Reinventing Innovation: The Next Level of Outsourcing

Remember when outsourcing was thought of in terms of call center operations and IT coding?

Not anymore.

Now, companies are leveraging offshore partnerships and highly-skilled global talent as a means to deliver innovative products and to stay ahead of emerging customer needs.

Traditional Western centers of innovation such as Silicon Valley and Boston are being joined by centers in Bangalore and Beijing, in order to form a global technology and innovation ecosystem.

However, it’s not just that companies regularly look globally for talent that is in short supply in their own countries. It’s also about how people are thinking about innovation — where it comes from and how it should be managed.

Approaches to innovation often lack sustained success that is most commonly manifested by inconsistent and underperforming business results. Many companies rely solely on in-house R&D activities (mostly “D”) for innovation while others think of innovation as a bright idea or a patent generated by a smart engineer.

Companies are blinded by the wrong measures, such as the percentage of head count working in product development-related roles or calculating R&D spend as a percentage of revenue. The byproduct of this is a false sense of security. How many companies really know how well they are doing when it comes to the innovation yield from their R&D investments? How many understand which practices produce measurable results — and at what cost?

The Interconnected Ecosystem

Sustained levels of product innovation, however, can be achieved with a systematic approach to software development and engineering initiatives that take advantage of integrated innovation ecosystems — networks of diverse, interconnected cultures of broadly talented people utilizing a collaborative-based knowledge management matrix.

What’s key here is the concept of the ecosystem. In this case, it is true that “two heads are better than one.” Tapping into various communities and partners can create a more fertile environment for innovation because you can take advantage of new perspectives.

Some of the best new available sources can be found among the emerging set of product engineering outsourcing service firms. Before we investigate the processes and benefits of developing relationships with product engineering outsourcing partners that result in higher innovation yields, we must first lay out how innovation is classified in this context.

Innovation could be defined as an invention that adds sustaining value or creates a breakthrough value — the kind of value you can quantify in the form of new revenue, additional market share, and increased valuations.

Invention and innovation are not synonymous. Inventions are product ideas or new features, regardless of whether or not they meet a potential customer’s needs (e.g., broccoli-flavored chewing gum). It’s new, maybe even unique, but who wants it and what value does it provide?

Innovation, on the other hand, is the application of new or existing technology that serves the unmet needs of existing customers (sustaining) or that opens new markets (breakthrough). As an example, think cell phones.

Here comes the big question: “How do I create a culture of innovation with my outsourcing partner that promotes co-creation and optimizes my R&D resources?” The answers are surprisingly obvious.

Pick the Right Outsourcing Partner for You

Consider an outsourcing partner who understands your product development goals, and can deliver the resources, partnership model and measurement mechanisms to meet them. Product development is a very different task from IT outsourcing, so tread carefully in your selection process.

The partner’s past success must be scrutinized — look for examples of how it drives and supports innovation. Make sure that creating a highly collaborative and accountable work environment is a top priority for your partner and that they take proper measures to recruit and retain employees who are capable of, and empowered to, drive innovative approaches to software engineering.

Innovation cannot be a marketing tool; it has to be tied to R&D’s impact with profitability.

Seamless Collaboration With Your Partner

The difference between an invention and innovation often hinges on an organization’s ability to execute.

In a global R&D organization, the biggest obstacle to getting the most out of a global innovation ecosystem is to develop a true sense of team and enable seamless co-creation. The C-Suite can set the tone by engaging stakeholders early on in the process to promote buy in and foster a collaborative relationship that relies on trust and accountability.

As companies continue to globalize R&D functions and outsource larger portions of their work, they need to ensure that they still get all the innovation they need to compete effectively.

Up to a third of the insights and innovation that shape next generation products come from the development stages of product engineering. Your firm can’t afford to work with an outsourcing partner who does not have the capability to deliver innovation along with productivity, speed and quality.

By breaking through conventional attitudes, aligning goals and jointly managing resources, companies and their service providers can overcome internal barriers and work toward a profitable, mutually-beneficial goal.

What once was a task-oriented relationship has evolved into a goal-oriented one, as development teams worldwide are being leveraged to improve overall business and R&D performance. Companies no longer worry about where their resources are located and who signs whose paycheck — the only thing they care about is receiving a high return on their R&D investment.

Manage and Measure the Innovation Process

While not all innovation comes from R&D and product-related functions, it is an important strategic outcome for R&D organizations along with other performance targets. If your mission is to identify and execute new products and services that materially contribute to revenue, margin, and market share, then you are living the “innovation imperative.”

R&D outcomes, not the amount an organization spends on R&D, are the true measure of the value of innovation.

An important shift needs to be made from concentrating effort on sustaining innovations, which only add incremental value, to ensuring a better balance to also achieve a steady stream of breakthrough innovations. A strong and steady stream of invention generation — and tight execution processes to transform them to innovations — is the key.

Because of its subjective nature, innovation is often thought of as something that can’t be measured. On the contrary, innovation must be treated as a business process managed across culture, process and technologies — with a focus on metrics that track outcomes.

However, the ultimate measure is an external measure called the Vitality Index (VI), which looks at the ratio of product revenue generated out of sustaining and breakthrough innovations compared with all other existing revenue.

A quantifiable measure that shows the impact of innovation helps companies understand the health of their innovation capabilities and indicates changes development teams may need in order to meet expectations.

As the increasingly global workforce and improved innovation techniques add value to product engineering, forward-looking software companies will be able to leapfrog their competitors.

Enterprises that embrace R&D globalization and forge strong partnerships throughout their ecosystem will bring cutting edge innovations to market faster. Meanwhile, less globally-minded competitors will lose market share. A highly collaborative relationship with the right outsourcing partner can help you stay at the forefront of your industry.