Outsourcing and Innovation

Can companies outsource the innovation needed to launch, say, a new product? The first step in innovation, idea generation, is clearly ripe for outsourcing, say consultants Alexander Kandybin and Martin Kihn. A company should cast as wide a net as possible for good ideas. But the second step, project selection, cannot be outsourced, they insist. It’s critical to a firm’s strategy and vision, its corporate soul. Step three, development, can certainly be outsourced. Taking an idea from concept to market requires a multifunctional set of technical and managerial skills. Some companies, like Johnson & Johnson’s McNeil Consumer & Specialty Pharmaceuticals division, excel at this; others don’t. If you can find an outside product developer that can speed up time-to-market, there’s no reason to keep this capability in-house. With superior product management skills, even portions of product development could certainly move outside, Kandybin and Kihn say.

The final step in the innovation value chain, commercialization, cannot really be outsourced. Commercialization is the execution of the strategic vision for the product, and thus is an expression of the firm’s strategy.

Although parts of the commercialization process have been outsourced for decades (market research, advertising), key decisions about a product’s goals, placement, pricing, rollout, features, and so forth, are intimately linked to a company’s core identity and are too vital to surrender to outsiders.

Strategy + Business Summer 2004

Outsourcing and Innovation
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