Innovation and the In-house Advantage

Ann All

We've blogged before about the disconnect between the predictions of some experts that more companies will offshore innovation-driven activities and the apparent dissatisfaction experienced by companies that have already done so.


Ourprevious blog cited the Economist Intelligence Unit's forecast that the number of companies with at least some R&D activity occurring overseas will increase nearly 20 percent between now and 2010, from the current 65 percent to 84 percent. The EIU also believes that the number of companies outsourcing R&D to third parties will grow from 64 percent to 75 percent.


Yet a study conducted by Columbia University's Amar Bhide found that tech startups were notably reluctant to send high-level tasks such as product development offshore. Among the concerns cited by companies surveyed by Bhide: a lack of interaction with customers, which makes it difficult to develop products that meet market needs; a need for additional management resources; concerns over protecting intellectual property; and a lack of the kind of camaraderie that often spurs development teams to be more innovative and productive.


These concerns do not appear to be exclusive to the tech industry. A recent survey of nearly 300 IT executives from a broad range of companies shows that the execsprefer to keep innovation-driven activities in-house, or at least close to home.


Seventy-six percent of the respondents say that in-house activities contribute the most to IT or IT-enabled innovation. Eighty-five percent of them were satisfied with the level of innovation produced by their internal staffs. Nearly as many, 78 percent, expressed satisfaction with the level of innovation offered by onshore service providers. The satisfaction rate dropped dramatically, to 52 percent, for those that engaged offshore providers.


Harkening back to Bhide's study, 54 percent of the respondents tapped cultural or communication issues as a major barrier to innovation. Also earning mentions: outsourcer's lack of skills (37 percent), internal resistance (32 percent) and internal budget constraints (30 percent).


Of course, there are exceptions. A tech exec at Convergys, one of the top companies in the annual InformationWeek 500, cites "broader participation in innovation and knowledge creation" as one of his key reasons for offshoring. (For what it's worth, several of his InformationWeek 500 peers profiled in the publication seem more inclined to offshore commodity services to free up internal resources for more strategic tasks.)

Add Comment      Leave a comment on this blog post
Oct 9, 2007 12:29 PM bitter about your tyranny bitter about your tyranny  says:
Way to go, CEOs and pocket politicians -- i realize that most of you making the decisions to "outsource" are old and just looking to greedily maximize your own selfish needs in the near term. So you probably don't care that you shot off the legs and arms and brains of the body that you were entrusted to foster. Nice going. I hope you are embarrassed to look your children and grandchildren in the face. Your forefathers and mothers are likely embarrassed. May there be no heaven or hell to hold you accountable. May the new generation come up with technology, business processes, and ways to pay off politicians in a way that can rescue the society into which we have all invested so heavily. Except for you. You sold out 250 years of progress such that the world had not seen in recorded history. Reply

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