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

IRONING OUT THE INTELLECTUAL PROPERTY RIGHTS ISSUE
Intellectual property is a key issue that must be considered carefully before an approach is decided upon, any contracts are signed for outsourced development or licensing, and certainly before any related product is sold. If you use your own team, you may be able to preserve your new IP as a trade secret and never incur the cost and limited protection duration of patenting.

“Deciding which approach will be best for you should be done on a case by case basis.”

Just provisional patents can cost thousands of dollars to establish, with many thousands of dollars down the road to finalize and file, while still having limited time periods and geographic scopes of protection. So it may be preferable to try to keep IP as a trade secret as long as possible—this will be heavily dependent upon your internal controls and company culture. If you outsource the innovation, the contract will have to be carefully written to preserve your intellectual property interests. When licensing, careful consideration must be given to the deal structure to ensure some degree of exclusivity is provided with the license to deliver long-term value and competitive advantage.

Deciding which approach will be best for you should be done on a case by case basis. The approach to your decision should not simply be to fall back on what you’ve always done before, but decide only after considering:

  • Your required speed to market
  • Development budget
  • The prioritized pipeline your internal team is already working on, and matching internal projects to core competencies
  • The type of skill sets you have in-house or are willing to invest in hiring or developing for now and further projects in the future
  • Risk of completion success, and how the different methods/options can reduce risk and improve outcome
  • Avoiding overly straining your resources so that you have them available for additional projects that may come along at any time that fit your core competencies
  • Intellectual property position

Overall, it’s important to ensure that the decision you make meets both your current and future strategic needs and is not simply “the way things have always been done.” By exploring and utilizing all your options, you’ll be able to meet cost goals and fulfill the market’s product requirements, while maintaining your competitive advantage.

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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 russ@chiefexec.com or 804-234-4024.