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Innovation: Build in-house or buy solutions?
Should you develop your new products in-house or should you outsource your innovation to an experienced third party? This is a
key strategic decision
Summary
In this article we view innovation as an investment decision, and we discuss whether the risk-adjusted return on investment is
higher if you build or if you buy your innovation process. We identify three key criteria for monitoring your likely return on
investment: cost, risk and "time to market"
We assume that your objective is to seize the initiative in your marketplace, and that you see product innovation as the means
to achieve this. On the other hand, we assume that your competitors will try to imitate your most successful products, and so
any development gaps will simply leave the door open for them to be "second to market" with a rival and possibly superior product,
hence product excellence is critical
We conclude that, given the nature of innovation, you are more likely to optimise your investment and produce product and
service excellence through a dedicated team, and we come up with three main reasons for this conclusion
The first reason is that the product development process spans many functional departments. This means many hand-overs from one
department to another, which increases the cost of the solution and delays the time to market. We propose a "hub and spoke"
structure whereby an "innovation champion" together with a core team (the hub) is able to harness the positive input of each
department (the spokes) and sustain the momentum of the project [Figure 1]
The second reason is that product development must pass through many phases before the finished solution is achieved. Each phase
consists of a series of inter-dependent activities. Because much of the work is completely new it is not always possible to predict
how long each activity will take, and as a result the critical activity (that with the highest priority) changes continuously. We
argue that specialist project management skills are required to manage such an ambiguous development process, reinforcing the need
for innovation specialists [Figure 2]
The third reason why innovation is best performed by a dedicated team is that innovation projects rapidly become extremely
complex. In our view, only a dedicated team can manage the ambiguity involved. This is because they have the captured knowledge
at their fingertips, and the management time to pursue the alternatives [Figure 3]
Consequently, we recommend that businesses delegate responsibility for effective innovation to dedicated teams consisting
of an "innovation champion" and a core development team. Unless your business already has such a team in place, we believe that
you will achieve a higher return on investment and superior new product and service quality if you buy-in the expertise of an
experienced third party
Download the full article here [pdf 109kb]
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Griffon Conseils SA
avenue du Léman 36
1005 Lausanne
Switzerland
+41 22 548 0235
info@griffonsa.com
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