By philwinder | April 13, 2016
When I think about my business, I often end up at one fundamental business truth. The goal of any business is to make profit. This is achieved by either making more money or reducing costs. Often, business activities are outsourced to experts in order to achieve one of these. For example, I outsource my accounting to an expert, in order to a) ensure that I’m being tax efficient (save costs) and b) because I lack the expertise and the time/desire to obtain it (save costs).
Most traditional outsourcing routes (e.g. accountancy, recruiting, etc.) affect either making more money (e.g. marketing) or reducing costs (e.g. recruiting). Outsourcing research and development is different, in that it can benefit your business in both of these ways.
Traditional research and development
Research and development is well justified within your commercial business. It creates new and improved products, improves operational processes and allows you to provide expert services to customers. The only way to deliver value to your customers, with the goal of making more money, is to first provide them with desirable products and services. These are developed through intentional, controlled, delivery-driven research and development. However, there are implicit costs hidden within.
First and foremost, research, and to some extent development, implies that it is at the forefront of its field. In order to produce breakthrough products you need breakthrough engineers and scientists. Because of the amount of pre-industry training that is required to educate these people, they are often hard to find. Once you do find them, they’re expensive. Aside from the costs of actually performing the research and development, there are extra hidden costs like pensions, tax, insurance, etc. Permanent staff also require an ongoing commitment.
Other than recruitment issues, getting staff up to speed is also a problem. Several books, like The First 90 Days, have speculated that it takes around three months for a new member of staff to be productive.
One simple answer to many of these problems is to outsource your research and development.
By outsourcing, you can reduce your costs in a number of proven ways. Recruitment and ongoing permanent commitments are not necessary. This will save you tens of thousands in recruitment costs alone. There are no staff to maintain and retrain. There are no overheads. When there is no need for development, there are no ongoing costs.
There are no delays in recruiting the right staff. When outsourcing to a professional research and development business, valuable products can be engineered from the outset. There is no new-recruit delay, because the staff are already experienced and well trained. The time-to-market is also reduced due to quicker start-up times.
Contracts can be written in such a way that research and development time is time-boxed. In these types of contracts, this means that the time allowed to work on a project is fixed. This often works well with research projects, where the delivery items cannot be well defined. I have worked with many clients that appreciate how this makes predicting costs much easier. It allows them to perform an accurate cost-benefit analysis. On some occasions it just hasn’t made financial sense to go ahead with the research, because the costs outweigh the potential for value.
The focus should always be on delivering working products. Irrespective of the amount of time spent on a project, there should always be a deliverable. This mitigates against failure. You should always have some value for your money. Which, in turn, can be delivered to your customers and clients.
A hybrid approach
In reality, businesses often choose a middle ground. Where some proportion of the research and development is outsourced, to take advantage of external expertise and efficiency. This also has the advantage of retaining and transferring some of the gained knowledge to within your business.
Outsourcing research can be more difficult than outsourcing development, because the required expertise has to be greater. The relationship between you and the research business is also different to a typical development engagement. You will often find your employees working directly with the employees of the research business.
When compared to traditional external services, outsourcing research and development has clear advantages. It can both save costs (a.k.a. time) and make money, by reducing overheads and producing new or improved products and services.