R&D: In-house vs. Outsourcing—Making the Right Product Development Decision

Picture this scenario. The sales team tells you that eight of 10 customers are asking for X product. That’s something you know you should be able to make, and you think you can, but there are some holes in your capabilities. Filling those holes requires expanding your technology in one or two process areas.

“Having everything developed by your in-house R&D department risks speed to market and dramatically increases risk of completion.”

Or perhaps it’s a material you’ve never worked with or even an entirely new product you’re going to have to figure out how to make. Now it becomes an R&D problem to create it within certain management directives. For example, “we’re only going to be able to sell it for Y dollars, so don’t come back with something that costs double that to produce.”

Many companies have traditionally approached this problem the same way: by turning to their in-house R&D team and tasking them with developing the needed product, process, or component. But that’s not always the optimal solution. Sometimes, outsourcing to a third party under contract, or accessing the needed technology via licensing from someone who already has the expertise in the area you are seeking and may only be using it in a non-competitive way, can provide a quicker, more cost-effective solution, and perhaps do so with less risk to ultimate success. The best approach needs to be considered by management on a case-by-case basis, balancing each of these factors.

Let’s look at each of these options separately:

Russ Rogers recently joined Chief Executive Network (CEN) as Managing Director of the Manufacturing Group. CEN is the peerto- peer membership organization exclusively for manufacturing presidents and CEOs, devoted to helping them improve their effectiveness and gain competitive advantage by learning from the experiences of their peers. Russ has deep expertise in manufacturing management: As divisional president of Essentra Porous Technologies, Russ oversaw growth of the business from $33 million to $164 during 11 years through a combination of product and technology diversification, business model change and globalization. The business grew to include six factories with customers in more than 64 countries and approximately 550 employees. Russ can be reached at [email protected] or 804-234-4024.