Thursday, May 27, 2010

Does OPEN INNOVATION equal outsourcing innovation?

Contracting out a business function; be it IT services or Innovation; to an external provider will qualify as outsourcing. So what’s the big fuss about, why is open innovation being mentioned in all innovation forums?

On the face of it – there isn’t much difference.

While the traditional outsourcing based on Cost saving and  on demand resources; allows one to focus on their core business, it is also true for open innovation. However why open innovation is getting popular has more reasons than what meets the eye.

a) Outsourcing focuses on repeatable tasks, open innovation focuses on one- off task. (One would most probably try to open innovate when the answer is not a phone call away; at Bangalore or Beijing)

b) Outsourcing focuses on the getting job done, open innovation focuses on increasing the probability of getting that complex job done. (There are no guarantees in open innovation, but one can surely reduce the risk of not reaching out to a possible great idea)

c) Outsourcing success is based on identifying the right partner for medium to long term, open innovation success is based on having the right processes in place to leverage the long tail phenomenon. (Here the quantity of solutions does not matter, but the relevancy does and this relevancy may not be possible to be bought  from a predefined source) 

d) Outsourcing helps enterprises improve predictability, Open innovation helps enterprises improve novelty in their offerings. (Predictability is hygiene, consumers now want to be delighted)

e) Outsourcing is based on push, open innovation is based on pull. (Push works better for traditional business function outsourcing, Pull works better for creativity and innovation)

Reasons to go for open innovation could be a subset of reasons to go for a typical business function outsourcing, but the former has lot more underneath it.


  1. Good insights. Open innovation isn't about outsourcing your research. It's about leveraging external resources to create a stronger market proposition. Revenue growth, not cost reduction.

  2. Interesting post Jay. What you seem to be alluding to is classification of organisational environments and the applicability of certain actions within different domains. I am a great advocate of the Cynefin framework as it captures the issue well and it is wonderful vehicle for explaining the serial failure of most KM projects as they are commonly based on an assumption that value generation in knowledge based organisations is in the simple domain whereas in fact it is generally in the complex domain. Consequently the mechanistic and commoditised nature of the KM interventions are inappropriate and so fail.

    However one issue I would raise is that same principles set out above can be applied with outsourcing. Many organisations could, and should, place some of these commonly outsourced activities at the strategic heart of what they do as they can provide innovation and value and so advantage for the organisation. It’s not always the case of course but it is also a common mistake to view many commonly outsourced functions as purely transactional.