Which type of hidden cost is becoming the most apparent to companies who have outsourced?

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Why would people want to outsource their product development?
Does outsourcing always reduce costs?
What are the typical hidden costs of a product development project?
Losing control of the Intellectual Property
Losing knowledge
Losing control of deadlines
Management and coordination of expertise
Poor communication
Unplanned and unforeseen risk
Subpar contract performance
Misaligned visions
Outdated outsourcing strategy

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Abstract

One of the strongest and most sustained trends within business over the last ten years has been the trend towards outsourcing. With increased fervour and conviction, corporations have sought to reduce costs by contracting out services and activities traditionally provided in-house. The rationale of this movement is simple and compelling. If contracting something out is cheaper than doing it yourself, outsource. That way you not only save money through greater efficiency but also gain effectiveness by focusing more clearly on those things you can do better in-house. The benefits are obvious. In this paper John Hendry argues that, supported by political ideology, management fashion and short-term responses to recessionary pressures the benefits of outsourcing have become so obvious that they have hidden the very real associated costs. He first reviews the economic logic and competitive reasoning in support of outsourcing and show how these have been reinforced by both political ideology and management fashion. Drawing on an informational model of organisation, he then explores what is lost when an activity is outsourced and how this loss might affect the capability of the organisation. He concludes by arguing that any move towards outsourcing should be assessed in terms of its impact on a range of organisational characteristics and on the dynamic balance between these.

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Business owners wanting to develop their own products are often cautious about making the jump. One of the major reasons for this is how much it costs to develop a product.

It's no secret that outsourcing your product development is going to cost a significant amount of money. So how can you figure out if it's going to be too much?

What are the hidden costs of outsourcing product development? This is the question we answer in this article.

Why would people want to outsource their product development?

It seems crazy that any business would want to outsource an integral part of its processes.

After all, innovation and creativity are at the heart of creating solutions that will enable a company to thrive.

So why would any sensible business want to get outside help for this?

There are lots of good reasons…

Outsourcing allows you to scale up your development efforts. If you're building a capability in-house and it's growing well, it will be much easier to progress when you have the resources in-house. If you're growing from a standing start and want to take your product development capability up a notch or two very quickly, then outsourcing is a great way of getting what you need in place fast.

This often comes alongside a desire to focus more on the strategy of the business.

And that makes sense. Product development is about solving problems, but it doesn't stop there. It's also about forecasting what the market needs further down the line and innovating your offering around that.

That can be really hard for internal teams who are focused on delivery, and it can generate a lot of noise.

Outsourcing allows you to bring in external expertise that will help you cut through that and focus on the strategic picture, all without needing to hire new staff.

Accelerating time to market is another big reason why companies outsource their product development efforts. It's hard to do that in-house because it takes staff getting tied up in data gathering, design and other activities that take longer than you might think.

By finding someone else who can build your engineering team very quickly, you can make your product development process much more rapid.

Of course, this will depend on what type of product or service it is. If it's a game-changer that requires complex integration, then outsourcing might not be the best option.

However, for most companies, there are all sorts of reasons why outsourcing is an attractive option, which we'll cover in a separate article.

Does outsourcing always reduce costs?

No. The costs of product development (and research and development) usually increase over time because of the many unknowns that are involved in these projects.

Anyone who has ever worked in product development will know that there are huge costs involved upfront, but these reduce over time as more is learned about what works and what doesn't. The more certain things become, the more accurate cost estimates become.

However, this is where outsourcing can come unstuck. Many companies look at the costs involved in product development and see them reducing as time goes on thanks to learning curves.

So, they think that if they outsource their product development, these cost reductions will somehow be passed on to them without any additional effort - or risk.

This isn't always the case.

What are the typical hidden costs of a product development project?

Most companies looking to outsource product development aren't aware of the hidden costs that come with it. They're either trying to compare apples and pears, or just don't know these costs exist at all.

Let's do a dive into some of the most common hidden costs of outsourcing product development (in no particular order).

Losing control of the Intellectual Property

You might lose control of all your IP or IP related to future products if you outsource too much work away from in-house teams. It might be OK now but as time goes on, you may find that more and more of your patents are owned by the outsourcing partner.

To mitigate this risk, you need to be very clear with the outsourcing partners about IP ownership. If you outsource your product development to Innovolo, 100% of the IP remains yours. We will not normally develop our own IP in the course of product development, but if we do it will always be done under licence from you.

Losing knowledge

Outsourcing product development can easily result in losing all that wonderful internal knowledge that flourishes in-house thanks to the people you have working for you.

Yes, you get external expertise from the outsourcing partner, but this often lacks real-world industry knowledge gained from experience. There are various measures you can take to help mitigate this, including training and mentoring.

As product development teams grow bigger, they tend to become more efficient because different members will be able to share information more easily. This is generally known as 'economies of scale'.

Suppose you outsource your product development to an external partner like Innovolo. Your team will not grow (because you don't need it to), however, our augmented approach means that we work alongside you to facilitate knowledge sharing that will help you grow your team more quickly.

Innovolo is here to help you leverage all that internal knowledge you have, not pinch it! The key is to ensure that your outsourcing partner has the same goal as you -developing a truly awesome product that will generate a good ROI.

Losing control of deadlines

It's easy to get carried away when working with outsourcing partners. They often give extremely attractive proposals based on their ability to work faster than you can, so it seems sensible to choose them over local teams.

What happens next is that deadlines are missed and the project drifts on a little bit longer - always a dangerous proposition.

This is why we will only ever give you an estimate for how long a project will take. If it looks like we will miss a deadline, we will let you know right away and advise on what needs to be done to get back on schedule.

You cannot afford for projects that are critical to your business not to meet deadlines. That's why our experienced project managers will keep a decisive eye on the ball, ensuring that things stay on track.

Management and coordination of expertise

You will be responsible for the successful management and coordination of all your outsourcing partners. This can be very time-consuming.

The team at Innovolo has dedicated project managers that will be assigned to your specific project, taking all the heavy lifting off your shoulders.

The project manager assigned to your project will be in direct contact with you. He or she will act as the liaison between your internal team and ours, ensuring that all milestones are met on time, and everyone is happy with how things are progressing.

Managing outsourcing partners takes up a lot of management time, but it's something Innovolo can help you overcome. It's all part of our package, leaving you free to get on with what you do best - keeping your business running smoothly while we make sure the product development for your products is taken care of.

Your management time spent managing us will be minimal compared to the time it would take chasing around after multiple outsourcing partners. We take all the hassle out of outsourcing product development.

Poor communication

When you outsource to one company, the communication between your internal team and that external partner can be poor. Where multiple companies are involved in more complex product developments, then it's easy for things to get lost in translation.

Poor communication can cost you time and money, especially when something is misunderstood or simply not communicated at all.

We use a tried and tested methodology to ensure all communications between your internal team and ours are clear, concise and effective.

Innovolo's experienced project managers will talk you through our approach from the start of the process, ensuring that everybody is up to speed on procedures from day one. This way there won't be any misunderstandings later on down the line and you can be sure that everyone is on the same page at all times.

We will always keep you in the loop, so there won't be any surprises. This way you'll have peace of mind knowing that your project is being handled efficiently from start to finish.

Innovolo's approach ensures efficient communication between your team and ours, ensuring that everybody is on the same page throughout the project.

Unplanned and unforeseen risk

The potential for unplanned and unforeseen risks associated with product development is limitless.

Innovolo uses a tried and tested project management methodology to minimise risk early in the process, removing these unexpected problems from your plate entirely.

We will use our Discovery Phase to analyse your project and identify any risks that could impact it.

This step provides important insights that are used to create a detailed plan. The plan includes contingency plans for any possible challenges that could come up, which minimises the chances of any last-minute stress or problems.

Subpar contract performance

The risk of having a product development project that is not done well is a big issue when you outsource the work.

The wrong choice of an outsourcing partner can lead to subpar contract performance. The work that has been outsourced is often done at a lower standard, taking far longer than expected and costing you more money.

We encourage dialogue that is open, transparent, and sometimes uncomfortable. By doing this, our team ensures that nobody is doing anything they aren't happy with, yourself included.

We are dedicated to getting the job done right every time, which means you won't have to constantly go over the project and check for quality. If something is not up to standard, then it will be brought to your attention immediately so we can resolve the issue.

Misaligned visions

One of the biggest challenges your project can face is making sure your outsourced partner has a vision for your product that is in line with yours.

It's important that your vision is communicated clearly and concisely to all your outsourced partners, whatever their role in the project may be. This way you will have peace of mind knowing that they are always working on their parts of the project with your views front of mind.

Innovolo focuses on your vision from day one, ensuring that everyone is always working towards a common goal with your interests at heart.

Again, this comes back to carrying out that Discovery Phase. This step in the process ensures that we fully comprehend your objectives and that they are clearly communicated and understood by everybody involved throughout the project.

Outdated outsourcing strategy

It's crucial that you are on top of your outsourcing strategy, as the world is constantly changing.

A lack of innovation can lead to outdated strategies and processes, which in turn results in poor ROI.

Innovation is what drives new ideas and better solutions, leading to improvements throughout the product development process. It ensures that you get the most value for money and achieve better results.

Innovolo's range of services is designed to get you more ROI, ensuring that you are always moving forward and achieving your goals faster than ever before. If we think you aren't going to get the ROI that you want from a project, we'll let you know and explore a few options to choose from so that the ROI is maximised.

We ensure your product development process is always moving forward, staying effective and efficient all along the way.

Conclusion

Outsourcing product development can be a risky business. There are many potential pitfalls that you need to be aware of and take steps to avoid.

In this article, we've outlined some of the most common risks and how Innovolo mitigates them through our tried and tested project management methodology. We encourage dialogue with all stakeholders involved in the project so that everyone is kept in the loop and knows what is happening at all times. This way, there is less chance for any misunderstandings or misaligned visions.

Our team is dedicated to getting the job done right every time, ensuring that you are happy with the final product. If you're looking for a partner who will help you navigate these waters safely, contact us today.

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