report innovation the economist

Outsourcing innovation A manufacturer’s perspective A report from the Economist Intelligence UnitSponsored by Siemens PLM Software

© The Economist Intelligence Unit 2008 1

Outsourcing innovationA manufacturer’s perspective

Preface

Outsourcing innovation: A manufacturer’s perspective is an Economist Intelligence Unit report, sponsored by Siemens PLM Software. The Economist Intelligence Unit bears sole responsibility for this report. The Economist Intelligence Unit’s editorial team executed the survey, conducted the interviews and wrote the report. The findings and views expressed here do not necessarily reflect the views of the sponsor. The research drew on two main initiatives:

We conducted a wide-ranging online survey in February-March 2008. In all, 305 executives took part.

To supplement the survey results, we also conducted in-depth interviews with senior executives and independent experts knowledgeable about outsourcing innovation.

The author of the report was Sarah Murray and the editor was Clint Witchalls. Mike Kenny was responsible for design and layout.

Our sincere thanks go to the executives who participated in the survey and interviews for sharing their time and insights.

May 2008

2 © The Economist Intelligence Unit 2008


T oday, few brand owners make their own goods. Instead, they hand this over to others and concentrate on devising, designing, advertising

and selling their products. However, while outsourced manufacturing was once pursued largely to cut costs and allow organisations to focus on activities that added value to their output, companies are recognising that external partners may also have the ability to innovate.

With skills in short supply across the world, companies are not only looking to suppliers in their own countries for product and process innovations. They have also recognised that, with engineering graduates declining in their home markets, they are more likely to find their research and development (R&D) capabilities in countries such as China and India, where thousands of young engineers are emerging from universities every year.

Yet, while the offshoring of R&D is becoming an increasingly popular model for large companies, when it comes to outsourcing, the potential loss of intellectual property remains a worry. Moreover, lack of proper communication channels between companies and their external partners can hamper the flow of knowledge and ideas from service providers to their clients.

This report is based on a global survey of 305 senior executives. The survey, which was conducted by the Economist Intelligence Unit on behalf of Siemens PLM Software, looks at the opportunities and challenges associated with outsourcing innovation. We examine the drivers behind the more open approach to sourcing ideas that is emerging and the models companies are embracing as they struggle to innovate ever more quickly in order to remain competitive. Some of the key findings are highlighted below.

The term “innovation” is generally applied to new products and services. Most companies measure innovation by counting the new products and businesses they launch. The second most popular measurement method is to add up the revenue growth from these launches. Counting the number of patents filed comes in a distant third, while some manufacturers still do not measure innovation.

Skills shortages will increase the need to look externally for innovation. The largest group of respondents reported that in the past three years it had become somewhat or much harder to hire talented employees who can deliver innovative ideas.

Cost cutting remains the biggest driver for outsourcing. Most companies still use outsourcing providers to cut costs and to allow them to focus on their core competencies. However, a modest group of respondents say they turn to outsource providers as a source of innovation.

Most companies recognise the need to start looking outside their organisations for innovation. The largest group of respondents report that their organisations will increase the proportion of innovation and ideas that come from external partners in the next three years.

Executive summary



Use of external partners as a source innovation is not yet widespread. While some respondents say that their organisations derive one-half or more of their innovation from external partners, the largest group of respondents agree that in the past three years “little or none” of their innovation has come from external partners.

Lack of trust remains the biggest obstacle to outsourcing innovation. Fear of loss of intellectual property is the reason many companies are reluctant to turn to outsiders for innovation. However, many respondents see technology as a way of protecting intellectual assets.

Management strategies help companies use external partners as a source of innovation. Most respondents believe that establishing better communication channels with partners—both face-to-face and virtual—would make capitalising on their ability to innovate easier. The majority of companies believe that having an open culture in which knowledge is shared is essential to capitalising on innovation from external partners.



Introduction

A few decades ago, when companies thought of innovation, it was with a view to improving a product over a period of years. In-house

R&D teams would apply what they had learned and gradually adapt products to meet new requirements. Today, that process takes mere months.

As product lifecycles become more compressed and the complexity of the product development process escalates, companies are looking to broaden their supply of new ideas. As a result, they are turning to R&D capabilities that lie outside their organisations and embrace a variety of “open innovation” models. In the survey, 37% of respondents report that about one-quarter of the innovation emerging from their organisation in the past three years came from external partners.

As well as the need to speed up the time in which they bring new products to market, the shortage of skills in mature markets—particularly in fields such as engineering and chemistry—is driving the need to look for new pools of talent in countries such as China

41

37

13

3

2

5

Little or none

About one-quarter

About half

About three-quarters

All or nearly all

Don’t know

In the past three years, what proportion of innovation at your organisation has been derived from external partners, in your estimation? (% respondents)

Source: Economist Intelligence Unit survey, March 2008.

and India. Our findings confirm this trend, with 39% of respondents saying that, in the past three years, it has become “somewhat harder” to hire talented employees who can deliver innovative ideas, with a further 19% seeing this as “much harder”.

However, the survey suggests that while most companies have a positive view of outsourced or open approaches to innovation and expect to obtain more ideas from external sources in the next three years, many have yet to do so. The largest group of respondents (41%) say that in the past three years their organisation derived little or no innovation from external partners. Only 13% report that about one-half of their innovation came from these sources.

Lack of trust appears to be a major obstacle to the willingness of companies to embrace the idea of turning innovation over to third parties. This was cited by 31% of respondents as the biggest barrier to the outsourcing of innovation, with 20% citing poor communications with external partners. Almost one-half (49%) of respondents see loss of intellectual property to competitors and business partners as the main risk in outsourcing innovation to partners.

However, companies clearly recognise the importance of external sources of innovation, with 29% of respondents seeing overall competitive advantage as the main benefit and 26% citing greater speed in getting products to market. The question for companies then is how they can capitalise on the benefits of sourcing innovation externally without losing their most valuable asset: their intellectual property.



T he concept of open innovation has attracted the attention of many companies and academics in recent years. Henry Chesbrough, a business

professor at the University of California, Berkeley, and author of Open Innovation and Open Business Models, argues that managers can tap into a vast pool of knowledge and ideas, many of which lie outside their organisations. Companies, he says, do not have to originate research in order to profit from it.

This is something that Proctor & Gamble has demonstrated. Over the past decade, the company has radically altered the way it sourced new ideas and products, using the Internet and other methods to turn to independent investors, universities and suppliers.

Companies have long recognised that they cannot do everything themselves. The whole outsourcing movement, now decades old, is based on the idea of handing over tasks such as manufacturing to third parties to allow a company to focus on what it does best, whether marketing, branding and selling or managing customer relationships.

But while outsourcing and offshoring were used purely as cost-cutting strategies, some organisations are looking to gain more from their relationships with external partners by tapping into their ability to innovate. This kind of strategy is seen as a good thing. In this survey, the biggest group of respondents (57%) believe that the proportion of innovation derived from external partners will increase in the next three years.

Respondents highlighted a range of benefits from deriving more innovation from external partners. The largest group see this as enhancing their organisation’s R&D capabilities (53%), while 38% cite product and service development and 35% point to

process efficiency.Part of the driver behind the desire to increase

use of external sources of innovation is the pressure to speed up product development cycles. In our research, 26% of respondents believe that deriving innovation from partners would help them get their products to market faster.

“By and large everything goes much faster these days,” says Steven Veldhoen, a vice-president in Booz Allen Hamilton’s Tokyo office and author of Innovation: Is Global the way Forward?, a joint study by Booz Allen Hamilton and Insead. “I do a lot of work with automotive companies and the development cycles are shortening all the time.”

The open innovation imperative

What parts of your organisation’s business do you think would benefit most from outsourcing innovation and ideas? Select up to three.(% respondents)

Research and development

Product/service development

Process efficiency

Supply chain management

Operations

Cost controls

Sales and marketing

Product/service quality

Don’t know

Other

None of the above; We would not benefit from outsourcing innovation

53

38

35

32

29

24

21

17

1

1

2




At the same time, the pipeline of talent needed to research and develop the innovations behind new products is shrinking in mature markets. Some 39% of respondents report that in the past three years it has become “somewhat harder” to recruit the kind of skilled workers needed to deliver innovative ideas, with 19% saying that this has become “much harder”.

Growth in emerging markets is not helping, notes Ian Brinkley, Knowledge Economy programme director at the UK’s Work Foundation. Mr Brinkley argues that, while companies once filled gaps with highly talented Asian engineers and scientists—many of whom stayed on after studying in the US or Europe—this may become harder.

“If the quality of educational institutions in Asia goes up and their own high-tech industries develop,

creating more jobs, the future supply of high-quality labour coming into Western economies is going to slow dramatically,” he says. “And this could potentially cause real problems.”

Open innovation strategies may fill this talent gap. Proctor & Gamble, for one, believes its open approach to sourcing innovation allows it to tap into vast pools of skilled individuals. “We have about 9,000 researchers internally, but if you look at the domain space those people play in and the number of researchers who are out there in the world as a whole, there are 1.5m researchers in that space,” says Bill Metz, the company’s global business services external business development manager. “So anything we can to do to tap into them expands our capacity to innovate.”



While there is much discussion about the need to take a more open approach to innovation, the models being deployed by

companies vary dramatically, from the totally open approach, whereby companies solicit ideas from everyone from suppliers to customers, to the “captive site” model in which companies establish and operate their own R&D centres overseas.

Proctor & Gamble’s version of open innovation involves accessing externally developed intellectual property, assets and know-how and, once it has identified a property, a trademark, a service or a capability, doing a business transaction with its owner. “One of the challenges we face as we get bigger is that it’s more and more difficult to grow organically through only your own internal R&D,” says Mr Metz. “So we’re turning to the outside to augment the capability that we have internally.”

One of the ways P&G does this is through its

connect+develop website, where individuals or companies can respond to the needs the company has posted or submit unsolicited input. The task then is for P&G to identify viable submissions to which the individuals offering them have the rights.

Other examples of open innovation include InnoCentive, an open innovation company that uses a website to offer financial rewards to people who solve specific criteria posted on the site, and Lego Factory, which allows the children that are Lego’s customers to design products.

Our findings suggest that tapping into open sources of innovation in this way is something companies aspire to, with a large segment of respondents (59%) seeing an increase in the use of open sources of innovation at their organisation in the next three years.

Although the concept of “open innovation” has attracted much attention, Tim Jones, principal of

CASE STUDYGeneral Electric and the offshore research model

Rather than turn to outsiders, General Electric has embraced the offshoring model, expanding its research facilities globally. Headquartered on a 525-acre site in Niskayuna, New York, GE Global Research now also has centres in China, India and Germany. This gives the company about 3,000 researchers across the four facilities, with expertise ranging from electronics and computing to chemistry and biosciences.

Two reasons lie behind the company’s decision to locate these facilities in

Shanghai, Bangalore and Munich. For a start, it allows GE to tap into new pools of technical skills, such as the analytics and modelling expertise in which India has great strength.

“It gives us access to the best technical talent around the world,” says Mark Little, senior vice-president and director of research at GE Global Research. “Scientists in Munich, Bangalore and Shanghai wanted to work for GE, yet it was a major inconvenience to their lives to uproot their families.”

At the same time, the centres allow the company to enhance its knowledge of countries in which it would like to expand its operations. “It puts us closer to growth markets where it is essential for us to

understand emerging trends, customer needs and unique challenges as we design new products and technologies,” says Mr Little.

One example is a magnetic resonance imaging (MRI) system produced by the company. Instead of retrofitting a system that was designed for US customers, GE designed and developed an MRI system tailored to the China market.

“We can innovate, invent and design global products faster, and get it right based on our knowledge of these markets and customers,” says Mr Little. “It is about finding more of the best, brightest researchers who have first-hand knowledge of the emerging markets where we want to succeed.”

A variety of models



Innovaro, a UK-based consultancy, argues that confusion often surrounds the term “open”, and that the models are quite distinct from one another. “Open source is free of intellectual property and that’s the whole point of it,” he says. “Open innovation is all about trading intellectual property. If there’s no IP [intellectual property], then you can’t do the deal.”

For many companies, however, externalising innovation means turning to existing suppliers and other business partners. “I see it happening pretty much everywhere,” says Mr Veldhoen. “It’s working with suppliers, getting best ideas from suppliers and working in a way that it’s not just about delivering, but is also about sharing the best ideas.”

Mr Brinkley identifies an additional version of external innovation. “Some of the models are simply joint funding or joint ventures, particularly in areas

such as aerospace and pharmaceuticals. So the recent Rolls-Royce investment in Germany is effectively with the state government—it’s not entirely a Rolls-Royce facility.”

Often, it is users, rather than manufacturers, who are from necessity the innovators. Eric von Hippel, a professor at MIT Sloan School of Management and author of Democratizing Innovation, cites the example of Massachusetts General Hospital, which developed a slow-acting syringe that releases a small amount of fluid containing antibiotics into the bloodstream. This innovation would replace more expensive intravenous fluid bags and be better for patients. “They designed and tested the syringe before calling in manufacturers,” he explains. “So the users are designing and testing the product—they are the true innovators in such cases.”



W ith companies such as P&G, Boeing, GE and Dell continuing to capture headlines for their open approaches to sourcing

innovation, many companies aspire to similar models. As the survey indicates, most companies expect the proportion of innovation derived from either external partners or open sources to increase. However, when polled on how much innovation has been derived from these sources over the past three years, the results are quite different.

Some 41% of respondents say that little or none of their innovation has been derived from external sources in the past three years, while only a tiny minority (2%) say that nearly all their innovation was externally sourced. More than one-half of respondents (54%) say that their organisation solicited innovation and ideas on an open-source basis only to a small extent, whereas a large proportion (51%) agree that their organisation was most successful at sourcing innovation in-house.

Part of the reason behind this mismatch between stated intent and actual activity may lie in the way companies define innovation—by the volume of new products and businesses they launch. The majority of companies in our survey (64%) measure innovation this way. The second most popular method, cited by 54% or respondents, is to tally the revenue growth from these launches, whereas 32% cite counting the number of patents filed as the method they used.

Yet such methods of accounting for innovation may leave out other types of innovation and process improvements that occur at the hands of external partners. “When you look at automotive companies such as BMW, GM or Toyota, they do open innovation all the time—it’s just that they haven’t called it that,” says Mr Veldhoen. “So there could be a mis-definition

of terms.”However, a very real barrier to open approaches

to innovation lies in many companies’ lack of trust in their suppliers. As a result, companies worry that they could lose control of their intellectual property. Respondents to our survey cite this as the greatest danger posed by a strategy of deriving more innovation and ideas from external partners, with 25% citing the potential loss of IP to competitors and 24% citing loss of IP to partners.

These fears have been realised in some instances where contract manufacturers have made the leap from supplier to brand owner, as Acer, a computer manufacturer, have done. “Particularly in the computer world, you’re getting these weird-sounding brands you’ve never heard of suddenly being available

How does your organisation measure innovation? Select all that apply.(% respondents)

Number of new products or businesses launched

Percentage of revenue growth from new products or businesses

Number of patents and trademarks filed

Time to market (cycle time)

Improvements in total-factor productivity (that is, the efficiency of a firm’s operations defined as the ratio of outputs to inputs)

Quality of manufactured goods (number of defects and the rate of delay)

Number of employees for whom innovation is a performance measure

Total shareholder return

Other

We don’t measure innovation

64

54

32

30

25

25

15

11

2

8


All talk and less action



directly,” says Mr Jones. “Those companies have grown by learning from the likes of Compaq and Dell, for whom they’ve been making products for years.”

Worries over loss of intellectual property are heightened when it comes to operating in certain countries. “The big problem is China, where respect for intellectual property is less rigorous than elsewhere,” confirms Mr Brinkley. “And you can never count on national jurisdictions enforcing the laws the way they ought to.”

However, technology can be a powerful tool when it comes to protecting intellectual property. As companies increasingly hook suppliers into their

networks to facilitate collaboration, it is crucial for them to monitor and control the information that is accessible via these networks. Options range from use of smart passwords to enterprise rights management software, which allows organisations to limit the data individuals can access and to control what those individuals can do with the data.

Almost half (49%) of respondents said their organisations deployed passwords and encryption when working with partners, while 33% said they used systems and project areas protected by firewalls. Enterprise rights management software was also used in the organisations of 26% of respondents.

CASE STUDYDell’s customer crowdsourcing model

One of the strategies on which Dell built its business was the ability to customise its products using feedback from consumers. So it comes as no surprise that the computer company’s model of innovation is based heavily on tapping into ideas from its cus-tomers.

To do so, the company started to investigate how it might connect with customers online and find out more about their complaints, requests and problems. The result was IdeaStorm, initially a blog and now a website facilitating what is known as “crowdsourcing”.

Launched in February 2007, IdeaStorm

allows the company to solicit ideas for product improvements and innovations from online communities of Dell customers and potential customers. Once a user posts an idea or suggestion on the site, the community can vote for or against it with a simple click of the mouse. A forum section of the site allows individuals to debate ideas in more depth.

When, soon after the launch, visitors to the site suggested that the company should offer the Linux operating system, hundreds of thousands voted for the idea. “So before we launched the new product, we did a survey on IdeaStorm and we had 100,000 people respond within a week telling us exactly what type of Linux they wanted and what type of support they wanted,” explains Bob Pearson, Dell’s vice-president of communities and conversations.

Consumer feedback allowed Dell to tailor the product to customers’ requirements and launch the product extremely quickly. “By the end of May, we’d launched our first systems with Linux,” says Mr Pearson. “Normally the product development window in technology for hardware is 12 to 18 months. This was a software improvement, but that’s still a very quick turnaround.”

Mr Pearson sees the model as an effective way of speeding up product improvements and innovations. “It still makes sense to talk directly with our business partners one-to-one in conference rooms, but only if it is balanced with the real-time feedback we receive from our customers,” says Mr Pearson. “Last year, we had more than two-hundred million customer interactions, and that’s a significant amount of feedback that we can learn from.”



Concerns over loss of intellectual property, argue experts, by no means rule out the possibility of deriving more innovation from external

partners. However, careful management techniques and contractual structures need to be in place at the beginning of an outsourcing relationship. In our survey, 26% of respondents agree that having contractual agreements for the sharing of intellectual property would most facilitate a rise in the amount of innovation and ideas derived from external partners.

“Part of it is defining the basic terminology at the start between the outsourcer and the service provider and establishing what they mean by innovation,” says Michael Burtha, president of Applied Collaborative Strategies, a performance, innovation and leadership consultancy. “Because there are changes that occur—small and large innovations and the process improvements that were implemented—when the service provider goes down the learning curve.”

What is important, stresses Mr Burtha, is to establish who will have ownership of the improvements that naturally occur during the manufacturing process so that companies can feel comfortable in giving partners enough information about their products and strategies to allow those partners to make real improvements to them. “The challenge for the service provider is that if they’re not getting the full snapshot of the landscape, it’s hard for them to be innovative,” he says. “If you don’t talk about it ahead of time and work out how to optimise the continual flows of information and knowledge, you’re just doing a transactional deal versus creating competitive advantage.”

A careful balance is therefore required between moving to protect sensitive data and intellectual assets—often using technological solutions—and

giving suppliers access to enough information to enable them to make substantive improvements to a product or process. Laying down the ground rules on who owns these improvements at an early stage in a relationship can give companies the confidence to open up more of their operations to outsiders.

In addition, companies need to establish communication channels, so that knowledge and innovation can flow back to them from the outsource service provider. In this respect, technology can help. Some 68% of respondents to our survey say that collaborative project systems would make capitalising on external sources of innovation easier, compared with 41% who cite an intranet accessible by partners. A further 32% highlight use of a website soliciting ideas and proposals from external sources. And more than one-half (57%) rate technology investment as

Setting out the ground rules

What technologies and systems would make capitalising on external sources of innovation easier for your organisation? Select all that apply.(% respondents)

Collaborative project system

An intranet accessible by external partners

A company website soliciting proposals from any organisation or individual

A corporate wiki (a collection of web pages that can be edited by a group)

Videoconferencing sessions

Use of open-source websites such as InnoCentive and NineSigma

Use of 3D virtual worlds such as Second Life

Other

Don’t know/Not applicable

68

41

32

26

25

20

8

1

7




the most important input facilitating the sourcing of innovation from external partners.

Herman Miller, a US-based furniture systems producer, has found that technology greatly enhances the communication flow with its partners during the outsourcing process. “There’s this seamless connection with almost anyone you work with at a close level,” says Don Goeman, who heads the design and development function at Herman Miller. “It used to be like throwing things over a wall and now there’s information and data moving all over the place all the time.”

However, Mr Goeman stresses that technology tools need to be supported by good management and clear lines of communication. “It’s really important,”

says Mr Goeman. “There have been a number of times where the technical people we have on our staff know the people they’re partnering with so well that they look at them as almost from the same team.”

Our findings support his view with 27% of executives saying that more face-to-face meetings would help to increase the flow of innovation from outside suppliers, while 26% point to communication channels such as e-mails, instant messaging, video-conferencing and collaborative project systems. Almost one-half (47%) agree that capitalising on external innovation would be made easier by having a dedicated manager responsible for fostering the exchange of ideas with partners.



F aced with talent shortages and the need to speed up the time it takes to get new products on the market, companies clearly recognise

the need to look outside their organisations for new sources of innovation. These sources can range from web-based communities of consumers and customers to universities, business partners and manufacturing suppliers.

However, our study shows that although companies acknowledge a need and intention to look externally for new ideas, evidence of activity in this area is weaker, with many respondents reporting that in the past three years little of their innovation has been derived from external partners or from organisations or individuals outside their network of suppliers.

In part, this may be because companies’ definition of innovation—based on the number of products launched—means that they are not taking account of other innovations in the manufacturing process already taking place. However, the biggest barrier

to outsourcing innovation is the fear of loss of intellectual property.

While this is a very real concern, companies that put in place contractual arrangements, robust collaborative project systems and efficient communication channels can minimise the risk of others capitalising on their ideas. In addition, growing availability everything from data encryption systems to enterprise rights management software means companies can shore up protection of their most valuable intellectual assets.

And savvy companies have recognised that if they can strike the right balance between protecting these intellectual property assets and giving outsource partners sufficient access to information about their products and processes, those outsource partners can provide not just cost savings and flexibility, but also the ideas and innovations that, in a business environment moving ever faster, will help them continue to secure competitive advantage.

Conclusion


Appendix: Survey results Outsourcing innovationA manufacturer’s perspective

AppendixIn March 2008, The Economist Intelligence Unit surveyed 305 executives from manufacturing industries around the globe. Our sincere thanks go to all those who took part in the survey. Please note that not all answers add up to 100% because of rounding or because respondents were able to provide multiple answers to some questions.

How does your organisation measure innovation? Select all that apply.(% respondents)

Number of new products or businesses launched

Percentage of revenue growth from new products or businesses

Number of patents and trademarks filed

Time to market (cycle time)

Improvements in total-factor productivity (that is, the efficiency of a firm’s operations defined as the ratio of outputs to inputs)

Quality of manufactured goods (number of defects and the rate of delay)

Number of employees for whom innovation is a performance measure

Total shareholder return

Other

We don’t measure innovation

64

54

32

30

25

25

15

11

2

8

What are the main drivers for your organisation to use outsourcing partners? Select up to three.(% respondents)

Cost cutting

Ability to focus on core competencies

Speed in getting products to market

Flexibility to adjust production

New sources of innovation

Diversification of sources of production

Proximity of production to customers

None of the above; We don’t use outsourcing partners

Other

Don’t know

60

59

39

31

22

19

9

4

2

1

41

37

13

3

2

5

Little or none

About one-quarter

About half

About three-quarters

All or nearly all

Don’t know

In the past three years, what proportion of innovation at your organisation has been derived from external partners, in your estimation? (% respondents)

14

54

22

6

4

Not at all

Small extent

Moderate extent

Large extent

Don’t know

In the past three years, to what extent has your organisation solicited innovation and ideas on an open-source basis (ie, from organisations or individuals outside your network of external partners)? (% respondents)


Appendix: Survey results Outsourcing innovation

A manufacturer’s perspective

57

35

4

4

Increase

Stay the same

Decrease


In the next three years, do you expect the proportion of innovation and ideas in your organisation that come from external partners to increase or decrease? (% respondents)

59

33

2

5

Increase

Stay the same

Decrease


In the next three years, do you expect the proportion of innovation and ideas in your organisation that come from open sources to increase or decrease? (% respondents)

5

57

20

3

7

9

None

1 to 5

6 to 20

21 to 50

More than 50

Don’t know

How many external partners does your organisation collaborate with in sourcing innovation and ideas? (% respondents)

40

42

10

8

Successful

Neither successful nor unsuccessful

Unsuccessful


Do you think your organisation is successful at capitalising on external sources of innovation? (% respondents)

What is the biggest barrier for your organisation to source innovation and ideas from external partners?(% respondents)

Lack of trust of external partners

Communications barriers with external partners

Closed culture among employees who see their ideas as career-building tools

Internal communications barriers


Other

31

20

18

13

10

8

What would most facilitate an increase in the amount of innovation and ideas derived from external partners, in your view? (% respondents)

More face-to-face meetings with external partners

More channels for communication with external partners, such as e-mails, instant messaging, videoconferencing, and collaborative project system

Contractual agreements for the sharing of intellectual property

Sharing office space with external partners


Other

27

26

26

11

7

3



What changes in organisational structure would make capitalising on external sources of innovation easier, in your view? Select all that apply.(% respondents)

Use of cross-functional teams and/or communities of practice

Dedicated manager responsible for fostering exchange of knowledge and ideas with external partners

Secondment of partner representatives to your organisation

Secondment of employees to partner organisations

Other


57

47

39

33

1

6

85

10

5

Yes

No

Don’t know

Is an open culture, in which knowledge is shared, essential to capitalising on innovation from external partners, in your view? (% respondents)

What technologies and systems would make capitalising on external sources of innovation easier for your organisation? Select all that apply.(% respondents)

Collaborative project system

An intranet accessible by external partners

A company website soliciting proposals from any organisation or individual

A corporate wiki (a collection of web pages that can be edited by a group)

Videoconferencing sessions

Use of open-source websites such as InnoCentive and NineSigma

Use of 3D virtual worlds such as Second Life

Other


68

41

32

26

25

20

8

1

7

What investments would your organisations need to make to facilitate the sourcing of innovation from external partners? Select all that apply.(% respondents)

Investments in technology

Investment in training courses

Investment in change management consultancy

Investment in additional staff

Other


57

47

44

35

2

7

In the past three years, has it become easier or harder to hire talented employees that can deliver innovative ideas?(% respondents)

Much easier

Somewhat easier

No change

Somewhat harder

Much harder

Don’t know

3

20

18

39

19

1




51

38

10

More successful in-house

More successful externally


Do you think your organisation would be more successful at sourcing ideas and innovations in-house or externally? (% respondents)

What parts of your organisation’s business do you think would benefit most from outsourcing innovation and ideas? Select up to three.(% respondents)

Research and development

Product/service development

Process efficiency

Supply chain management

Operations

Cost controls

Sales and marketing

Product/service quality

Don’t know

Other

None of the above; We would not benefit from outsourcing innovation

53

38

35

32

29

24

21

17

1

1

2

Loss of intellectual property to competitors

Loss of control of intellectual property to partners

Erosion of in-house skills and talent

Loss of motivation for R&D teams

Dilution of in-house creativity

Employees may leave to start ventures that compete with your organisation


Other

What would be the main danger to your organisation of deriving more innovation and ideas from external partners?(% respondents)

25

24

16

11

9

6

6

3

Overall competitive advantage

Greater speed in getting products to market

Cost savings

Access to new pools of talent in countries such as India and China

Diversification of products


What would be the main benefit to your organisation of deriving more innovations and ideas from external partners?(% respondents)

29

26

15

13

13

3



What technologies/techniques does your organisation use to protect its intellectual property when collaborating with partners? Select all that apply. (% respondents)

Passwords and encryption

Limiting the amount of data that leaves the organisation (eg, only submitting the digital equivalent of blue-line drawings to partners, not full CAD drawings)

Discrete systems/project areas for collaboration protected by firewalls

Read-only hardware devices and documents

Digital/enterprise rights management software

Water-marks on design documents

Hosting partners in-house to negate need to information to leave site

Time-lapse document protection

Forensic copying of data storage devices

Other

49

49

33

30

26

20

17

12

8

6

About the respondents

In which region are you personally based?(% respondents)

Asia-Pacific

Western Europe

North America

Middle East and Africa

Eastern Europe

Latin America

33

28

24

7

5

2

What is your primary industry? (% respondents)

Industrial manufacturing

Healthcare, pharmaceuticals and biotechnology

IT and technology

Consumer goods

Automotive

Other manufacturing, please specify

Chemicals

Aerospace and defence

Telecoms equipment

21

18

15

14

8

8

6

5

4




44

12

16

8

19

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more

What are your company’s annual global revenues in US dollars? (% respondents)

What is your title?(% respondents)

Board member

CEO/President/Managing director

CFO/Treasurer/Comptroller

CIO/Technology director

Other C-level executive

SVP/VP/Director

Head of Business Unit

Head of Department

Manager

Other

4

20

7

4

5

14

7

13

20

8

What are your main functional roles? Please choose no more than three functions.(% respondents)

General management

Strategy and business development

Operations and production

R&D

Finance

Marketing and sales

Supply-chain management

Customer service

Procurement

IT

Information and research

Human resources

Risk

Legal

Other

37

35

28

23

17

16

14

11

8

8

6

3

3

2

3

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in the white paper.

LONDON26 Red Lion SquareLondon WC1R 4HQUnited KingdomTel: (44.20) 7576 8000Fax: (44.20) 7576 8476E-mail: [email protected]

NEW YORK111 West 57th StreetNew York NY 10019United StatesTel: (1.212) 554 0600Fax: (1.212) 586 1181/2E-mail: [email protected]

HONG KONG6001, Central Plaza18 Harbour RoadWanchai Hong KongTel: (852) 2585 3888Fax: (852) 2802 7638E-mail: [email protected]

report innovation the economist

Business

3d virtual

siemens plm

economist

collaborative

total shareholder

collaborative

hire talented

dedicated