R&D Outsourcing: Opportunities for Small and Medium Enterprises (SMEs)?

Do companies need to keep all their development activities in-house or could they find suppliers to help them become more efficient?

What is standard practice in manufacturing and production, is still not being discussed too much as for the internal development capabilities. Over the last decade is has become normal to outsource parts of the production process or the complete plant and hand this work over to suppliers. This went as far as some companies do not own any factories anymore, but still run and manage global and efficient Supply Chains.

This widespread and often successful method is rarely applied to product development, despite the fact that, according to research, the world market for outsourced R&D services was worth over 36 billion USD in 2015. Who has the courage to admit that suppliers could take over the parts or the complete product development work? Today many reliable R&D service providers exist in the market and many of them have a proven track record. Some companies may be happy to use development suppliers to take over parts of the development work, but the uncertainty remains how to best approach the topic of R&D process outsourcing in the first place.

One proven method is to start with a core/non-core analysis of the product elements. Take the current products and analyse their elements to determine if the development activities are core to the business or not. Even if all development activities will be kept internal, this is an excellent approach for clearly understanding the importance of each development task. On this basis it can be decided if and when parts of a product or the product itself can be passed on to suppliers for development and maintenance. Also, if at some point the development budget becomes subject to constraints, the company will be ready to act to increase its development productivity.

For small and medium enterprises (SME), there is another interesting perspective. SME often pursue focused niche strategies and quite often they are successful that way. While the focus on core competencies makes sense, companies might miss important technological developments. If they offer their competencies to other firms as outsourcing partner, an SME could broaden its market client base and market and be closer to the technological developments of other firms at the same time.

The author: Andreas Rülke is a management consultant focusing on product development and innovation management. For over 23 years, he has been supporting high-tech companies. He has a proven track record in numerous international projects in Germany, Sweden, UK, US and Switzerland. His expertise includes R&D and product strategy, product portfolio optimization and roadmaps, and technology and product development. Andreas Rülke (Dipl.-Ing, MBA) teaches R&D and innovation management at the Swedish Royal Institute of Technology (KTH) in Stockholm, among others.