Farming out R&D?
A great issue of Business Review about how western companies are more and more outsourcing R&D, creating a new model of innovation.
CEOs are asking tough questions about their once-cloistered R&D operations: Why are so few hit products making it out of the labs into the market? How many of those pricey engineers are really creating game-changing products or technology breakthroughs? "R&D is the biggest single remaining controllable expense to work on," says Allen J. Delattre, head of Accenture Ltd.'s (ACN ) high-tech consulting practice. "Companies either will have to cut costs or increase R&D productivity."
The result is a rethinking of the structure of the modern corporation. What, specifically, has to be done in-house anymore? At a minimum, most leading Western companies are turning toward a new model of innovation, one that employs global networks of partners. These can include U.S. chipmakers, Taiwanese engineers, Indian software developers, and Chinese factories. IBM (IBM ) is even offering the smarts of its famed research labs and a new global team of 1,200 engineers to help customers develop future products using next-generation technologies. (...) HTC? Flextronics? Cellon?...Quanta Computer, Premier Imaging, Wipro Technologies (WIT ), and Compal Electronics, are fast emerging as hidden powers of the technology industry. (...) Motorola hired Taiwan's BenQ Corp. to design and manufacture millions of mobile phones. But then BenQ began selling phones last year in the prized China market under its own brand. That prompted Motorola to pull its contract. Another risk is that brand-name companies will lose the incentive to keep investing in new technology. (...) Still, most companies insist they will continue to do most of the critical design work -- and have no plans to take a meat ax to R&D. (...) . "Companies realize if they want a sustainable competitive advantage, they will not get it from outsourcing," says President Frank M. Armbrecht of the Industrial Research Institute, which tracks corporate R&D spending. (...) Companies also worry about the message they send investors. Outsourcing manufacturing, tech support, and back-office work makes clear financial sense. But ownership of design strikes close to the heart of a corporation's intrinsic value
The paper adresses the risk and the future of this kind of practices. It's full of examples and very relevant.