Is outsourcing innovation right for you?

Benefits and challenges to consider when considering outsourcing innovation.

In a recent article, we proposed three key questions every company should address when establishing an internal system for successful, sustainable innovation. The final paragraphs introduced the importance of honest reflection when addressing your company’s innovation resources and the common challenges and benefits to outsourcing innovation. Given how common outsourcing has become for innovation of products, services and revenue models, we thought it useful to continue this conversation.

There are a lot of opinions out there about whether innovation projects are better tackled by internal teams or outsourced to an expert third party. Below is our analysis of the inherent opportunities and challenges to each approach, informed by our experience and that of our clients over almost 20 years.

 

Benefits to in-house innovation include…

  • Shared company knowledge: When innovation is pursued internally, the team often has a shared history and understanding of your company’s values, processes, and ongoing initiatives. In contract, external consultants require a comprehensive onboarding process to ensure they are aligned with your goals and understand how to navigate the organization.
  • Employee development: Innovation inherently requires your team to learn new skills and approaches. Therefore, every innovation project provides your company the opportunity to further grow and develop its skill-base, ultimately creating a more well-rounded and proficient team.
  • Process control: In-house innovation projects enable complete control of the project process. From brief to delivery, managers have direct access to team members and their calendars. They have insight into other initiatives that might affect their project’s outcomes and can resource accordingly, continuously assess quality, and provide real-time feedback.

 

Challenges to in-house innovation include…

  • Internal complacency: Our experience has shown that while in-house projects have the potential to generate popular support, there are two forces that exist simultaneously. Humans desire “the known”, which often leads employees to nurture the status quo. Extensive time spent in any one company or industry produces comfort in process resulting in hesitancy to accept anything perceived as new or risky.
  • Incentivizing change: For in-house innovation to succeed, leadership must create an incentive program to encourage employee participation or risk a management-heavy, top-down approach that often fails to engender buy-in from the teams who are tasked with carrying out the work.
  • Dedicated resources: It is rare that companies have dedicated innovation teams. Therefore, innovation projects completed internally require the participation of current employees who have their own duties and key performance indicators (KPIs). This results in one of two scenarios. It either diverts attention and resources from a company’s core business – for which the employees were originally hired – or it deprioritizes innovation, turning it into a side hustle to be completed on nights and weekends.
  • Conflicting priorities: For in-house innovation to be successful and sustainable, the team must include representation and engagement from each department affected by that innovation. However, departments often work in siloed environments and are reluctant to give up control of project ownership. They also have different KPIs by which their work’s success is measured (I.e.: increased sales and profit margins, decreased customer acquisition costs, greater brand awareness and favorability, improved internal productivity and efficacy, etc.). These differences in priorities make it difficult to align on shared goals and outcomes.

 

Benefits to outsourcing innovation include…

  • On-demand, agile expertise: It is expensive and inefficient to employ specialized staff when their expertise is not consistently required. Outsourcing innovation allows your company to acquire the expertise required for any individual project, whether it includes business strategy, concept ideation, product development, industrialization, or all the above. Innovation agencies typically operate much like start-ups: smaller, tailored teams of experts, resulting in fast innovation cycles and shorter project timelines. In the end, agencies provide bespoke, flexible staffing options that keep your company focused on core business operations, thereby saving you both time and money.
  • Fresh perspectives: It’s true that internal teams benefit from a shared deep understanding of the company and industry. However, in our experience delivering innovation across industries, a prolonged focus on a specific target, competitor, technology or product offering often creates tunnel vision, narrowing the company’s perspective on what might be done differently. Similar to the benefits of crowdsourcing, unbeholden agencies draw upon their experience across industries, technologies and markets to provide fresh insights and unexpected solutions to common business and brand challenges.
  • Expert advice: Engaging third party agencies gives in-house project leads permission to introduce potentially controversial ideas. Agencies represent an unbiased, expert point of view that provides a buffer against criticism, circumvents internal politics, and helps strengthen arguments for specific solution recommendations.

 

Challenges to outsourcing innovation include…

  • Onboarding: As mentioned previously, outsourcing innovation requires a formalized consulting process. This means securing budgets upfront and beginning projects with an onboarding period for briefings, research handoffs, and stakeholder interviews. However, any professional innovation firm should be able to mitigate the burden of these procedures.
  • Potential relational tension: According to Deloitte’s 2018 Global Outsourcing Survey, the No. 1 regret of companies who have outsourced is that they did not properly vet the service provider. As with any team, personalities, working styles, and communication can make or break a project, so it is critical to thoroughly vet agency partners for both technical and cultural fit.
  • Managing multiple partners: Some agencies are hyperspecialized, concentrating on a single aspect of the innovation process (e.: market research and business strategy, concept ideation and testing, product design or production, etc.). Engaging such partners requires in-house project leads to manage multiple external teams throughout a single project, often leading to extended timelines and uncoordinated deliverables.
  • Integrating solutions: As referenced in a previous article on this topic, one challenge to external innovation projects is that internal champions must ensure that external partners/vendors are working in a direction that can be integrated back into your organizational and technical infrastructure, or risk a good solution dying on the vine.

There are many challenges and benefits to weigh when considering outsourcing innovation. From our experience, in-house innovation works best for smaller companies with less oversight that are pursuing modest change. On the other hand, outsourcing innovation is most beneficial for companies that have extensive approval processes, are looking to take steps towards overarching corporate initiatives, or whose desired innovation extends beyond their core competencies. Either way, the end goal is to find what works best for you and your company.

 

To discuss whether outsourcing innovation is the right strategy for you, contact our VP of Client Success, Yaniv Snir, at yaniv.snir@iconmobile.com.