Innovation can be achieved through two methods: pulling or pushing through development. Pulling involves finding the niche in the market where the needs of customers are not being met and trying to find the solution by developing the product or service to fill the need. Pushing requires finding a profitable use for an item that already exists. Both methods demand a solid understanding of the market.
In order to stay competitive in a global market, it is necessary for companies to outsource a major portion of their research and development (R&D) projects. Although economically sensible, outsourcing carries the risk that if not properly managed, it can have a negative impact on innovation. This is because those working on the project have no interest in the maintenance of a culture of innovation that any technology officer may champion. Furthermore, there is always the threat that they may engage in innovation theft. It is therefore very important to create a proper balance between innovation and the protection of intellectual property.
The outsourcing market and the outsourcing approach can have an adverse effect on innovation and can hamper a company's growth opportunities. Outsourcing has changed the landscape in which independent software vendors (ISVs) operate, since nearly all of their innovative engineering is outsourced. The model for many ISVs is "sell locally but develop globally."
The outsourcing craze is being driven in part by new technology, regional talent, global recession and consolidation. In the environment of globalization, those responsible for making hard decisions are slowly losing the assurance that their engineering team can lead and be bold in the realm of innovative decisions and initiatives. They hardly consider the R&D department to be a source of innovation.
To understand why this occurs, it is important to grasp the essence of innovation and the role that the innovation process plays. There is no definitive and authoritative definition of innovation. Many try to define innovation as the means by which companies develop new and improved products, while others define it simply as a new idea that does not involve actual development. In reality, innovation is when an idea or invention is successfully completed and executed. The added value is measurable in monetary form, such as revenue or profits. Innovation is the blending of creativity and imagination with the realizing of revenues, both of which are important components.
The software engineering industry is a system that links technology, process and people. The industry's existence is determined by user needs and market conditions. As this is the nature of the business, herein lies the problem with outsourcing in the ISV industry.
Classic outsourcing involves products that are thought up by a local company. Analysts who know and understand the market and the product's applications design the requirements and components. The outsourced team is assigned engineering tasks, with agreed-upon payment terms and a delivery timetable. When the outsourced team has completed its task, the product is returned to the company for final inspection. The key to a successful outsourcing company is the ability to deliver the final product when promised in good order.
In the software industry, innovation and outsourcing take on different meanings, due to the nature of the business. When engineering and innovation is done in-house and not outsourced, there is natural feedback and a flow of information and ideas between engineers who have a vested interest in the company. This interaction, or collaborative socializing, produces the desired results and level of innovation.
However, when engineering innovation is outsourced and left to outside engineers, the collaborative innovation process is broken and there is no interaction. The result is that the final product could be dull, with no new innovations at all. The balance between managing innovation and increasing revenues is therefore very important and must be placed in the equation before any outsourcing is considered.