Innovation is the key to a company’s sustainability, and in perpetuating a competitive advantage in the market. It is easy to find ways to reduce cost, but it is an art to develop a new or improved product that the market will value. There are many ways to approach product design, polished and improved over product launch cycles, to arrive at what works best for a specific product category or industry. The challenge to businesses is that adequate development of a product requires investment, in both time and cash, before they can realize a return.
Outsourced product development houses help maximize ROI, though usually at a higher up-front cost than handling development in-house. Developing the product internally can save cost, but typically stretches the internal team, pushing timelines out to save cost. Both methods have their benefits, but how do you know when to outsource product development and when to manage internally?
When to Develop Products In-House (Make)
It is not possible to outsource all projects. The ever-increasing level of connectivity between disciplines makes internal team members valuable. Without consistent process and design specifications in place, it is difficult to transfer “tribal knowledge” outside. Additionally, for products requiring specialized test equipment, developing the product externally may be more difficult.
Moreover, when a highly specialized technology is the keystone of the new product, the learning curve might be too long for an outside partner. It is important not to discount an external firm’s expertise in a related area, though, before committing taking on the development project in-house.
When to Outsource Product Development (Buy)
The first time a company outsources product development can be unsettling. They must relinquish some control over the project execution, but the benefits can far outweigh that discomfort. Outsourced product development is ideal when a client needs:
1. To access multiple engineering disciplines
When externally developing a product, the contracted firm expands the project team’s expertise, on a “rental” basis without the client having to absorb full-time overhead for a single project. This model provides on-demand access to experts in multiple disciplines at a fraction of the cost of a full-time equivalent. They can receive general information, and leverage the team’ collective experience to develop specific product solutions and Minimum Viable Products (MVPs) to aid in the packaging design and concept approval early in the development cycle.
2. To manage realistic designs that may require certification
When bringing in an external partner early in the project, the objective, third-party view of the product by a firm capable of aiding in the design for manufacture analysis aids the Ideation and Conceptualization phases. This benefit avoids the gradual narrowing of perspectives over time that discount other ideas. Also, with a contractor experienced in regulations (either in the hiring firm’s industry or a similar one), the contract firm’s expertise in that area reduces the internal team’s burden, especially if the regulatory landscape is outside the core competency of the internal team.
3. To meet aggressive deadlines
The most significant benefit of outsourcing product design is when a company faces an aggressive deadline. The incoming firm can move quickly due to contractual obligation as well as the lack of distraction the internal team would have. An ideal external partner can navigate the regulatory space and complete the project much faster than handling it internally.
Summary
Companies most familiar with new product development know that that path to designing a new product is far from a straight line. The decision to outsource product design is attractive, in that it offloads the internal project team from the headaches that can arise from unplanned design challenges. Though the effective hourly rate of outsourcing is higher than an internally-quoted cost, the development time is often much less, making the total spend significantly less than managing the project in-house. Employing on-demand expertise provides higher value and more flexibility per dollar invested.
There are two sides to any contract; a hiring company has to support the external team by providing access to product experts and committing to rapid issue resolution. The best way to do this is to bring in a firm with an Agile project management approach. Not only will this approach push the project to completion quicker, but it fosters a collaboratively-developed product instead of a conflict-infused one. This method allows more ideas into the process to improve optimization and has the internal technical experts included in the process to champion the product to the internal management team.
