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Creating a Culture of Innovation through Outsourcing

Five years ago, outsourcing was thought of much differently than it is today. Outsourcing has developed from call center operations to an essential business advantage where companies can both cut costs and still deliver high quality. Today, companies are leveraging offshore partnerships and highly skilled global talent as a vital part in running a successful business. As companies saw more and more success with outsourcing, they started to outsource different types of work - from software development, to data analysis to product management.

The next stepping stone in the outsourcing ascent will be to help clients stay ahead of emerging customer needs. Traditional Western centers of innovation like Silicon Valley and Boston will be joined by centers in Bangalore and Beijing to form a global technology and innovation ecosystem. There is a change brewing in how forward-thinking decision-makers are considering innovation - where it comes from and how it should be managed.

Traditionally, innovation has been thought of in many different ways and with many different strategies. Many companies rely on their own in-house R&D activities to "produce" innovation, while others think of innovation as a "great idea" or an invention generated by an entrepreneur or engineer. Although not all innovation comes from R&D and product-specific functions, it is inarguably an important outcome for R&D organizations of all sizes and should be one of the aspects that contribute significantly to revenue.

Innovation should be defined as an invention that adds sustaining value or creates a breakthrough value - a quantifiable value - in the form of new revenue or more market share. The terms invention and innovation have become synonymous with one another, although they should not be considered one and the same. An invention can be new and even unique, but it doesn't add value in the mind of the customer and create demand for the product. Inventions may be interesting, but they don't provide any payback to the organization - they are ideas that can't be monetized. Successful companies instill processes that evaluate new ideas and separate the wheat from the chaff - identifying those that have high business potential. They then focus their resources on those few ideas that have a supporting business case, rather than spending their R&D dollars on every idea, which results in a higher innovation return on their R&D investment.

So, how do you shift your companies' resources and focus to increase the importance of new innovations in your revenue mix?

Open Innovation Networks

"Not-Invented-Here" syndrome is prevalent in most R&D organizations and can be a hindrance to developing new ideas and executing against them to bring them to market quickly. The best results for innovative thinking often come through collaboration between resources both inside and outside of your company, as described in the concept of open innovation promoted by Professor Chesbrough. "Open innovation" describes how the corporate research departments at companies such as Bell Labs, IBM and Xerox may be changing, according to this academic study of corporate technological innovation. Chesbrough, an assistant professor at the Harvard Business School, argues that the old "closed innovation" model - vertically integrated research and development departments that develop technology in house is becoming obsolete. Most companies do not have the resources - neither financial nor human capital - to reach their innovation goals by using their existing approach to innovation. Innovation cannot be achieved simply through increased spending; it is also a process that needs to be actively managed. More importantly, many companies tend to focus on sustaining innovations - those that add incremental value to the existing product or franchise - rather than breakthrough innovations, that are game changing or create new markets.

While sustaining innovation is important, this adds only incremental value. A shift must be made to ensure a better balance between improving current products while also working to achieve a steady stream of breakthrough innovations that will lead to the next great franchise for the company.

Because of this, companies should look toward partnering with a strategic, forward-thinking offshore service provider who can help bring in new ideas as well as install a proven process to manage innovation. Hence, picking the right outsourcing partner, one that is committed to a culture of innovation, is a vital first step. Consider an outsourcing partner that demonstrates an understanding of your product or software development goals, and can deliver the resources and measurement mechanisms to meet them. It is also important to consider the company's past success and look for examples of how they drive and support innovation within their organization. As in any offshore endeavor, barriers are set when teams are working in different time zones. Creating a seamless, collaborative work environment should be as high on your partner's priority list as it is on your own. In a global R&D organization, the biggest obstacle to getting the most out of a culture of innovation is to develop this seamless "co-creation."

The evolution of outsourcing is allowing companies to globalize more R&D functions and outsource more significant portions of work. By definition, this trend means that more and more of your innovation is coming from outside of your organization. The results of a recently released Economist Intelligence Unit report reflects this trend to an extent that may surprise some. According to the report, the proportion of companies with at least some of their R&D activity taking place overseas today is 65 percent, but that figure is predicted to rise to 84 percent in three years' time. Similarly, 64 percent of organizations say that they currently outsource part of the innovation process to external organizations, but this proportion is also expected to increase in the next three years, to 75 percent.1

By aligning goals and jointly managing resources, companies and their service providers can overcome internal barriers and work toward a profitable, mutually beneficial goal. A task-oriented relationship will evolve into a goal-oriented one as development teams all over the world are leveraged to improve overall business and R&D performance. Innovation cannot just be a marketing tool; the organization must connect R&D's performance with profitability and success.

Develop Meaningful Metrics

Most companies are deceived by wrong measurements and a false sense of security as they can never truly measure the yield from their R&D investments. Because of its subjective nature, innovation is often thought of as something that can't be measured. However, in order to measure the value that innovation should achieve, one must be able to quantify it. To embrace the culture of innovation, one must think of innovation as a business process that must be managed like any other business process, with a focus on metrics that track outcomes.

But measuring innovation isn't easy. Companies must look at the ratio of product revenue generated from sustaining and breakthrough innovations and compare it with all other existing revenues. This measure shows the impact of innovation on your bottom line. Therefore, it helps companies understand the health of their innovation capabilities and indicates where changes must be made to improve the balance on innovation and a company's core competencies.

Don't Believe the Hype - Make Innovation Real

It is no surprise that innovation has become a hype word. Every company likes to think of itself as an "innovator" in their industry. However, enterprises that embrace R&D globalization and forge strong partnerships throughout their global ecosystems will bring cutting-edge innovations to market faster, while their less globally minded competitors will lose market share. A successful, collaborative culture of innovation with the right outsourcing partner can help you stay at the forefront of your industry and get the most of your R&D dollars.

Reference:

  1. Paul Tyrrell. "Sharing the Idea: The Emergence of Global Innovation Networks." Economist Intelligence Unit, 2007.

Gordon Brooks is president and CEO of Symphony Services. Brooks has more than 25 years of outsourcing and product development experience at services and software companies such as Oracle, ADP and Computer Sciences Corporation. He has run development centers in 16 countries, including India, China, Brazil, Mexico, Ireland and Canada. Prior to joining Symphony Services, Brooks was the founder, president and CEO of two outsourcing firms, E5 Systems and Breakaway Solutions. He may be reached at gbrooks@symphonysv.com.

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