will choose to work in this company, and not, for example, at the market-recognized innovation leader are slim. In this case, building a team dedicated to research and development may be simply impossible.
Hiring an outsourcing company eliminates the need to supplement information and laborious recruitment of staff. The delegation of tasks to a company dealing professionally with research and product development guarantees that the research team will contain only specialists in a given field who already have the right knowledge.
2. Parallelization of projects
Depending on the size of your own research and development department, you can run one or several projects. Their number is often very limited by the time and skills of posted employees. Outsourcing of some projects allows checking more combinations of technologies and research conducted in a wider scope.
It should also not be forgotten that smaller companies – which usually conduct R&D outsourcing, have less inertia than the corporations that outsource tasks. It also means less resistance to change and key decisions. Thanks to shorter decision cycles, the product is created and begins to generate profits faster.
4. Risk reduction
If you are thinking about outsourcing research and development in your company, you must remember that, like any cooperation model, also outsourcing of innovation has some drawbacks. They result in certain challenges posed by switching to this type of business partnership. Years of cooperation with very different business partners have allowed us to isolate several key areas that determine good cooperation in the innovation outsourcing model.
Resistance to changes
No common goal
When setting goals it is worth remembering that you can reach them in different ways, which is why the process itself should not be overly formalized. Formalism kills creativity, which is a necessary factor in developing new technologies.
Decision and communication barriers
A smaller company whose operations are based on fast decision-making cycles and direct communication may not be able to withstand the collision with the inertia of the corporation for which it provides services. If the outsourcing company was chosen, among others based on how quickly it reacts to information from the client, this cooperation should also have a form that does not limit the freedom and speed of action. If you are transferring an existing project, you may need to make it more flexible. Communication with a business partner is a broad issue, so we will just list a few basic elements to keep in mind when deciding to outsource innovation:
- Designation of the decision-makers. Both principals and contractors should know who the decision-makers are, and to what extent decisions are made by those on the other side. It is a good idea to use uniform names that are understandable to everyone included in the process (e.g., Project Manager, Project Owner).
- Appointment of the process guardians. These will be people designated for task flow and communication. Those duties can be part of the authority of decision-makers or, if the process is more complex, they can be assigned to a separate team member (e.g. Scrum Master).
- Using software that facilitates communication and project management. There are many messengers and task managers on the market, including free ones. Compared to the exchange of emails, they organize and speed up communication.
Poor organizational culture
The difficulties mentioned above, e.g. inability to cooperate and lack of trust in partners, are most often associated with an underdeveloped organizational culture. These features can be offset by activities such as training and training for teams. However, this requires a great deal of managerial staff awareness and deliberate expenditure on building and developing an organizational culture at levels that go beyond artifacts.
It can be said that creating an atmosphere of trust and concern for a business partner is the biggest challenge facing companies considering this form of business cooperation.
“Innovate or die!”
– these words of Peter Drucker have never been as true as in the age of digital transformation. Meanwhile, many large companies are often resistant to change, while smaller ones suffer from a scarcity of resources used to constantly develop their offer. Innovation outsourcing and services of companies specializing in research and development come with help. Cooperation in this model requires meeting several conditions, but there has never been a better time in business history than now to start it. Many factors that are in favor of it and potential profits are so large that outsourcing innovation is an option that definitely should be considered.