Top Question of the Day – Can Innovation be Outsourced?

A lot of companies, including some that I have worked for, have tried to literally outsource innovation. The funny thing is not a single of them uses that term for this activity. It is couched in fancy jargon like incubation, accelerator, pushing ecosystem to the scene and other such terms, which are not really simple to comprehend. As you would have thought they are even more difficult to implement.

Why does innovation fail?

I can recount many failed internal innovation initiatives. The most recent one was failed ‘venture teams’. These teams are created with much fanfare. They are populated either with 2-3 members or entire structures, depending on the size, nature of business, and risk appetite. They are mandated to work ‘out of the system’, so that they are not constrained by organizational boundaries and structure. Often they have fancy names and create unique sub-cultures. This is by design and encouraged quite actively across most of the cases.

The venture team is kind of frayed between two different directions. In order to leverage existing capabilities of the organization, it needs to collaborate or at least have strong interfaces with supply chain and R&D. On the other side it wants to break from existing ‘thinking’ and ‘cost structures’, leading it to create new interfaces. Often some members in the teams still carry their day to day ‘whirlwind’ in addition to the venture team, particularly in early phases. This hedging of bets and mish-mash of culture typically slows down progress and often leads to attrition in the end and death by benign negligence.

The Accelerator model, however, has many variants, but the one catching on with Operating & Technology Companies is ‘White labelling’. In its most simple form, the logic works something like this: Entrepreneurs invest their funds, sweat and toil in creating prototypes or products, but the cash plunges at a rapid rate. Appointments with decision makers in larger organizations are few and far in between. The cause of death due to drying of working capital is very high in this area. A reasonable organization steps in and white-labels the services and offers a route to market given its sales force, existing customers, and brand strength. The concept is simple on paper but again the devil in the details is humongous. How is the joint IP protected by both parties? What about after sales service? Who takes the reputation risk if the product bombs nastily? How do the entrepreneurs work through the system in the large organization? These questions along with lack of a successful turnaround on a single project can certainly kill such an initiative.

The Favourable Solution in Present Conditions

The latest buzzword in town seems to be Aquahire, where companies approach start-ups and pay the salaries of the founders. If things work out, they look at in-sourcing the innovation and commercializing the same. If they don’t, then the focus of the company is on the salary of the founders for the defined period. This practice may tip the scale in your favour, if followed in the long run. Deep down the line, I feel so; don’t you?

The incubation model can only be supported by companies that have deep pockets. The engagement of time, quantum of funding, associated risk of failure and scaling up risks are far higher than any of the other models. The nature of resources required to mentor and nurture such ventures are also specialists who are difficult to spot in the general work force. Whilst in this case early engagement and specific focus mitigates some of the interface risks, adoption into the parent organizations structure still remains a challenge.

Unravelling the Root Cause

Why then are so many CEO’s looking outward for innovation? Why aren’t R&D budgets being scaled up? Why aren’t the best breeds of professionals being set on the Innovation Challenge rather than those that can be spared? The answer probably lies in the fact that intuitively CEO’s understand that Innovation does not come easily to people, especially in large setups. Whilst difficult things such as changing the culture or employee engagement can be worked upon through tried and tested means like transparent communication, FOT (fair objective and transparent) processes, making the talent engine fire, etc., the Innovation Infrastructure waits to be identified.

One knows today that in order to spark innovation skunkworks, though Big Hairy Audacious Goals, Razor sharp focus, ownership at the top, etc., are useful, but still no one can predict outcomes with any degree of confidence.

Can Innovation be outsourced? What do you think? What are the challenges you face in spurring Innovation in your teams? Do write to us and share your views. We are keen to exchange ideas! Anything for the term Innovation, especially when it stands a chance of being outsourced!