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LOSS OF CONTROL OVER THE INNOVATION PROCESS—OVER-OUTSOURCING

SIGNIFICANT RISKS TO DEVELOPING GLOBAL INNOVATION NETWORKS

In some cases, knowledge acquisition from outsourced R&D activities can threaten

an organization’s own internal innovation performance. Thus, experts caution against over-outsourcing: they argue that the gains from R&D outsourcing need to be balanced against the “pains” that outsourcing generates.27

Dilution of firm-specific resources. Firm-specific knowledge resources—the

THEFT OF INTELLECTUAL PROPERTY

ones that may not be easily traded, redeployed outside the firm or imitated by

competitors—are diluted if companies rely heavily on generic external knowledge

LOSS OF CONTROL OVER INNOVATION PROCESS

that competitors may already have.

CULTURAL DIFFERENCES

Deterioration of integrative capabilities. In order to assimilate and build upon external knowledge, companies need to develop capabilities that enable them to

DIFFICULTY MANAGING REMOTE STAFF

tailor external knowledge resources to firm-specific needs and to redeploy them within the firm. R&D outsourcing poses a threat to those integrative capabili-

DIFFICULTY SHARING KNOWLEDGE

ties.28

DIFFICULTY IN ENSURING COMPLIANCE

The high demands on management attention. Relationships with R&D con-

tractors call for heightened management attention, a scarce resource that is critical

CONCERNS OVER QUALITY CONTROL

to resource redeployment.29

EXCESSIVE COMPLEXITY IN SUPPLY CHAIN

How can management reduce the negative effects from over-outsourcing? First,

managers should be aware that R&D outsourcing can become disadvantageous if

INCENTIVES NOT SUFFICIENTLY ALIGNED

varies from company to company and largely depends on the internal knowledge

POSSIBILITY OF CONFLICT

firms rely too much on external knowledge. How much is too much? The answer base of the firm. 30

OTHER

Research has shown that joint R&D projects with a variety of external partners can be used to complement R&D outsourcing and that such collaboration leads to a

higher diversity of the accessed knowledge. Companies should therefore comple-

60

50

40

30

20

10

0

% OF RESPONDENTS SURVEYED

ment R&D outsourcing with collaborative R&D.31

Source: Economist Intelligence Unit survey, 2007.

27

Grimpe, C., Kaiser, U. 2010. “Balancing Internal and

External Knowledge Acquisition: The Gains and Pains from R&D Outsourcing.” Journal of Management Studies. 47 (8): 1483-1509. 28

Weigelt, C. 2009. “The Impact of Outsourcing New

Technologies on Integrative Capabilities and Performance.” Strategic Management Journal. 30 (6): 595–616. 29

Ocasio, W. 1997. “Towards an Attention-Based View of

the Firm.” Strategic Management Journal. 18: 187–206. 30

Grimpe, C., Kaiser, U. 2010.

31

Ibid.

7

Profile for BattenInstitute

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[From the Innovators' Roundtable Series] Corporate innovation does not take place only within the vacuum of a company’s R&D unit. New produc...

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