R&D Outsourcing: Opportunities for Small and Medium Enterprises (SMEs)?

  • While outsourcing has become standard practice in the global economy, R&D is often exclusively done in-house
  • Core/Non-Core analysis is a tool, that helps multi-nationals and SME to identify the opportunities to focus in what really matters
  • Companies need to understand where to focus, to stay competitive in a volatile, uncertain, complex and ambigious (VUCA) environment

 

Author: Andreas Ruelke, Senior Adviser at shared.value.chain

This article was originally published as part of the ‘Innovation in Practice’ series of park innovare in Switzerland.

Do companies need to keep all their development activities in-house or could they find suppliers to help them become more efficient?

What is standard practice in manufacturing and production, is still not being discussed too much as for the internal product development capabilities. Over the last decade is has become normal to outsource parts of the production process or the complete plant and hand this work over to suppliers. This went as far as some companies do not own any factories anymore, but still run and manage global and efficient Supply Chains.

This widespread and often successful method is rarely applied to product development, despite the fact that, according to research, the world market for outsourced R&D services was worth over 36 billion USD in 2015. Who has the courage to admit that suppliers could take over the parts or the complete product development work? Today many reliable R&D service providers exist in the market and many of them have a proven track record. Some companies may be happy to use development suppliers to take over parts of the development work, but the uncertainty remains how to best approach the topic of R&D process outsourcing in the first place.

Using Core/Non-Core analysis, to identify R&D outsourcing opportunities

One proven method is to start with a core/non-core analysis of the product elements. Take the current products and analyse their elements to determine if the development activities are core to the business or not. Even if all development activities will be kept internal, this is an excellent approach for clearly understanding the importance of each development task. On this basis it can be decided if and when parts of a product or the product itself can be passed on to suppliers for development and maintenance. Also, if at some point the development budget becomes subject to constraints, the company will be ready to act to increase its development productivity.

For small and medium enterprises (SME), there is another interesting perspective. SME often pursue focused niche strategies and quite often they are successful that way. While the focus on core competencies makes sense, companies might miss important technological developments. If they offer their competencies to other firms as outsourcing partner, an SME could broaden its market client base and market and be closer to the technological developments of other firms at the same time.

Why is it important?

Companies need to understand where to focus, to stay competitive in a volatile, uncertain, complex and ambigious (VUCA) environment.

Contact us contact us to learn more about Core/Non-Core analysisand how it can be applied to get your organisation on the path to sustainably better business performance.