What's So New About the Outsourcing of Innovation?

July 11, 2008 Dennis D. McDonald

This is a followup to the comments I received on my post Should You Outsource Your Organization’s Innovation Processes? I wrote that in response to some of the (semi-controversial) things that Jeffrey Phillips had said in his own blog post, You should outsource innovation if…

Phillips described circumstances where parts of the innovation process can be productively outsourced, e.g., in situations where a company recognizes the need to innovate but is, for one reason or another, unable to allocate the time and management attention to effectively manage the process. Given there is more to innovation than creativity, I have to agree with the potential value of such thinking.

I’ve been a consultant and project manager for many years and have experienced situations when companies go “outside” because they are looking for some fresh thinking — some “innovation,” if you will. So, despite the use of the loaded term “outsourcing,” I have to agree with Phillips. If you can productively outsource (i.e., contract out) parts of the overall innovation process, you should consider doing so, if you have the appropriate management controls in place.

In a comment, Steve Holcombe weighed in with a reference to his own blog post Mostly Invented Somewhere Else. There he quoted a recent New York Times article by G. Pascal Zachary:

“One of the oldest barriers to innovation is ‘Not Invented Here,’ a persistent bias of even the most creative people toward their own creations and against those of people who work for other companies. […] To help counteract N.I.H., large corporations have promoted technology alliances with rivals, as well as the concept of ‘open innovation,’ to draw on a wider circle of big brains — not on their payroll — to work on core technical problems. These efforts arise from the recognition that no single innovator or team, no matter how loyal to an employer or successful in the market, has a monopoly on wisdom.”

John Cooke’s comment on my post was different. He referred to his own blog’sWhy Outsourcing Innovation is a Management Cop-Out where he stated:

For the “outsourcing” solution to stand a chance, you need to have people inside the organisation with the vision to know where the business factors (culture, financial models, values etc.) and future market conditions converge so your external innovation people can begin to have a view of where to aim. I’ve often seen external consultants coming into an organisation and being so wide of the mark that it’s painful, and not realising what drives the business mindset.

Being the diplomat that I am, I agree with both Holcombe and Cooke. Reading all the above referenced items I summarize my own views as follows:

Don’t outsource your strategic planning responsibilities.
Don’t outsource what you can’t manage.
Don’t outsource to people who can’t do the job.

Attempting to prevent staff from communicating with outside thinkers is futile, especially given increasing availability of social networking and collaboration technologies that can effectively blur the distinctions between formal and informal communication and management structures.

Use of the term “outsourcing” does conjure up a vision of lost jobs, reduced paychecks, communication breakdowns, and conference calls spanning multiple time zones, all in terms of reducing costs and headcount. My guess, though, is that the opportunity to participate in “innovation” programs will prove attractive to outsourcing companies as they seek to differentiate themselves from the pack by moving “up the value chain of services” that can be effectively contracted out. It’s therefore up to management of companies needing innovation to know when such outsourcing does or does not make sense.