Wednesday, 1 April 2009

R&D Sourcing Strategy - Increase R&D Effectiveness

Many companies source the majority of their revenues from suppliers and partners. Outsourcing initiatives have been increasing significantly over the years. Following the Open Innovation concept, companies have initiated co-creation with supplier and partners. Now these flows are merging: as part of Open Innovation, more and more R&D will be outsourced. R&D is one of the most protected business functions in the large companies. Driven by IP and risk management, R&D is not something likely to be shared with the outside world. There is hardly any experience, leadership, culture, methods and tools available in the current organisation to really open up or even to outsource R&D effectively.

So how can companies outsource R&D (or at last a part of R&D) in order to increase flexibility and effectiveness of R&D, whilst maintaining focus and dedication to the value chain’s needs?
Companies should assess the importance of their innovation programs and decide on the appropriate model of sourcing using the Global Sourcing of Services (GSS) model. The GSS model is a decision support tool for the right sourcing strategy for their Business Services and or functions. An example of a sourcing strategy for an important R&D program would be to manage the relation tightly, keep the location onshore but outsourced. This combination would provide much control and flexibility of an outsourced function.

Once an outsourcing decision has been made, suppliers/partners must be selected based on their ability and willingness to take over (part of) R&D. The Four Collaboration Enablers model helps companies select the right suppliers and define the required change management. For instance, it is critical there is an incentive for the supplier to take over an R&D program. The program could create spin-offs into other markets of the supplier. Vice versa, the program could gain from technologies from other markets. On the other hand, capabilities will shift from the buy side to the sell side. The business models need careful alignment and for both the buyer and current suppliers, the change from contractor to developer will be substantial and needs to be managed tightly. Interested in how we brought R&D outsourcing into practice? Feel free to contact Robbert den Braber or Ronald Geerts.