I’ve been following a discussion across a number of blogs, where the arguement is being put that because companies find it hard to stay focused on innovation they should outsource their entire innovation pipeline. In a posting called You should outsource innovation if…  Jeffrey Phillips says:

“Too many firms have the right people, good ideas and senior management commitment, but simply cannot find the time to innovate. Obviously this suggests a misalignment of the focus and engagement of the teams and the goals of management, but there it is. I’ve worked in several firms where there is clear commitment from the top – demonstrated in people resources and in dollar resources – but innovation gets shoved aside because people can’t be pulled away from their day to day tasks.

So it’s time to consider a completely different model – if you can outsource your payroll, outsource manufacturing and other key elements of your business, why not outsource innovation?”

Am I alone in smelling a rat here? What is going on in these organisations that is stopping people from doing the innovation job, the job which, if the organisation has been aligned properly, should already be “their day to day task”? Anyway, lets put that to one side for now and explore the argument a bit further. Lets say we outsource the entire innovation pipeline as Jeffrey suggest we already do for payroll and manufacturing. What happens next? Well…the first problem that can be encoutered is the famous NIH (not invented here) reaction to innovations from outside, but maybe you can organise and reward to encourage people to bring in ideas from outside the organisation. The next issue is that every company has a unique culture, values certain elements of it’s business differently (e.g. attitude to capital investment can vary enormously), operates specific business processes and revenue generation models. In order for the organisation to remain competitive into the future, some of the elements will need to stay and some will need to change. Some of the specialist areas of the business could be critical future areas of innovation which might create exceptional, differentiated value for the customer. Also there are critical decisions with regard to the best ways to exploit emerging market trends.

For the “outsourcing” solution to stand a chance, you need to have people inside the organisation with the vision to know where the business factors (culture, financial models, values etc.) and future market conditions converge so your external innovation people can begin to have a view of where to aim. I’ve often seen external consultants coming into an organisation and being so wide of the mark that it’s painful, and not realising what drives the business mindset.

I think the whole notion of outsourcing innovation in it’s entirety is misguided. When we talk about innovation we aren’t simply thinking, in my view, about some new products to bolster up sales, we should be thinking about the future direction of the company and integrating our innovation activities into that. While it is OK, or actually good, to outsource elements of innovation, in the “connect and develop” way that, say, P&G does, the proposal to outsource all innovation activity to an outside organisation is wrong and, if it were to happen, it would constitute a serious cop-out on the part of the leadership of the business. 

�