Comments

The answer is simple. NO. You can´t outsource innovation. You can find other working models. Work in net and develop collaboration as a key strategy but you can´t outsource innovation, at least not outsourcing as it has been understood until now. If you do that you risk losing your identity.

Posted by felix gerena at March 11, 2005 8:46 AM

The simply answer is no. What we have in a talented labor pool, innovation, venture capital, freedom, and economic/gov. stability is now becoming available to the rest of the world. Many years ago a read a book that basically said who would you want to compete with; a pampered college graduate or an immigrant that is betting everything they own on this one chance for life? Many people around the world are tasting success and freedom for the first time. I wouldn’t bet against them!

Posted by RTodd at March 11, 2005 8:48 AM

If you outsource innovation, you are the outsourced, not the outsourcer. That´s the difference.

Posted by felix gerena at March 11, 2005 8:51 AM

You have to be very careful. I don't think it's just about innovation. One company (software) I used to deal with outsurced part of its R&D but didn't follow through with how they were going to support the product in the future. Consequently they couldn't provide patches for bugs etc. You can easily end up in a situation where although the innovation part works the follow up is flawed. In the long term, preserving knowledge is just as important as the innovation.

Any situation where the organisation(or person!) that is responsible/accountable has limited power over the organistion(person) that is providing is not a good one.

One idea I have seen done successfully in software is outsourcing product testing. This is an area where you can establish clear service levels and processes etc.

This is an interesting debate - it starts to beg the question - at what point in outsourcing does your organisation actually loose it's soul, it's reason for being?

Posted by PaulH at March 11, 2005 9:23 AM

And if your company is just a shell, coordinating lots of other companies how on earth do you get "brand harmony" and "be the brand" to work?

Posted by PaulH at March 11, 2005 9:26 AM

My own feeling is that NOTHING is sacred anymore - ANYTHING can be done by ANYONE, ANYWHERE

Preciousness is not a helpful position to be in in the world we now inhabit. It is also fruitless.

I would advocate always looking for other people to do 'bits' of your job - they usually do it better.

I remember Tom Peters saying "ANYTHING can be sold on E-Bay - he is right.

And whilst on this ..... I don't actually like terms like 'outsourcing' - it is management jargon at its worst

My 76 year old mum does not undertand words like that - nor do my children.

A plea as usual from me for simplicity please

Great discussion

Trevor

Posted by Trevor Gay at March 11, 2005 9:43 AM

BEST SOURCING - BEST SOURCING - that is what it is, was and will be.

The world community is getting smaller and smaller - so that even small business people can employ and take advantage of world-wide talent at a bargain price - then please customers at a higher level by offering best value.

Hopefully the BEST Source is the USA - since we define free enterprise and freedom for so many in the world community.

Posted by Sean at March 11, 2005 10:07 AM

BEST SOURCING TOO - DR. THOMAS ON A 10 DAY sabbatical from le BLOG WORLD!

HE'LL BE BACK SOON with fabulous new INSIGHTS!

Posted by Sean at March 11, 2005 10:09 AM

The BusinessWeek article title is misleading. Those companies and examples mentioned are NOT outsourcing innovation (at least not in the way I define the term ). What they are doing (and I am familiar with at least a couple of those companies and their innovation processes... or perhaps lack thereof =) ) is creating innovation networks that happen to include external companies that specialize in innovation. Those innovation networks include other components including universities, internal resources, and even competitors.

The book "Innovator's Dilemma" identifies the challenges established businesses face in innovating.

Innovation is still an immature discipline. Companies are figuring out how to do it and do it well. Innovation is also treated as strategic by more and more companies. As such, it is not ripe for outsourcing...yet. Give it time. Once it does mature, and it no longer is a source of competitive advantage, it will be outsourced like any other cost center.

Posted by James V. Reagan at March 11, 2005 10:09 AM

First, I will preface my comments by saying I am not in the tech industry. I'm a consumer. My husband used to be in the tech industry before his job was outsourced.

It wasn't that long ago when technology was touted as the savior of the U.S. economy. Growth was expected and many young people were filled with hope and expectation as they plied their trade in their rooms late at night with visions of Apples dancing in their heads.

Now? Enrollment in tech programs is down. Why? My thought is that few kids want to invest their time and money acquiring knowledge that will be easily outsourced. Where does that leave the U.S. tech market? Where is the future if the heart of a company is outsourced? To an extent, I can understand call centers and support being outsourced - but innovation? R&D? That's when I start to question the company. Are they more interested in pleasing their stockholders or their customers?

Here is a question I have about outsourcing R&D. What works in Tokyo may not necessarily work in Topeka. And that R&D team better be working closely with the marketing department in understanding the needs of the consumer in two (or however many) countries.

Innovation is what built America - but outsourcing an R&D team isn't just potentially taking the soul out of a company, I think it's taking the soul out of our future.

Posted by M.R. Maguire at March 11, 2005 10:25 AM

R Todd, what you say above really resonates for me as an immigrant to the UK. My experience at University was that foreign students had this sense of mission about them that domestic students did not or could not have. It might have to do with the fact that we were paying about 10x what the home student was paying in tuition fees,being the "last hope" for our countries...etc etc. And in the workplace, I see a different shade of this. Even in the same office, in the same job, foreign workers will take less money and work harder for that one shot at the gusto....
http://freddkambo.myblogsite.com/blog

Posted by fredd Kambo at March 11, 2005 10:51 AM

I work for a foreign-owned company. We have manufacturing facilities all over the world; R&D,sales, marketing, and IT in the US and Japan. Since this Japanese company has R&D in the US, have they outsourced part of their innovation? The facts are that countries are becoming more and more irrelevant in favor of corporations and cultures. Futurists and science fiction writers have already gone a long way down this road (cyperpunk, William Gibson, and others). In the future our identities will have nothing to do with where we live and will be based on our corporate affiliations and our cultural associations. Save your job by either knowing how to do something no one else does or by being better at something than anyone else is. The first is becoming increasingly difficult as other countries catch up with the US, Japan, and etc. So your best bet is the second approach. Either that, or do something no one ever thought of doing at all. Innovate YOURSELF, not just products.

Posted by Mike at March 11, 2005 11:47 AM

PaulH I think you are telling an important point in the discussion. Innovation it´s not just R&D or not just "The department of R&D" or the laboratory. I think that´s very important.

Posted by felix gerena at March 11, 2005 1:04 PM

Many good comments here. The word "outsourcing" creates some strong emotion but as Trevor suggests "outsourcing" is just current business jargon for subcontracting. However what creates the emotion around this issue is when work is subcontracted (to avoid the jargon) offshore. That is the essence of most of the comments.

First we must keep in mind that innovation is part of the overall value-adding process that is the foundation of any business. Successful businesses have identified, and in the future must increasingly identify, value-adding steps that others can do better. In these situations it is in both their shareholders' and customers' best interests to subcontract/outsource. So long as there are process steps that are retained that add significant value such subcontracting/outsourcing is strategic.

Innovation is often a process step that adds significant value so when it is subcontracted/outsourced it is appropriate to inquire further. As Vivek Paul points out you can deconstruct R&D into subprocesses and strategically subcontract/outsource subprocesses which others can do better. There are other businesses that add their greatest value through their marketing expertise. Couldn't these companies strategically outsource the entire R&D process?

I have made reference to subcontracting/outsourcing to others who can "do it better". Let's think of "better" to mean "better (higher productivity and quality), faster (reduced cycle time) , cheaper (at a lower cost - don't fall into the trap of translating this as lower quality)". This is where offshoring becomes the issue. There is a tendancy for people to assume work is subcontracted/outsourced offshore because it is "cheaper" and as pointed out there is often an inference that cheaper also means lower quality. One can point out numerous examples where this has in fact been the driver for going offshore. However this kind of offshoring will fail. Ultimately the market will not accept lower quality even if it costs less. The market will always demand "better, faster, and (not or) cheaper". And here is the reality most people do not want to face - there are people offshore who can do much of what is done domestically better and faster and cheaper. This is capitalism at its best.

Why is this happening?

RTodd and fredd Kambo have essentially answered this - people in other parts of the world are highly motivated to emulate the economic success they have seen in the US (and to a lesser extent Europe), they have taken advantage of the educational resources in the US, they are transferring that educational infrastructure to their own countries, they have access to "raw material" of work through the internet (when we are talking about knowledge workers), they can send "finished goods" through the internet (same), and we are getting increasingly lazy in the US (witness increase in TV hours and obesity). Note that I am guilty of generalization here. There are individuals in the US who IMHO are superior to those most anywhere else in motivation, skill, creativity, etc. However, as a society we are seriously challenged.

I've been very long winded here but as a co-founder and former COO of an "outsourcer" this is a topic dear to my heart. We are truly in a global economy and is is indeed about "better, faster, cheaper" and the individual (and team) talents that can deliver this. Even though the higher standard (or should I say cost?) of living in the US makes the "cheaper" harder we have a lot of room for improvement by eliminating the "muda".

Posted by Preston at March 11, 2005 1:22 PM

Thanks Preston - you sum things up perfectly.

My simplistic and pragamatic view is;

'Cusotmer care' is old hat

'Delighting your customer' is old hat

New world means;

'What can I do to make my customer feel like the most important person on the planet!!

Using every modern gadget and technology enables everyone to be really 'smart' now as a customer and therefore more discerning than 20 years ago. Even than five years ago.

That in turn means as providers we have to think of ways of being ahead of the customer -otherwise we are doomed!!

I don't think this is futuristic or sci-fi - I believe it is the world now so we best all be prepared.

Great discussion and thanks again Preston for using language my 76 year old mum MIGHT JUST HAVE A CHANCE OF understanding!!

Trevor

Posted by Trevor Gay at March 11, 2005 2:37 PM

The last blogette's syntax and grammar is so poor - a total lack of innovation - India as 70% wasteland caste system.

Posted by Jack at March 11, 2005 7:32 PM

Sub-contracting /Outsourcing is in itself ,an act of innovation. Its business process innovation at its best. And Innovation is not a thing, that needs to be curtailed within an artificial organizational boundry. Every touch point of the organization is a potential source of innovation, including the supply chain.

Not sure if we are talking about invention. Because if its invention that we are talking about, then even if components of R&D were to be outsourced, the intellectual property still remains with the company that sub-contracts. Intellectual Property is what creates wealth in the knowledge economy.

As regards to jobs, arent we getting to be global? There have been stories of many smart ,enterprising and educated people in the US begining to relocate to Asia /Europe as a part of their career growth.

Posted by Sandy at March 11, 2005 7:34 PM

for many companies, outsourcing, via cost savings, is a way to create more disposable cash for (shareholders, exec pay packages) the company.

innovation, is creative use of resources to solve real problems. it isn't strictured into a "cost savings" only mentality. Many companies use it cause they get tax breaks or can offshore revenue or royalty streams.

it has nothing to do with build fabulous companies, marvelous products that solve real problems for customers.

IP protection in China and India is risky at best,
unless your a major corporation, your IP is at risk and those costs are often not computed, or mitigated.

although technology has improved communications and collaboration and cooridination, developing, and retaining IP and build teams of terrific core competency isn't done with a balance sheet alone.

salaries in India and China are rapidly rising (20%/annum by some accounts) so the real cost advantages are diminishing.

if a company is serious at creating Wow products, it can't follow it's neighbors down the street and simply line the exec pay packages. companies need to do something different, extraordinary and inspiring, and to foster creativity and resourcefulness in their employees.

the won't do that by inspiring em with "your job is moving ot india"... next year, have a nice day.
clearly this will negatively impact all relationships between employees, management and customers...

think for a few moments, and i'm sure you can dream up half a dozen examples.

doh.

Posted by kurt at March 11, 2005 10:34 PM

Nice topic for discussion.
To the main question my answer is YES and I would also like to add that it is not by choice of the SOURCER always but the market pressure and the prevailing competition. Unfortunately, the ends are not defined by the means in capitalism as profitability and survival are the only goals. Outsourcing and offshoring are some of the changing means to achieve these goals.R&D is the long term inherent force for survival of a tech company.If outsourcing R&D is another step towards these goals, that is exactly what these companies would do and in the process increase the 30% margin (BW study) to as much as they can to increase profitability!!Ultimately, customers prefer cheaper goods and beware! American consumer market is still the largest, something Ford and GM forgot when Toyota and Honda entered the automotive market!!

Posted by Mahesh at March 12, 2005 3:24 AM

Good discussion. I feel that the system is in flux and whether we are going to have corporate giants or individual entepreneurs is still far from clear. The next few years we will experience the "Value-chain wars" which will effect our definitions or work, entreprise, government and societal mores (I personnaly hope that a liberal-democratic system will emerge from the dust). Good ideas, innovation etc is less dependent on the enterprise per say. As Tom has said 'you have to hang out with weird' and so some zip codes (Boston, San Fran, etc) are way ahead of the pack. No matter what my size of an organisation, I would want to be part of the action. And as that action is becoming less dependent on geography, companies may have to flexible in their source for R&D (just as they are doing in other fonctions). This would bring us to another philosophical debate : "what is progress?" - but I won't bore you guys with that today. Thanks for listening.

Posted by Steve Robert at March 12, 2005 12:16 PM

Yes and no.

One can successfully outsource innovation if the deliverable is commodity. It can succeed where the deliverable is Wow-free. It can succeed where the innovation is based solely on lowering cost in a category where the consumer feels quality is irrelevant.

But I'm with kurt & felix gerena; one cannot successfully outsource innovation if the deliverable differentiates your outfit from the commodity horde. Many organizations, from Maurice of Nassau's army in the 16th c. to Enron Corp. have one great earth-shaking innovation in them. But to "be innovative", that is, to innovate more than once & be a self-perpetuating engine of innovation requires two elements, I think.

(1) An understanding that the talent IS the product. The individual innovations are symptoms, but the source of wealth is the troop of innovative individuals and processes that stimulate or nurture the troop. Outsource that and, if you're not committed to commodity, you're at the mercy of being the high-bidder or having your oxygen cut off.

(2) Understanding the cultural context of the customer. For those deliverables that have any social component, cross-cultural innovation is dicey -- not impossible, but tricky. Meanings, meta-meanings and implicit cultural assumptions of roles and self-image can take a lifetime to come to understand. Even when it's brutally obvious and the prospective innovator has strong incentive to learn (for example, Sepoy Mutiny of 1857 http://www.lexicorps.com/sepoy.htm ). As globalisation eradicates some memes of individual cultures, this may become less pronounced (at least until globalisation fades), but there will always be cultural elements that don't lend themselves to a commodity-global static product.

I think there are three elements a non-commodity organization (or just one that doesn't explicitly strive for mediocrity) can never primarily outsource: Personnel recruitment, strategic planning and Innovation.

Posted by jeff angus at March 12, 2005 1:12 PM

Trevor - GOOD POINT.
I think that any company that is trying to avoid the outsourcing process underway because of moral and other beliefs is losing the edge competetively. If they dont outsource and are comfortable with lower profits, they lose market advantage to other competitors who follow the outsourcing model, thus eventually losing market presence. People in bigger markets go by low-cost and better services and not by brand loyalty(!!). Also, the increasing access to global market and the recent trend of M&As are big factors to diversify all operations of biz including R&D.
A small misunderstanding on my part. My answer to the question "Is there a point of no-return with offshoring and outsourcing?" is NO and that there is no point of return (I had mentioned YES which is contradictory to my explanation).
Think Global.Act Local.

Posted by Mahesh at March 12, 2005 7:19 PM

HELLO? OF COURSE! How can you do ANYTHING BUT outsource innovation?

Innovation doesn't take place inside our organizations anymore than surfing the web or watching TV takes place inside our heads. The power of innovation doesn't come from squeezing internal resources until the NEW-JUICE comes out.

Instead it comes from extending the inward sense of organizational self, or of brand identity, outward into myriad external resources.

The only problem with outsourcing innovation is paying for things that you should be stealing. Subcontracting innovation is sad.

Posted by Jason Kerr at March 13, 2005 5:33 AM

One of the problems of the outsourcing (especially when it involves offshoring) is that it is very emotive. When passions rise very few people look rationally at the situation. I have seen very little QUALITY analysis about whether it is actually very effective. (Note by this statement I am not taking either side in the debate). Much of IT service outsourcing looks good financially but actually is pretty poor from a quality of service point of view (When working as an IT consultant I saw examples of both good and, more often, bad).

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From what I have seen outsourcing works best as part of a portfolio of solutions (i.e. don't outsource ALL Call centre functions - work out what works and what is best kept in house).

This is the problem with the debate it's polarised (do it or don't do it). I think we need a much more mature debate around which parts work and which don't and the criteria you can use to tell the difference. Some ideas on how to improve the management and decision making so that it becomes a successful partnership model from all sides.

Posted by PaulH at March 13, 2005 6:44 AM

Great points Mahesh

I have heard 'act global think local' before but thanks so much for reminding me - I love it!!

Regards
Trevor

Posted by Trevor Gay at March 14, 2005 4:48 AM

I thought all Tom fans deserved a laugh to brighten up Monday morning ...

I just posted this on my own Blog site
http://simplicityitk.blogspot.com/

ENJOY and as my kids tell me .. CHILL OUT DAD!!

To Brighten your Monday

Sometimes leadershipand management 'stuff' is not the most exciting topic in the world ......

Annie and I fell about laughing when we heard this on the Radio this morning ... so as a bit of light relief we wanted to share it with you.... it may brighten your Monday!!!

15 Things to do in the Supermarket, if bored….

1. Get 24 boxes of condoms and randomly put them in peoples' trolley when they aren't looking.

2. Set all the alarm clocks in houseware to go off at 5 minute intervals.

3. Make a trail of tomato juice on the floor to the toilet.

4. Walk up to an employee and tell him/her in an official tone, "Code 10 at Pharmacy" ... and see what happens.

5. Go to the Service Desk and ask to put a bag of M&M's on hold.

6. Move a "CAUTION - WET FLOOR" sign to a carpeted area.

7. Set up a tent in the houseware and tell other shoppers you'll only invite them in if they bring pillows from the bedding department.

8. When an assistant asks if they can help you, begin to cry and ask,” Why can't you people just leave me alone?"

9. Look right into the security camera and use it as a mirror while you pick your nose.

10. While handling knives in the kitchen ware department ask the clerk if he knows where the anti-depressants are.

11. Dart around the store suspiciously while loudly humming the theme from Mission Impossible.

12. In the car accessory department practice your Madonna look using different size funnels.

13. Hide in the clothing rack and when people browse through shout, "PICK ME! PICK ME!!!!"

14. When an announcement comes over the loud speaker assume the foetal position and scream, "NO! NO! It's those voices again!"

15. Go into a fitting room and yell real loudly...."Hey! We're out of toilet paper in here!"

Posted by Trevor Gay at March 14, 2005 4:58 AM

Hey, Trevor, have you ever tried writing scripts for TV shows, like say, Mr. Bean? That´s a sharp English sense of humour, isn´t it? Laughing is good for health and better if it is monday. Thanks for the ideas. I will try next time I go to a supermarket.

Posted by felix gerena at March 14, 2005 5:41 AM

Trevor, thanks for pointing me to this interesting discussion. My view is it depends on your definition of Innovation - having the new idea or implementing the idea. Getting out of your box is the best way to get new ideas (is that outsourcing?) - testing and implementing new ideas is about discipline and experience - and that can be outsourced if you don't have the skills. In my experience the TRICK is maintaining good enough communication to keep the innovation cycle in a tight loop and in the real world - lean, fast and focussed. Simon.

Posted by Simon Dodds at March 14, 2005 10:45 AM

Fascinating discussion; dovetails nicely into my own question of the cost of outsourcing ...

http://www.ericmackonline.com/ica/blogs/emonline.nsf/dx/can-you-outsource-passion-and-loyalty

http://www.ericmackonline.com/ica/blogs/emonline.nsf/dx/The-true-cost-of-IBM-outsourcing-customer-relationships

Eric Mack
eProductivity Specialist
http://www.ericmackonline.com

Posted by Eric Mack at March 15, 2005 8:23 PM

as design-manager (design as in product-design, funny colorful things that work) i have often been thinking, that outsourcing design=innovation=rnd is the only way to actually get things done.

but maybe outsource it in a nike kind of fashion. which means taking the brand with you.

why do i think so?
if we say that design is important, innovation is important, brand is important we also have to acknowledge that in corporate reality these 3 “creative” sectors in the value chain are – if you look at them as departments in a corporation – more or less completely isolated from the rest.
so, as these departments are isolated already, we could just as well outsource them completely and let the rest die.

why is it that today we find a rigid isolation of design departments within organizations?

the simplified answer is:

because design and management are by nature two separate worlds.

corporate reality (planning processes, decision making, execution) has nothing – not one little thing - in common with the work reality of a creative mind. creative processes (innovation too) are the exact opposite of the processes that run an organization.

management is a linear process (measurement /control) – design and innovation are not.

design is essentially an open process. means: once you have started a design process you have no chance to measure or control it until the result is delivered. and if you want to influence the outcome of a design process, your best and only way is to do that right at the start (or wait till the end and start all over again).
creative processes follow a simple pattern: close/ open /close.

creative processes are like permanent projects: kick off/ getting familiar with the objective /review.
(if you do not get your briefing right, you have screwed it – not the designer)

creative processes are by nature open processes: close/ open /close

successful design (innovation) management has to start off exactly at this point by acknowledging the fundamental differences between design (innovation) processes and management processes in order to create a system of effective interaction.

if this does not work, well – outsourcing the management is still an option.

Posted by jens at March 17, 2005 6:18 AM

It happens all the time. It's called "consulting".

Posted by Brian Wood at March 17, 2005 3:42 PM

has anybody of this distinguished audience here got an idea on how apple works? structures, processes… things like this… anything that distinguishes apple from other companies?

how to buy viagra no prescription or is it mainly in the personality of the founder?

would really like to know…

some years ago I saw this docu-drama on gates and jobs called “pirates of silicon valley” and i never forgot this one dialogue:

jobs: “you know what the problem is with you guys? you have got absolutely no taste.”
gates: “you know, steve, … it does not matter.”

where is the true answer to this one? does our world change so significantly under the brand-paradigm that it does matter big time?

and if so: how will companies respond to it?

…

does anybody here have some idea on how the company “apple” looks like from the inside and how it works?
not asking for corporate secrets here:)

thanks a lot.

Posted by jens at March 19, 2005 11:00 AM