Human resources, call centers, customer service, finance and accounting. Companies have offshored these processes for years. But what about research and development? Is it a good idea? How much of the R gets outsourced relative to the D?
The burst of the economic bubble in 2008 led to corporate downsizing in R&D activities, as companies focused on their core competencies to keep their lights on. The subsequent recovery rekindled development and exploratory activities, but this time enterprises are enlisting the help of outsourcing providers.
Today, outsourcing customers “are increasingly looking at speed to market and are open to handing over the entire product lifecycle responsibility, including conceptualizing the product and its go-to market strategy, designing the technology architecture and delivering the integrated product,” reports Dr. Anurag, Wipro’s CTO.
To date, he says development-related outsourcing has proceeded much faster than research-related outsourcing. Currently, the IT industry, particularly software application development, has produced primary buyers for outsourcing.
Benefits of outsourcing R&D
Outsourcing R&D has “benefits beyond cost arbitration,” says Dr. Anurag. First, buyers want to tap into the databases available. He says external information agents have deep databases on specialized functions and industries, which makes the information retrieval cost-effective.
Outsourcing R&D also reduces turnaround time, because the company can focus on marketing and outreach while the outsourcer is collecting the specialized data. “These activities can run in parallel,” Dr. Anurag points out.
Indian providers like Wipro use PhD-trained subject matter experts. They have deep experience and honed R&D skills. “Indians have access to large talent pools of highly educated researchers,” Dr. Anurag notes.
Outsourcing R&D also “plays a vital role in global collaborative development skills of the provider’s and buyer’s employees he adds. They would learn how to communicate, engage and resolve to build relevant solutions in spite of distant geographies, varying cultures and thought processes. This also value adds individually in their global project management capabilities, he points out. They get exposed to a wide array of research tools, methodologies and best practices, which they can continue to use after the R&D project is complete.
What types of R&D projects are best suited for offshoring?
Dr. Anurag says research that has the following features is best suited for offshoring:
- Areas where the organization has a limited research history
- Areas where in-house research facilities are inadequate
- Areas where the outsourcer has wider access and expertise in third-party resources
- Topics that have information that only research brokers and information agents can access
- Topics where specialized resources are essential for best results
- Areas that have local innovation need and expertise
- Tasks that have a multi geography need as the outsourcer can optimally facilitate the distribution of tasks
The risk associated with outsourced R&D varies from solution to solution. In some it could be financial risk like part investment and recovery through market-linked payments. In others, it could be manufacturing risk like yield, etc.
Wipro has enablers such as CDMS (collaborative design, manufacturing and sustenance) and Silicon Prototyping services that provide a model to recover the risk the provider takes; the rewards can come from payments associated with the supply end of the service.
How a typical global delivery model works
Dr. Anurag says R&D outsourcing success occurs when the outsourcing provider “acts as an extendable R&D arm, getting involved right from product definition to actual product development.”
Typically, U.S.-based companies retain intellectual property rights when outsourcing R&D. Dr. Anurag says the organization holds all the technical information required for the research, giving the outsourcer access to confidential market data.
Together the partners design the goals of the research and its timeline. The outsourcing model they select should eliminate as much complexity as possible and encompass co-creation and innovation.
To simplify the model, both parties must analyze all characteristics that affect the research activity including the organization’s culture, customer demand requirements, competitor advantages and market characteristics.
For seamless collaboration, there must be appropriate knowledge transfer, experimentation, simulation situations, skill exchange, coaching and, most importantly communication. “These will ensure the bridging of any gaps,” explains the CTO.
A good incentive mechanism works to overcome any trust deficit between the two while giving both parties a sense of accountability to each other.
Selecting the proper partner
Wipro suggests enterprises use a global sourcing model (GSS) to evaluate the sourcing options available. The GSS identifies programs suitable for each specific R&D program and an appropriate outsourcing partner because its rigor asks the requisite questions regarding their capability, interest and intention.
Further, the outsourcing partner must have suitable enablers to foster collaborative research and development. For example, Dr. Anurag says companies “must have a strong technology partner network to gain insights into next generation technology and roadmaps.”
Wipro has successfully collaborated with numerous academic and industry research institutions and has its own Centers of Excellence that provide an apt research environment, Dr. Anurag adds. Wipro proactively invests in platforms to build expertise and enable customer innovation so customers can go to market with highly differentiated products. The goal is to provide outsourcing buyers with a first-mover competitive advantage or a preference in their customers’ mind, which also leads to higher top-line revenue growth. Some of the key investments include, setting up a product compliance and certification lab, called Tarang, building mobility research and development labs, being a member of multiple industry forums like OHA, Autosar and Continua etc. to enable co-innovations among others.
The bottom line
Outsourcing buyers who want to save money and have bright minds work on their project in centers of excellence or specialized labs should consider offering their R&D projects.