Strategic innovation in outsourcing and offshoring

What is strategic innovation in outsourcing and offshoring?

Strategic innovation in outsourcing and offshoring means using outside teams to speed up research, product ideas, and new technology while the company keeps control of its core vision.

• It helps firms build faster with expert help.
• It works best for research, IT, and project management.
• It needs a clear plan to protect ideas and quality.

The topic is still up for debate. Even so, tech firms and startups keep outsourcing their innovation. Some do it to meet rising demand. Others do it to improve their own systems.

Business process outsourcing brought in tools like artificial intelligence and the internet of things. As the world changes fast, outsourcing is set to grow to manage these tools. So let us look at how outsourcing innovation can help firms grow. We will also cover what to weigh before you outsource.

Outsourcing innovation

Innovation outsourcing means outsourcing parts of invention or new technology. Most often, tech firms use it for IT setup, research and development, and project management.

Some experts still discourage outsourcing innovation. They feel it should be homegrown. However, many firms take a middle path. For example, they use offshoring for innovation management, such as project work and research. Meanwhile, they keep the full invention and manufacturing in house.

Advantage of outsourcing innovation

Outsourcing innovation can give a firm a big edge over rivals. In short, these are the main benefits.

• Better project management. Not all inventors are strong at project management. So outsourcing helps keep projects on track through a skilled Scrum, Agile, or simple project manager.
• Better ideas and insights. Ideas from one person may leave a project thin. When you outsource, you gain input from many minds. As a result, the project gets stronger.
• Quicker development. A new breakthrough takes time to build. However, outsourcing helps a better team ship it in less time.
• Less cost on research. Some outsourcing countries, such as India and the Philippines, train skilled researchers at a fraction of local costs. In addition, they deliver the same or higher quality.
• Wider market reach. Outsourcing can help firms sell to a wider market. So they reach more buyers and build more products.

To see how the two models compare, read this guide to the difference between outsourcing and offshoring.

When and when not to outsource innovation

Outsourcing innovation also has downsides. These are the main ones to watch.

• More red tape. Some work needs extra certifications and compliance for security. As a result, third parties may add these fees to the contract.
• Privacy and handling risks. Innovation work can involve patents and secrets. So firms must handle their side with great care.
• Limited company knowledge. The final product may miss the original idea. As a result, the partner may not grasp the market, so the product can flop.
• Company acquisition. This often hits smaller partners. Firms that license technology may face problems if a bigger firm buys the partner.

Good planning makes these risks easy to avoid. In fact, a few clear signs show when a firm should outsource. These signs also show if a firm is ready to outsource.

When targeting a new market

Market research helps you learn the audience in a place. So outsourcing research to that place is smart. As a result, you gain native insight into what local buyers want.

When improving a product

Outsourcing gives a firm a better view of the latest trends. In turn, it can improve an existing product. It also helps the team learn the industry and stay ahead of rivals.

When going remote

Outsourcing can help build a remote team. As a result, a spread-out workforce brings the same gains that fully remote firms enjoy.

When creating an internal system

Firms should outsource IT when they build a system for the in-house team. For example, IT outsourcing services can improve onboarding, training, and HR. As a result, staff feel more satisfied.

Keeping up with the increasing demand

However, firms must take care when they outsource manufacturing. Some vendors offer cheap labour costs. Still, that can hurt product quality or worker welfare.

Outsourcing total innovation

When a firm buys out a full innovation, control gets hard. This is because it lacks the know-how to run and maintain the new product. So building it step by step is often safer, much like digital product development done in stages.

Strategies for innovation outsourcing

Innovation outsourcing is not for everyone. So a firm should plan its strategy with care. In fact, price and quality are just the start. There are several other things to weigh.

Research and development (R&D)

Firms that want to grow can outsource some research and development (R&D) work. As a result, they learn the target market and gain ideas to improve products. Still, they should keep some research in house to protect their brand.

IT and IT-related services

Based on the Deloitte 2016 global outsourcing survey, 72% of IT companies outsource their services, and 28% use it for intellectual capital. Outsourcing IT work can help firms save on resources and cost. However, they should plan what to keep and what to send offshore.

Knowledge management

Firms should take care when outsourcing knowledge management. First, check that the partner will not be bought out in the next five years. Next, review the terms on licensed products. Finally, set clear steps for any leak.

Project management

Both sides should stay open in project management. So the business should track updates and progress. As the end user, it should also have the final say on the output. At the same time, the partner should suggest better ways to work.

Creativity development

Constant communication is the key to outsourcing innovation well. So hold regular meetings to brainstorm. It also helps to keep an in-house team for designs and specs. In addition, both sides should share ideas to improve the product.

Frequently asked questions

Can a company really outsource innovation?

Yes, but with limits. Firms can outsource research, IT, and project work. Still, they should keep the core vision in house.

What is the main benefit of outsourcing innovation?

Speed and fresh ideas top the list. In addition, it cuts research costs and widens market reach.

What are the biggest risks?

Privacy leaks and lost control are the main risks. So firms need strong contracts and clear plans.

When should a firm avoid outsourcing innovation?

Avoid it when quality or worker welfare is at stake. Also avoid buying a full innovation you cannot run.

Which functions are safest to outsource?

Research, IT services, and project management are safe picks. For more, see the future outsourcing trends shaping the industry.

Key takeaways

• Strategic innovation in outsourcing uses outside teams to speed up new ideas.
• It works best for research, IT, and project management.
• Main gains are speed, fresh insight, lower cost, and wider reach.
• Main risks are privacy leaks, red tape, and lost control.
• A clear plan and open communication keep the work on track. These are also common reasons companies outsource in the first place.