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Outsourcing Innovation?

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Much has been made of the concept of core competencies.  In a hypercompetitive world, a CEO can easily argue that a firm should do what it does well and outsource the functions that others do more efficiently or effectively.  Emphasis on outsourcing has grown to encompass entire business processes or entire functions.

What, then, can we say about outsourcing innovation?  If a business can readily outsource its procurement functions, or its manufacturing processes, can it, or should it, outsource its innovation functions?  And if so, to whom?

Let’s start by stipulating that few firms can claim innovation as a core competency.  If we follow the logic that a firm should outsource functions or processes that aren’t a core competency or that the firm doesn’t do well, then by all means, clearly most firms should outsource innovation.  But it certainly doesn’t seem to make much business sense to follow that dictum.  Innovation is critical to growth, profits and long term strategy.  Outsourcing innovation may lead to short term gains, but over the longer term can an innovation “outsourcer” fully understand a firm’s goals and strategies?  Does a third party offer that much better insight into your customers’ need and wants?

If we then argue that it is dangerous for a firm to outsource innovation entirely, then perhaps we can argue that certain functions can be safely outsourced to third parties with deep capabilities or experience.  We consider innovation to be an end to end process defined by these phases or steps:

  • Trend spotting and scenario planning
  • Identifying unmet or unarticulated needs
  • Idea Generation
  • Idea management, evaluation and selection
  • Prototyping
  • Concept testing
  • Commercialization

Let’s examine the possibilities of outsourcing one, or several, of these phases.

Trend Spotting and Scenario Planning

Few firms do a good job of trend spotting and scenario planning, so this is a capability that can be outsourced to third parties that understand how to collect and assimilate trends and develop scenarios.  However, any third party developing scenarios must understand your strategy, your vision, your customers and your time horizons in order to develop meaningful scenarios.  That work can’t be done in a vacuum, and your strategies and definitions must be carefully communicated to a third party, otherwise the scenarios and their implications won’t amount to much.

Identifying unmet needs

The concept of ethnography and other qualitative research can help identify unmet needs or unarticulated needs, yet few corporations have these skills in house.  This work can be outsourced to firms that specialized in identifying customer needs and wants using qualitative research tools.  However, these firms must be educated about your products, your strategies and your goals.  While ethnography and other tools can provide compelling insights, differing scope definitions, a poor understanding of your purpose or needs can create meaningless insight.

Idea Generation

Many firms assume they can outsource idea generation – to customers, consumers, business partners.  This is a reasonably safe assumption if your firm does a good job providing scope, strategy and context.  If this “framing” is provided effectively, others can generate ideas in your behalf.  If you fail to provide strategy, scope or can’t define a problem or opportunity effectively, then the people who attempt to provide you with ideas will return a large quantity of ideas, but with little applicability to your needs.

Idea management and selection

While you could conceivably outsource idea management and selection, this work should be done by people on your staff.  Picking a new product which will drive new revenue and defining the features and attributes of that product should be driven by your internal teams, in conjunction with your development teams. 

In fact, after idea generation, I’ll argue that it is exceptionally risky to outsource any step, with the possible exception of testing a potential solution with consumers.  If your product development capabilities are on par with your industry, there should be little reason to outsource anything after idea generation.

Note as well that even in the phases where it may be possible to outsource innovation work that there are several consistent caveats, mostly focused on strategy, vision and scope.  Innovation, whether accomplished with internal resources or external agents, simply can’t function effectively without these factors, well-documented and well communicated.  It won’t matter if you have leading third party consultants or an embryonic internal innovation team.  If you can’t provide clear strategy, clear guidelines and clear scope, you can’t outsource innovation.

One last barrier

Finally, let’s assume you’ve successfully outsourced innovation, and a brilliant consulting team has identified an important need, generated ideas and selected an idea for development.  Now, all that’s required is to translate that idea from the consulting team to the product or service development team.  Simple, right?

Not typically.  Product development teams have their own priorities and most likely weren’t involved in the development or generation.  Rather than seeing the consulting team as a partner in innovation, they may see them as a threat.  So it is entirely possible that good ideas originating from a renown consulting firm can’t be commercialized effectively due to a transition barrier from idea to product, external to internal.

Conclusion

While core competencies matter, and firms should stick to what they do best, it is difficult to outsource innovation effectively even in the best of circumstances.  There are certainly specific steps or phases of an innovation effort which may be outsourced without difficulty, but only if the goals and strategies are well defined.  Any firm outsourcing an entire innovation process is likely to discover it has also outsourced its strategy as well.

Written by Jeffrey Phillips. Jeffrey is a senior consultant and VP Marketing for OVO Innovation.

Callum Connects

Benjamin Kwan, Co-Founder of TravelClef

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Making music to create a life for his family, Benjamin Kwan, started an online tuition portal and his music business grew from there.

What’s your story?
I am Benjamin and I’m the Co-Founder of TravelClef Group Pte Ltd, a travelling music school that conducts music classes in companies as well as team building with music programmes. We also run an online educational platform which matches private students to freelance music teachers. We also manufacture our own instruments. I started this company in 2011 when I was still a freshman at NUS, majoring in Mechanical Engineering.

I was born to a lower income family, my father drove a taxi and was the sole breadwinner to a family of 7. I have always dreamed of becoming rich so that I could lessen the burden placed on my father and give my family a good life.

After working really hard in my first semester at NUS, my results didn’t reflect the hard work and effort I put in. At the same time, I was left with just $42 in my bank account and it suddenly dawned on me that if I were to graduate with mediocre results, I would probably end up with a mediocre salary as well. I knew I had to do something to gain control of my future.

During that summer break, I read a book “Internet Riches” by Scott Fox and I knew that the only way I could ever start my own business with my last $42 would be to start an online business. That was how our online tuition portal started and after taking 4 days to learn Photoshop and website building on my own, I started the business.

What excites you most about your industry?
Music itself is a constant form of excitement to me as I have always been an avid lover of music. As one of the world’s first travelling music schools, we are always very eager and excited to find innovative ways to a very traditional business model of a music teaching.

What’s your connection to Asia?
I was born and raised in Singapore and I love the fact that despite our diversity in culture, there’s always a common language that we share, music.

Favourite city in Asia for business and why?
Hands down, SINGAPORE! Although we are currently in talks to expand to other regions within Asia, Singapore is the best place for business. I have had friends asking me if they should consider venturing into entrepreneurship in Singapore, my answer is always a big fat YES! There’s a low barrier of entry, and most importantly, the government is very supportive of entrepreneurship.

What’s the best piece of advice you ever received?
I have been blessed by many people and mentors who constantly give me great advice but right now, I would say the best piece of advice that I received would be from Dr Patrick Liew who said, “Work on the business, not in it.” This advice is constantly ringing in my head as I work towards scaling the business.

Who inspires you?
My dad. My dad has always been my inspiration in life, for the amount of sacrifices that he has made for the family and the love he has for us. He was the umbrella for all the storms that my family faced and we were always safe in his shelter. Although my dad passed away after a brief fight with colorectal cancer, the lessons that he imparted to me were very valuable as I build my own family and business.

What have you just learnt recently that blew you away?
You can not buy time, but you can spend money to save time! With this realisation, I was willing to allow myself to spend some money, in order to save more time. Like taking Grab/Uber to shuttle around instead of spending time travelling on public transport. While I spend more money on travelling, I save a lot more time! This doesn’t mean that I spend lavishly and extravagantly, I am still generally prudent with my money.

If you had your time again, what would you do differently?
I would have taken more time to spend with my family and especially my father. While it is important to focus our time to build our businesses, we should always try our best to allocate family time. Because as an entrepreneur, there is no such thing as “after I finish my work,” because our work is never finished. If our work finishes, the business is also finished. But our time with our family is always limited and no matter how much money and how many successes we achieve, we can never use it to trade back the time we have with our family.

How do you unwind?
I am a very simple man. I enjoy TV time with my wife and a simple dinner with my family and friends.

Favourite Asian destination for relaxation? Why?
Batam, it’s close to Singapore and there’s really nothing much to do except for massages and a relaxing resort life. If I travel to other countries for shopping or sightseeing, I am constantly thinking of business and how I can possibly expand to the country I am visiting. But while relaxing at the beach or at a massage, I tend to allow myself to drift into emptiness and just clear my mind of any thoughts.

Everyone in business should read this book:
Work The System, by Sam Carpenter. This book teaches entrepreneurs the importance of creating systems and how to leverage on systems to improve productivity and create more time.

Shameless plug for your business:
If you are looking for a team building programme that your colleagues will enjoy and your bosses will be happy with, you have to consider our programmes at TravelClef! While our programmes are guaranteed fun and engaging, it is also equipped with many team building deliverables and organizational skills.

How can people connect with you?
My email is [email protected] and I am very active on Facebook as well!
https://www.facebook.com/benjamin.christian.kwan

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Entrepreneurship

Before you enter a Startup or before you choose your founding team or new hires read, “Entering Startupland” by Jeff Bussgang

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Before you enter a Startup or before you choose your founding team or new hires read “Entering Startupland” by Jeff Bussgang.

Jeff knows how to spot and groom good culture, as the book session was held in Zestfinance a company he invested in and now, “The Best Workplaces for Women” and for “The Best Workplaces for Tech”, by Fortune.

These are the questions during the Book Launch.

How to know if a hire including the founder is Startup material?
Jeff says to watch for these qualities.

First, do the hires think like an owner?
Second, do the hires test the limits, to see how things can it be done better?
Are they problem solvers and are biased toward action?
Do they like managing uncertainty and being comfortable with uncertainty? And comfortable with rapid decision-making?
Are they comfortable with flexible enough to take in a series of undefined roles and task?

How do we know if we are simply too corporate to be startup?

Corporate mindsets more interested in going deep into a particular functional area? These corporate beings are more comfortable with clear and distinct lines of responsibility, control, and communication? They are more hesitant or unable to put in the extra effort because “it’s not my job”.

If you do still want to enter a startup despite the very small gains at the onset, Jeff offers a few key considerations on how to pick a right one.

He suggests you pick a city as each city has a different ecosystems stakeholders and funding sources and market strengths. You have to invest in the ecosystem and this is your due diligence. Understand it so you can find the best match when it arises.
Next, to pick a domain, research and solidify your understanding with every informational interview and discussion you begin. Then, pick a stage you are willing to enter at. They are usually 1)in the Jungle, 2) the Dirt Road or 3) the Highway. The Jungle has 1-50 staff and no clear path with distractions everywhere and very tough conditions. The Dirt Road gets clearer but is definitely bumpy and windy. Well the Highway speaks for itself, doesn’t it?

Finally Please – Pick a winner!

Ask people on the inside – the Venture Capitalists, the lawyers, the recruiters and evaluate the team quality like any venture capitalists would. Would you want to work for the team again and again? And is the startup working in a massive market? Is there a clear recurring business model?

After you have picked a winning team and product, how would you get in through the door?

You need to know that warm introductions have to be done. That’s the way to get their attention. Startups value relationships and people as they need social capital to grow. If you have little experience or seemingly irrelevant experience, go bearing a gift. Jeff shared a story of a young ambitious and bright candidate with no tech experience who went and did a thorough customer survey of the users of the startup she intended to work with. She came with point-of-view and presented her findings, and they found in her, what they needed at that stage. She became their Director of Growth. Go in with the philosophy of adding value-add you can get any job you want.

And as any true advisor would do, Jeff did not mince his words, when he reminded the audience that, “If you can’t get introduced you may not be resourceful enough to be in startup.”

Startupland is not a Traditional Career or Learning Cycles

Remember to see your career stage as a runs of 5 years, 8 or 10 – it is not a life long career. In Startup land consider each startup as a single career for you.

Douglas Merrill, founder of Zestfinance added from his hard-earned experience that retention is a challenge. Startup Leaders to keep your people, do help them with the quick learning cycles. Essentially from Jungle to Dirt road, the transition can be rapid and so each communication model that starts and exists, gets changed quickly. Every twelve months, the communication model will have no choice but to break down and you have to reinvent the communication model. Be ready as a founder and be ready as a member of the startup.

Another suggestion was to have no titles for first two years. So that everyone was hands-on and also able to move as one entity.

Effective Startupland Leaders paint a Vision of the Future yet unseen.

What I really enjoyed and resonated with as a coach and psychologist was how Douglas at the 10th hire thought very carefully what he was promising each of his new team member. He was reminded that startups die at their 10th and their 100th hires. He took some mindful down time and reflected. He then wrote a story for each person in his own team and literally wrote out what the company would look like and their individual part in it. In He writing each of the team members’ stories into his vision and giving each person this story, it was a powerful communication piece. He definitely increased the touch points and communication here is the effective startup’s leverage.

Douglas and Jeff both suggested transparency from the onset.

If you think like an owner and if you think of your founding team as problem solvers. Then getting transparent about financials with your team is probably a good idea. As a member of a startup, you should insist on knowing these things
Such skills and domain knowledge will be valuable. There is now historical evidence of people leaving startups and being a successful founder themselves because they were in the financial trenches in their initial startup. Think Paypal and Facebook Mafia.

What drives people to enter a startup?

The whole nature of work is changing. Many are ready to pay to learn. Daniel Pink’s book Drive showed how people are motivated by certain qualities like Mastery, Autonomy and Where your work fits into big picture. Startups do that naturally. There is a huge amount of passion and the quality of team today and as it grows then the quality of company changes.

The Progress principle is in place, why people love their startup jobs is not money rather are my contributions being valued? Do I see a path of progress and do I have autonomy over work and am I treated well?

Find out more about StartupLand on Amazon

And learn from Zestfinance

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