Managing Global Outsourcing to Enhance Lean Innovation
Marion, Tucker J., Friar, John H., Research-Technology Management
Outsourcing techniques used by smaller firms can help larger firms keep R&D lean while maintaining innovation efficiency.
OVERVIEW : A key to effective and efficient R&D is the ability to commercialize new products quickly and effectively while leveraging the advantages of global outsourcing. The growing role of global outsourcing in new product development (NPD) represents a paradigm shiftthat has had a large impact on innovation and commercialization. In this article the use of outside innovation and commercialization resources, from contract employees to short-run manufacturers, is explored. We synthesize our research into four areas where R&D managers can most effectively leverage outsourcing throughout the innovation continuum. Opportunities include developing strong strategic partnerships with outside vendors, using rapid prototyping resources to support agile development, using short-run manufacturers to test products and markets before building to volume, and using expert contractors to reduce fixed personnel costs.
KEYWORDS: Product development , Globalization , Outsourcing , Corporate ventures
Firms are increasingly pressed to decrease project cycle times while reducing R&D costs. However, even as firms are required to do more with less, successful innovation in new products and services is still the lifeblood of any firm, whether new or established, large or small. Unfortunately, the risks associated with R&D are more prevalent than ever, with increased global competition combined with shorter lifecycles. Product and service failure rates remain high, at approximately 40 percent ( Adams 2004 ). The charge falls to R&D managers, therefore, to be both leaner and more effective in their innovation efforts.
One option for resolving this dilemma is the outsourcing of important components of innovation development and commercialization. Outsourcing is a strategically important activity that enables an enterprise to achieve both short- and long-term benefits ( Wu et al. 2005 ). The use of outside suppliers to provide services or products frequently offers a costcompetitive alternative to performing the required activities in-house ( Rainey 2005 ).
The function of R&D itself has grown more internationally distributed and aligned to leverage the advantages of outside resources ( Eppinger and Chitkara 2006 ). While lower transaction costs (for instance, lower wages) were initially a primary motivation for outsourcing, the enhanced networks and innovation leverage made possible by these activities are now challenging the locus of internal innovation ( Nambisan and Sawhney 2011 ). One need look no further than Apple's relationships with contract manufacturer Foxconn and with networks of component suppliers, which allow a rapid rate of successive product generations ( Duhigg and Bradsher 2012 ). The benefits of outsourcing-adding critical expertise without adding fixed costs-can be leveraged throughout the R&D process. Services that may be outsourced include industrial design, engineering, prototyping, component sourcing, manufacturing, sales, and administrative functions. For R&D managers, these outside resources can be a "breath of fresh air," bringing new energy to innovative ventures within the corporate walls ( Thomke and Nimgade 2007 ).
In a study of outsourcing and R&D, we explored the opportunities and challenges for firms seeking to leverage outsourcing to enhance their R&D effectiveness while staying lean in their innovation efforts. To accomplish this task, we studied small, new ventures, many of which were started less than five years ago. These firms, which lack the complexities, capital structure, or internal R&D resources required to develop and commercialize their innovations, turned outside for help. Outsourcing allowed these firms to limit fixed R&D costs, increase speed to market for their first revenuegenerating products, add innovative talent to the team, and develop relationships and networks vital to sustained growth. …