Having written a book with the title Outsourcing Information Security (Artech House, 2004) and being a long-time Academic Advisor to the IIIP, I really experienced an epiphany on reading the WSJ piece.
The article listed four situations in which the outsourcing of innovation activities was deemed appropriate, namely:
- When companies did not have adequate subject-matter expertise in-house
- When there are many technical hurdles and the outcome is uncertain as is typical during the initial stages of a project
- When the intellectual property is not well-protected so that companies want to limit spending, and
- When companies are well versed in outsourcing.
The authors then look at the impact of outsourcing innovation on performance and conclude that:
- Although not necessarily always less costly, outsourcing innovation often results in a higher return on investment from the resources allocated.
- There is a need to balance the amount of outsourcing since too much can result in higher costs than does too much internal product development, whereas too little outsourcing can result in much poorer performance.
- There is a risk of products being too generic when outsourcing product development.
- There are problems when outsourcers are brought in too late in the product development cycle due to the higher learning curve for contractors.
- Outsourcing can help keep options open and reduce time to market.
However I do subscribe to the finding that there is considerable potential value in reducing time to market as I described in my February 13, 2008 Issue Paper “A Value-Hill Model of Innovation,” which can be found on this site.
The bottom line is that the reasons to outsource innovation are similar to those for any outsourcing decision. There is access to specialized skills, the scalability of the project team on short notice, possibly lower costs, and the like. But an overarching issue is the protection of sensitive data, since you certainly would not want your outsourcer to share your intellectual property with competitors. This key issue is not addressed explicitly in the WSJ article … but it is a central focus of my book!
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