We live in a time of flux. A constant stream of technological developments, coupled with radical ways of thinking, challenge the way longstanding industries operate. One way that companies can adapt to and embrace these developments is through innovation.
In stark contrast with start-ups, which are characterised by speed and innovation, many medium and large sized companies struggle to be innovative. The question for business leaders is therefore how to replicate the success of start-ups within their own, often entirely different, business model.
The problem with driving innovation in-house is that it can often be slow and ineffective. Bureaucracy, usually found in larger companies, creates inertia and stifles creativity. A fear of failure is often instilled in employees. Businesses also repeatedly make the mistake of prioritising short-term goals, influenced solely by internal politics.
The alternative is to outsource the innovation process to an external company or separate subsidiary. To put the advantages of outsourcing innovation into context, take the example of a financial company that is unable to keep up with the technical advances of a competitor. The competitor has started an automated service via a mobile app, vastly improving customer service.
The company does not have any employees with the requisite experience or skillset needed to create technology that will match their competitor. To remedy the situation, the company could spend months attempting to recruit their own specialists. If they were successful in hiring a team, there would be a further delay while the employees acclimatise to the company's processes and politics. When the team is finally up to speed and produces a proposal for a solution, they will undoubtedly have to contend with a management structure inexperienced in assessing the value of the proposed product.
When the final proposed solution clears the various internal hurdles, it will most likely be far from what the original team had planned - usually to the product's detriment.
While all these processes are taking place, the competitor has continued to innovate, improving the app or service, or even releasing another product, increasing the lead.
The alternative for the company is to eschew all of these problems by tasking an innovation laboratory to find a solution that trumps the competitor's offering.
Breaking down the corporate mind-set is one of the biggest advantages of outsourcing innovation. In innovation laboratories, bureaucracy or a safety-first approach cannot stifle creativity. A specialist team can focus on building, testing and retargeting budgets, rather than wasting time seeking board or committee approval.
Purely from an empirical point of view, outsourcing innovation saves money. The smaller budgets within innovation laboratories encourage creativity and lean development. Solutions are often found faster as the innovation laboratory brings a range of specialist experience to bear. Businesses, on the other hand, no longer need to worry about hiring and retaining the range of top talent and niche skillsets needed to drive innovation.
Given the numerous advantages of outsourcing innovation, it is safe to say that it will soon become a prevalent business practice. Budgets for innovation will no longer be a line-item, but instead, a separate, strategic investment which is part of the company's long term mission.
Many business practices are already routinely outsourced, such as communication, manufacturing and accounting. Over the next few years, it is likely that outsourcing innovation will become just as common and intuitive.
Given the time and money that can be saved, and the superior results that can be achieved, outsourcing innovation is unquestionably a compelling new business tool. It can be both a catalyst for growth and a bulwark against the many challenges that threaten businesses.
Paul Jozefak is co-founder and managing director of innovation laboratory Liquid Labs.