May 10, 2006
Reduced Time-to-Market: A Major Driver of R&D OutsourcingAbility to exploit pools of skilled labor, however, remains the top driverAbility to exploit pools of skilled labor, however, remains the top driver
Reducing the time-to-market has emerged as a major driver of globalized delivery of R&D services today, according to a new report titled New Strategies for Outsourced R&D, by OutsourcingCenter and Wipro.
During 2005 and 2006, there has been a heightened awareness about the fact that shortening of R&D cycles is key to winning in innovation. Companies have also realized that an outsourced global delivery model is a highly effective strategy for driving time out of the R&D process.
Companies are discovering that creating entirely new products in every R&D initiative is costly and time-consuming. Many are finding that enhancing existing products for a particular new market is a more effective strategy, and partnering with an offshore provider for developing product extensions into new markets is a competitive advantage.
Selecting an R&D partner with specialized service lines that can understand emerging markets and new geographies will enhance the value that companies can achieve through this outsourcing strategy, states the report.
The findings come close on the heels of another report by AMR Research, which found that 45% of the surveyed companies that outsourced part of their new product development processes, in fact achieved improved time-to-market.
The OutsourcingCenter and Wipro report states that to facilitate higher odds of such outcomes, some companies are now offering financial incentives to providers to compensate for the provider taking on increased risk and making significant investment in resources to achieve the client’s demands. The report highlights that in most incentive models, both parties share in the savings achieved by shortening the development cycle.
Ability to exploit pools of skilled labor, however, remains the top driver with 28% respondents citing it as one of the primary drivers for globalizing R&D. This reinforces similar findings by Marion Ewing Kauffman Foundation, which in a report released recently found that intellectual capital and university collaborations are the primary driving factors of locating R&D offshore.
While reducing time-to-market comes a close second, with 23% of respondents believing that it is one of the primary drivers of outsourced R&D today. Reduced R&D costs (23%), access to 24x7 global resources (16%) and ability to tailor products/services to particular markets (nine percent) are the other key drivers.
The report states that in the past, many companies outsourcing their R&D process offshore relied on the provider primarily for writing software codes. Today, providers are doing design work, and the transfer of proprietary knowledge is often involved. Clearly, the globalization trend is shifting to such activities as a chip’s micro-architecture and physical design. This probably explains why the ability to exploit pools of skilled labor is the top driver today.
Though still a small driver, the fact that nine percent of companies think globalizing is a must for serving different geographic market needs is a testimony to the fact that significant number of companies are strategically looking beyond the home market, and are willing to invest for effectively meeting the needs of these newer markets.
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