Outsourcing Versus Innovation

For many businesses, innovation has been the key to growth and a prime vein for competitive advantage.  For one example, IBM’s range of inventions — including the magnetic stripe that is hard to remember living without, UPC price codes and laser eye surgery — all generated competitive advantages that allowed them to stay ahead of international competition that had the advantage of lower-priced labour.  IBM’s inventions, granted, generated efficiencies, but these innovations have been through the pursuit of creative problem-solving or throwing as many ideas out for consideration and development.

Over the last few decade, however, outsourcing seems to be a more prevalent strategy among larger firms instead than innovation. The immediate perception is that outsourcing is a matter than allows an organization to focus on its core products or services rather than preoccupying itself with functions that are less central to the organization's expertise or mission.  In many instances outsourcing occurred as jobs were created and added within the company due to innovation, but it has seemed over time that outsourcing has become a larger preoccupation in an effort to cut costs.

The perception is that such cost cutting measures will improve profit margins and satisfy one measure of efficiency, however, short-sighted that measure may be.  The cheap certitude that comes from achieving favourable financials for the current fiscal year or the next quarter, however, overlooks the advantages of investing regularly in terms of financial losses in risk and innovation.  The short-term variables that go into that measure of an organization's immediate success bears, however, little relation to the long-term success or health of that company.

A steady of infusion of new ideas to broaden a company's horizons and prospects is far more indicative of a company's future health than a current measure of profit and losses.  Choosing to measure a company's standing by this alone and making decisions based on achieving the temporal ideals is dangerous despite the perceived risk aversion that may motivate it.  Perhaps it is an argument that sounds familiar to those who are less than willing to laud CEOs for maximizing the bottom line for the benefit of stockholders instead of taking a longer-term view that contributes to the sustainability of the organizations beyond a relatively short period of time.  It seems that as a business grows, there is the risk of a stagnancy that occurs when bean-counting becomes a higher priority than entrepreneurship and innovation.  Those larger companies that look to cut costs by methods including outsourcing or more inclined to by a start-up after it has proven to be successful rather than cultivating a culture of risk and, consequently, innovation.  Such an approach to innovation -- one where new ideas or companies are bought for the successes they achieve rather than encouraging it within -- seems a lot like the thinking behind the assembling of a fantasy sports roster.  On paper it may look good, but the reality may be that the fit between the two organizations may not be as ideal as hoped.

Rather than reducing the exposure to risk (as they perceive it), businesses need to indulge in risk by supporting and nurturing innovation within the business.  Adopting a narrow view and over-specializing will ultimately truncate a business's vision, potential and ultimately its future. While Eastman Kodak sowed the seeds of its own demise by not properly valuing the innovations and patents it generated in the field of digital photography, other businesses make the mistake of not investing in the risk and failure cycle that comes with attempts at innovation but ultimately leads to discoveries that mesh with the goals, mission and infrastructure of the company.  Businesses need to maintain the appetite for risk and innovation that marked their launch rather than retreat to the false comfort of short-term measures of efficiency and striving to achieve standards that comply with those snap shots of a company's standing at a given moment and cutting costs as a means of achieving a false measure of health or efficiency instead of investing in innovation.