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Can companies outsource product development for innovation?

June 4, 2010

In April 2010 issue of Harvard Business Review I read an interesting news about outsourcing product development and innovation. It was mentioned that companies cannot benefit outsourcing product development if it is too simple or too complex, companies can benefit if the product development is moderately complex. I could not find the entire article published in Acemadey of Management review. But I do not agree the notation that companies benefit from outsourcing only moderately complex product development for two main reasons:

Take iPod and Kindle both are complex products and both are successfully manufactured in China and sold all over the word. Both Apple and Amazon successfully partnered with their outsource vendors for their product development and innovation. Several other US based companies have been using Taiwan, China, Malaysia, India, etc, for their product manufacturing for the past several years successfully.

innovation outsourced
Any time a new technology based products comes to market, product design, development, distribution, etc., will be complex in nature. As the technology matures the complexities of product development will come down and it becomes a commodity. Remember why IBM sold their PC division to Lenovo. IBM sold their PC division because it does not add value to their business model. So the notion of complex product development is a relative term and changes over a period of time.

Instead of seeing outsourcing decision from product complexity point of view, companies should see it from their short and long-term goals of their business. If it is core then keep it inside the company if it is not core then consider outsourcing to onshore or nearshore or offshore vendor(s). Of course it is not that simple to decide core vs non-core and it cannot be the only deciding factor in outsourcing decisions. But my point is product development complexity should not be the deciding factor for outsourcing decisions.

In the globalized economy Product and Process innovations happening in all the countries. For example, countries like China and India started as a source for cheap labor, slowly moving up in the value chain and creating innovative products. Bottomline if it makes economic sense companies should tap into the global resources wherever it is available.


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Comments

2 Responses to “Can companies outsource product development for innovation?”

  1. product outsourcing on June 5th, 2010 12:32 pm

    SO, You did not read the article, but you’re questing the research report. How is it possible?

  2. outsourcing on June 5th, 2010 3:16 pm

    Interesting blog, I agree with the blog, complexity cannot be the deciding factor in outsourcing decisions.

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