Should you outsource innovation?

Key takeaways

Should you outsource innovation? Outsource the specialist work, such as prototyping, testing, research and design, but not the innovation itself. Deciding which problems to solve, which ideas to back and what you learn from customers must stay in-house, because that is where your future advantage comes from. Make sure the know-how and intellectual property come back to you.

• Keep: customer insight, which ideas to back and the learning.
• Outsource: prototypes, specialist research, design and testing.
• Assign intellectual property to your business in the contract.
• Keep one person inside who owns each innovation project.

Why should the core of innovation stay in-house?

Because innovation is how a business builds its next advantage, and advantage that a provider holds can be sold to your competitors. The insight about what customers struggle with comes from your own conversations. The bets about which ideas to fund reflect your strategy. Hand those over and you rent your future.

• Which business processes should you never outsource?
• Does this process win you customers? The differentiation test

What innovation work outsources well?

Work that needs skills or equipment you do not have, for a defined period.

• Building prototypes and proofs of concept.
• Specialist research, such as materials or data science.
• User testing and market research.
• Design and engineering to your brief.

• Should you outsource product development?
• Data annotation outsourcing: labelling data for AI

How do you keep the know-how?

Assign intellectual property to your business in writing, require documentation and handover at each stage, keep code and designs in your own systems, and have an in-house project owner who attends every review. Grants such as those from Innovate UK may also have conditions on who owns and exploits the results.

• Trade secrets: what never leaves the building
• Source code and repositories: keep ownership

When does open innovation make sense?

When a partner brings something you could never build alone, such as a university lab or a specialist firm, and the agreement is clear on who owns what. Collaboration works best when each side contributes something and both understand what they take away.

• Strategic partnerships: who should negotiate them?

What does this look like in practice?

A pattern we see: a firm commissions a prototype, receives files nobody inside can maintain, and starts again with the next supplier. Firms that keep an in-house owner and insist on documentation build on each project instead.

• See client work
• BPO Solutions for UK businesses

Innovation outsourcing checklist

• Name an in-house owner for each innovation project.
• Keep customer insight and idea selection inside.
• Outsource defined specialist work to a brief.
• Assign IP to your business in writing.
• Require documentation and handover each stage.

• Can you outsource company culture?
• Business plan writers: what to hand over and what to write

Next step

List your current improvement ideas and mark which need skills you do not have. Those are the parts to buy in; the rest, and the choices, stay with you.