‘Traditional innovation’ within large corporations is typically slow and ineffective. Too often corporate bureaucracy creates inertia, stifles creativity and instils a fear of failure in employees. Management of this process is usually driven by short-term goals and internal politics. The solution is to transform innovation by outsourcing to external companies or separate subsidiaries.
By outsourcing innovation, large corporations can also take advantage of a range of benefits:
Access to talent
A specialist team can provide segment knowledge and relevant skill sets. Liquid Labs houses developers, engineers, marketers and staff with significant venture capital and company building experience. This real world experience and start-up knowledge can be missing within a corporation.
A different outlook
Outsourced innovation can also tackle the problems associated with the corporate mind-set. Corporations often focus on quarterly results rather than long-term planning. A specialist innovation group can also challenge the irrational expectations corporations often have regarding innovation.
Outsourcing innovation lends itself to speed, as it is not constrained by a ‘corporate process’. An innovation laboratory focuses on building and testing, retargeting budget and scaling the team, without seeking time-consuming board or committee approval. This limited hierarchy also increases creativity and eschews the fear of failure inhibiting large companies.
A cost-effective solution
From a practical point of view, outsourcing innovation is usually more cost-effective. Innovating in-house is an expensive process with capacity and time consumed prodigiously. Hiring and keeping the top talent is an incredibly hard task and can drive up costs further.
These smaller budgets force creativity and lean development, rather than focusing on one particular problem.
Given the wide-ranging advantages of outsourcing innovation, it is likely to become a mainstream business practice. Large corporations, unable to innovate, will either outsource or form separate subsidiaries.
Budgets for innovation will no longer be treated as a line-item, but as a separate investment. This will change how innovation is measured. Presently, there is no accepted metric to measure the return on investment, other than the resulting product or service. Many by-products are intangible, with often unquantifiable knowledge. There is a risk that even when outsourced, large corporations will demand quick results – stifling the very creativity they are trying to tap into.
The tech industry is likely to be the first to fully embrace outsourced innovation. Older industry sectors, such as banking and insurance, will take longer to adapt as they are often distracted by a myriad of business interests. However, when the benefits of outsourcing innovation become apparent to these businesses, they will embrace it wholeheartedly.
Over the next few years, outsourcing innovation may become as common and as intuitive in certain industries as outsourcing communication, manufacturing or accountancy. The financial and practical benefits, coupled with economic pressure and disruptive technology, makes outsourcing innovation a compelling new tool for businesses.
Paul Jozefak is the co-founder and managing director of innovation laboratory Liquid Labs.
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