Report Innovation The Economist

Outsourcing innovation
A manufacturer’s perspective
A report from the Economist Intelligence Unit
Sponsored by Siemens PLM Software


Preface

Outsourcing innovation: A manufacturer’s perspective
is an Economist Intelligence Unit report, sponsored
by Siemens PLM Software. The Economist Intelligence
Unit bears sole responsibility for this report. The
Economist Intelligence Unit’s editorial team executed
the survey, conducted the interviews and wrote the
report. The findings and views expressed here do
not necessarily reflect the views of the sponsor. The
research drew on two main initiatives:
We conducted a wide-ranging online survey in
February-March 2008. In all, 305 executives took part.
To supplement the survey results, we also
conducted in-depth interviews with senior executives
and independent experts knowledgeable about
outsourcing innovation.
The author of the report was Sarah Murray and the
editor was Clint Witchalls. Mike Kenny was responsible
for design and layout.
Our sincere thanks go to the executives who
participated in the survey and interviews for sharing
their time and insights.

May 2008

© The Economist Intelligence Unit 2008 1


Executive summary

T
oday, few brand owners make their own goods. The term “innovation” is generally applied to new
Instead, they hand this over to others and products and services. Most companies measure
concentrate on devising, designing, advertising innovation by counting the new products and
and selling their products. However, while outsourced businesses they launch. The second most popular
manufacturing was once pursued largely to cut measurement method is to add up the revenue
costs and allow organisations to focus on activities growth from these launches. Counting the number
that added value to their output, companies are of patents filed comes in a distant third, while some
recognising that external partners may also have the manufacturers still do not measure innovation.
ability to innovate.
With skills in short supply across the world, Skills shortages will increase the need to look
companies are not only looking to suppliers in their externally for innovation. The largest group of
own countries for product and process innovations. respondents reported that in the past three years it
They have also recognised that, with engineering had become somewhat or much harder to hire talented
graduates declining in their home markets, they are employees who can deliver innovative ideas.
more likely to find their research and development
(R&D) capabilities in countries such as China and Cost cutting remains the biggest driver for
India, where thousands of young engineers are outsourcing. Most companies still use outsourcing
emerging from universities every year. providers to cut costs and to allow them to focus on
Yet, while the offshoring of R&D is becoming an their core competencies. However, a modest group of
increasingly popular model for large companies, respondents say they turn to outsource providers as a
when it comes to outsourcing, the potential loss of source of innovation.
intellectual property remains a worry. Moreover,
lack of proper communication channels between Most companies recognise the need to start
companies and their external partners can hamper the looking outside their organisations for innovation.
flow of knowledge and ideas from service providers to The largest group of respondents report that their
their clients. organisations will increase the proportion of
This report is based on a global survey of 305 senior innovation and ideas that come from external partners
executives. The survey, which was conducted by the in the next three years.
Economist Intelligence Unit on behalf of Siemens PLM
Software, looks at the opportunities and challenges
associated with outsourcing innovation. We examine
the drivers behind the more open approach to
sourcing ideas that is emerging and the models
companies are embracing as they struggle to innovate
ever more quickly in order to remain competitive.
Some of the key findings are highlighted below.

2 © The Economist Intelligence Unit 2008


Use of external partners as a source innovation is Management strategies help companies use
not yet widespread. While some respondents say that external partners as a source of innovation.
their organisations derive one-half or more of their Most respondents believe that establishing better
innovation from external partners, the largest group communication channels with partners—both face-
of respondents agree that in the past three years to-face and virtual—would make capitalising on their
“little or none” of their innovation has come from ability to innovate easier. The majority of companies
external partners. believe that having an open culture in which
knowledge is shared is essential to capitalising on
Lack of trust remains the biggest obstacle to innovation from external partners.
outsourcing innovation. Fear of loss of intellectual
property is the reason many companies are reluctant
to turn to outsiders for innovation. However, many
respondents see technology as a way of protecting
intellectual assets.



Introduction

A
few decades ago, when companies thought and India. Our findings confirm this trend, with 39%
of innovation, it was with a view to improving of respondents saying that, in the past three years,
a product over a period of years. In-house it has become “somewhat harder” to hire talented
R&D teams would apply what they had learned and employees who can deliver innovative ideas, with a
gradually adapt products to meet new requirements. further 19% seeing this as “much harder”.
Today, that process takes mere months. However, the survey suggests that while most
As product lifecycles become more compressed and companies have a positive view of outsourced or
the complexity of the product development process open approaches to innovation and expect to obtain
escalates, companies are looking to broaden their more ideas from external sources in the next three
supply of new ideas. As a result, they are turning to years, many have yet to do so. The largest group of
R&D capabilities that lie outside their organisations respondents (41%) say that in the past three years
and embrace a variety of “open innovation” models. their organisation derived little or no innovation from
In the survey, 37% of respondents report that about external partners. Only 13% report that about one-
one-quarter of the innovation emerging from their half of their innovation came from these sources.
organisation in the past three years came from Lack of trust appears to be a major obstacle to
external partners. the willingness of companies to embrace the idea
As well as the need to speed up the time in which of turning innovation over to third parties. This was
they bring new products to market, the shortage of cited by 31% of respondents as the biggest barrier
skills in mature markets—particularly in fields such to the outsourcing of innovation, with 20% citing
as engineering and chemistry—is driving the need to poor communications with external partners. Almost
look for new pools of talent in countries such as China one-half (49%) of respondents see loss of intellectual
property to competitors and business partners as the
In the past three years, what proportion of innovation at
main risk in outsourcing innovation to partners.
your organisation has been derived from external partners, However, companies clearly recognise the
in your estimation?
(% respondents)
importance of external sources of innovation, with
29% of respondents seeing overall competitive
Little or none 41 advantage as the main benefit and 26% citing greater
About one-quarter 37 speed in getting products to market. The question
About half 13 for companies then is how they can capitalise on the
About three-quarters 3 benefits of sourcing innovation externally without
All or nearly all 2 losing their most valuable asset: their intellectual
Don’t know 5 property.

Source: Economist Intelligence Unit survey, March 2008.



The open innovation imperative

T
he concept of open innovation has attracted the What parts of your organisation’s business do you think would
benefit most from outsourcing innovation and ideas?
attention of many companies and academics Select up to three.
in recent years. Henry Chesbrough, a business (% respondents)

professor at the University of California, Berkeley, and Research and development
53
author of Open Innovation and Open Business Models,
Product/service development
argues that managers can tap into a vast pool of 38

knowledge and ideas, many of which lie outside their Process efficiency
35
organisations. Companies, he says, do not have to Supply chain management
originate research in order to profit from it. 32
Operations
This is something that Proctor & Gamble has 29
demonstrated. Over the past decade, the company Cost controls
has radically altered the way it sourced new ideas 24
Sales and marketing
and products, using the Internet and other methods 21
to turn to independent investors, universities and Product/service quality
17
suppliers.
Don’t know
Companies have long recognised that they cannot 1

do everything themselves. The whole outsourcing Other
1
movement, now decades old, is based on the idea of None of the above; We would not benefit from outsourcing innovation
handing over tasks such as manufacturing to third 2

parties to allow a company to focus on what it does Source: Economist Intelligence Unit survey, March 2008.

best, whether marketing, branding and selling or
managing customer relationships.
But while outsourcing and offshoring were used process efficiency.
purely as cost-cutting strategies, some organisations Part of the driver behind the desire to increase
are looking to gain more from their relationships use of external sources of innovation is the pressure
with external partners by tapping into their ability to to speed up product development cycles. In our
innovate. This kind of strategy is seen as a good thing. research, 26% of respondents believe that deriving
In this survey, the biggest group of respondents innovation from partners would help them get their
(57%) believe that the proportion of innovation products to market faster.
derived from external partners will increase in the “By and large everything goes much faster these
next three years. days,” says Steven Veldhoen, a vice-president in
Respondents highlighted a range of benefits from Booz Allen Hamilton’s Tokyo office and author of
deriving more innovation from external partners. Innovation: Is Global the way Forward?, a joint study
The largest group see this as enhancing their by Booz Allen Hamilton and Insead. “I do a lot of work
organisation’s R&D capabilities (53%), while 38% cite with automotive companies and the development
product and service development and 35% point to cycles are shortening all the time.”



At the same time, the pipeline of talent needed creating more jobs, the future supply of high-quality
to research and develop the innovations behind new labour coming into Western economies is going
products is shrinking in mature markets. Some 39% to slow dramatically,” he says. “And this could
of respondents report that in the past three years it potentially cause real problems.”
has become “somewhat harder” to recruit the kind of Open innovation strategies may fill this talent
skilled workers needed to deliver innovative ideas, gap. Proctor & Gamble, for one, believes its open
with 19% saying that this has become “much harder”. approach to sourcing innovation allows it to tap into
Growth in emerging markets is not helping, notes vast pools of skilled individuals. “We have about
Ian Brinkley, Knowledge Economy programme director 9,000 researchers internally, but if you look at the
at the UK’s Work Foundation. Mr Brinkley argues that, domain space those people play in and the number of
while companies once filled gaps with highly talented researchers who are out there in the world as a whole,
Asian engineers and scientists—many of whom stayed there are 1.5m researchers in that space,” says Bill
on after studying in the US or Europe—this may Metz, the company’s global business services external
become harder. business development manager. “So anything we
“If the quality of educational institutions in Asia can to do to tap into them expands our capacity to
goes up and their own high-tech industries develop, innovate.”



A variety of models

W
hile there is much discussion about the connect+develop website, where individuals or
need to take a more open approach to companies can respond to the needs the company has
innovation, the models being deployed by posted or submit unsolicited input. The task then is
companies vary dramatically, from the totally open for P&G to identify viable submissions to which the
approach, whereby companies solicit ideas from individuals offering them have the rights.
everyone from suppliers to customers, to the “captive Other examples of open innovation include
site” model in which companies establish and operate InnoCentive, an open innovation company that uses a
their own R&D centres overseas. website to offer financial rewards to people who solve
Proctor & Gamble’s version of open innovation specific criteria posted on the site, and Lego Factory,
involves accessing externally developed intellectual which allows the children that are Lego’s customers to
property, assets and know-how and, once it has design products.
identified a property, a trademark, a service or a Our findings suggest that tapping into open
capability, doing a business transaction with its sources of innovation in this way is something
owner. “One of the challenges we face as we get companies aspire to, with a large segment of
bigger is that it’s more and more difficult to grow respondents (59%) seeing an increase in the use of
organically through only your own internal R&D,” says open sources of innovation at their organisation in
Mr Metz. “So we’re turning to the outside to augment the next three years.
the capability that we have internally.” Although the concept of “open innovation” has
One of the ways P&G does this is through its attracted much attention, Tim Jones, principal of

CASE STUDY Shanghai, Bangalore and Munich. For a understand emerging trends, customer needs
General Electric and the start, it allows GE to tap into new pools of and unique challenges as we design new
technical skills, such as the analytics and products and technologies,” says Mr Little.
offshore research model modelling expertise in which India has great One example is a magnetic resonance
strength. imaging (MRI) system produced by the
Rather than turn to outsiders, General “It gives us access to the best technical company. Instead of retrofitting a system
Electric has embraced the offshoring talent around the world,” says Mark Little, that was designed for US customers, GE
model, expanding its research facilities senior vice-president and director of designed and developed an MRI system
globally. Headquartered on a 525-acre site research at GE Global Research. “Scientists in tailored to the China market.
in Niskayuna, New York, GE Global Research Munich, Bangalore and Shanghai wanted to “We can innovate, invent and design
now also has centres in China, India and work for GE, yet it was a major inconvenience global products faster, and get it right
Germany. This gives the company about to their lives to uproot their families.” based on our knowledge of these markets
3,000 researchers across the four facilities, At the same time, the centres allow and customers,” says Mr Little. “It is
with expertise ranging from electronics and the company to enhance its knowledge of about finding more of the best, brightest
computing to chemistry and biosciences. countries in which it would like to expand researchers who have first-hand knowledge
Two reasons lie behind the company’s its operations. “It puts us closer to growth of the emerging markets where we want to
decision to locate these facilities in markets where it is essential for us to succeed.”



Innovaro, a UK-based consultancy, argues that such as aerospace and pharmaceuticals. So the recent
confusion often surrounds the term “open”, and that Rolls-Royce investment in Germany is effectively with
the models are quite distinct from one another. “Open the state government—it’s not entirely a Rolls-Royce
source is free of intellectual property and that’s the facility.”
whole point of it,” he says. “Open innovation is all Often, it is users, rather than manufacturers, who
about trading intellectual property. If there’s no IP are from necessity the innovators. Eric von Hippel,
[intellectual property], then you can’t do the deal.” a professor at MIT Sloan School of Management and
For many companies, however, externalising author of Democratizing Innovation, cites the example
innovation means turning to existing suppliers and of Massachusetts General Hospital, which developed
other business partners. “I see it happening pretty a slow-acting syringe that releases a small amount
much everywhere,” says Mr Veldhoen. “It’s working of fluid containing antibiotics into the bloodstream.
with suppliers, getting best ideas from suppliers and This innovation would replace more expensive
working in a way that it’s not just about delivering, intravenous fluid bags and be better for patients.
but is also about sharing the best ideas.” “They designed and tested the syringe before calling
Mr Brinkley identifies an additional version of in manufacturers,” he explains. “So the users are
external innovation. “Some of the models are simply designing and testing the product—they are the true
joint funding or joint ventures, particularly in areas innovators in such cases.”



All talk and less action

W
ith companies such as P&G, Boeing, GE How does your organisation measure innovation?
Select all that apply.
and Dell continuing to capture headlines (% respondents)
for their open approaches to sourcing
Number of new products or businesses launched
innovation, many companies aspire to similar models. 64

As the survey indicates, most companies expect the Percentage of revenue growth from new products or businesses
54
proportion of innovation derived from either external Number of patents and trademarks filed
partners or open sources to increase. However, when 32
Time to market (cycle time)
polled on how much innovation has been derived from
30
these sources over the past three years, the results are Improvements in total-factor productivity (that is, the efficiency
of a firm’s operations defined as the ratio of outputs to inputs)
quite different.
25
Some 41% of respondents say that little or none Quality of manufactured goods (number of defects and the rate of delay)
of their innovation has been derived from external 25
Number of employees for whom innovation is a performance measure
sources in the past three years, while only a tiny 15
minority (2%) say that nearly all their innovation was Total shareholder return
11
externally sourced. More than one-half of respondents
Other
(54%) say that their organisation solicited innovation 2

and ideas on an open-source basis only to a small We don’t measure innovation
8
extent, whereas a large proportion (51%) agree that
Source: Economist Intelligence Unit survey, March 2008.
their organisation was most successful at sourcing
innovation in-house.
Part of the reason behind this mismatch between of terms.”
stated intent and actual activity may lie in the way However, a very real barrier to open approaches
companies define innovation—by the volume of new to innovation lies in many companies’ lack of trust
products and businesses they launch. The majority of in their suppliers. As a result, companies worry
companies in our survey (64%) measure innovation that they could lose control of their intellectual
this way. The second most popular method, cited by property. Respondents to our survey cite this as the
54% or respondents, is to tally the revenue growth greatest danger posed by a strategy of deriving more
from these launches, whereas 32% cite counting the innovation and ideas from external partners, with
number of patents filed as the method they used. 25% citing the potential loss of IP to competitors and
Yet such methods of accounting for innovation 24% citing loss of IP to partners.
may leave out other types of innovation and process These fears have been realised in some instances
improvements that occur at the hands of external where contract manufacturers have made the leap
partners. “When you look at automotive companies from supplier to brand owner, as Acer, a computer
such as BMW, GM or Toyota, they do open innovation manufacturer, have done. “Particularly in the
all the time—it’s just that they haven’t called it that,” computer world, you’re getting these weird-sounding
says Mr Veldhoen. “So there could be a mis-definition brands you’ve never heard of suddenly being available



CASE STUDY allows the company to solicit ideas for Consumer feedback allowed Dell to tailor
Dell’s customer product improvements and innovations the product to customers’ requirements
from online communities of Dell customers and launch the product extremely quickly.
crowdsourcing model
and potential customers. Once a user posts “By the end of May, we’d launched our
an idea or suggestion on the site, the first systems with Linux,” says Mr Pearson.
One of the strategies on which Dell built community can vote for or against it with a “Normally the product development window
its business was the ability to customise its simple click of the mouse. A forum section of in technology for hardware is 12 to 18
products using feedback from consumers. the site allows individuals to debate ideas in months. This was a software improvement,
So it comes as no surprise that the computer more depth. but that’s still a very quick turnaround.”
company’s model of innovation is based When, soon after the launch, visitors to Mr Pearson sees the model as an effective
heavily on tapping into ideas from its cus- the site suggested that the company should way of speeding up product improvements
tomers. offer the Linux operating system, hundreds and innovations. “It still makes sense to
To do so, the company started to of thousands voted for the idea. “So before talk directly with our business partners
investigate how it might connect with we launched the new product, we did a one-to-one in conference rooms, but only
customers online and find out more about survey on IdeaStorm and we had 100,000 if it is balanced with the real-time feedback
their complaints, requests and problems. people respond within a week telling us we receive from our customers,” says Mr
The result was IdeaStorm, initially a blog exactly what type of Linux they wanted Pearson. “Last year, we had more than two-
and now a website facilitating what is known and what type of support they wanted,” hundred million customer interactions, and
as “crowdsourcing”. explains Bob Pearson, Dell’s vice-president that’s a significant amount of feedback that
Launched in February 2007, IdeaStorm of communities and conversations. we can learn from.”

directly,” says Mr Jones. “Those companies have networks to facilitate collaboration, it is crucial for
grown by learning from the likes of Compaq and Dell, them to monitor and control the information that is
for whom they’ve been making products for years.” accessible via these networks. Options range from use
Worries over loss of intellectual property are of smart passwords to enterprise rights management
heightened when it comes to operating in certain software, which allows organisations to limit the
countries. “The big problem is China, where respect data individuals can access and to control what those
for intellectual property is less rigorous than individuals can do with the data.
elsewhere,” confirms Mr Brinkley. “And you can never Almost half (49%) of respondents said their
count on national jurisdictions enforcing the laws the organisations deployed passwords and encryption
way they ought to.” when working with partners, while 33% said they
However, technology can be a powerful tool used systems and project areas protected by firewalls.
when it comes to protecting intellectual property. Enterprise rights management software was also used
As companies increasingly hook suppliers into their in the organisations of 26% of respondents.



Setting out the ground rules

C
oncerns over loss of intellectual property, argue giving suppliers access to enough information to
experts, by no means rule out the possibility enable them to make substantive improvements to a
of deriving more innovation from external product or process. Laying down the ground rules on
partners. However, careful management techniques who owns these improvements at an early stage in a
and contractual structures need to be in place at relationship can give companies the confidence to
the beginning of an outsourcing relationship. In open up more of their operations to outsiders.
our survey, 26% of respondents agree that having In addition, companies need to establish
contractual agreements for the sharing of intellectual communication channels, so that knowledge and
property would most facilitate a rise in the amount of innovation can flow back to them from the outsource
innovation and ideas derived from external partners. service provider. In this respect, technology can
“Part of it is defining the basic terminology at the help. Some 68% of respondents to our survey say that
start between the outsourcer and the service provider collaborative project systems would make capitalising
and establishing what they mean by innovation,” says on external sources of innovation easier, compared
Michael Burtha, president of Applied Collaborative with 41% who cite an intranet accessible by partners.
Strategies, a performance, innovation and leadership A further 32% highlight use of a website soliciting
consultancy. “Because there are changes that ideas and proposals from external sources. And more
occur—small and large innovations and the process than one-half (57%) rate technology investment as
improvements that were implemented—when the
service provider goes down the learning curve.”
What technologies and systems would make capitalising on
What is important, stresses Mr Burtha, is external sources of innovation easier for your organisation?
to establish who will have ownership of the Select all that apply.
(% respondents)
improvements that naturally occur during the
manufacturing process so that companies can feel Collaborative project system
68
comfortable in giving partners enough information
An intranet accessible by external partners
about their products and strategies to allow those 41

partners to make real improvements to them. “The A company website soliciting proposals from any organisation or individual
32
challenge for the service provider is that if they’re not A corporate wiki (a collection of web pages that can be edited by a group)
getting the full snapshot of the landscape, it’s hard 26
Videoconferencing sessions
for them to be innovative,” he says. “If you don’t talk 25
about it ahead of time and work out how to optimise Use of open-source websites such as InnoCentive and NineSigma
the continual flows of information and knowledge, 20
Use of 3D virtual worlds such as Second Life
you’re just doing a transactional deal versus creating 8
competitive advantage.” Other
1
A careful balance is therefore required between
Don’t know/Not applicable
moving to protect sensitive data and intellectual 7

assets—often using technological solutions—and Source: Economist Intelligence Unit survey, March 2008.



the most important input facilitating the sourcing of says Mr Goeman. “There have been a number of times
innovation from external partners. where the technical people we have on our staff know
Herman Miller, a US-based furniture systems the people they’re partnering with so well that they
producer, has found that technology greatly enhances look at them as almost from the same team.”
the communication flow with its partners during the Our findings support his view with 27% of
outsourcing process. “There’s this seamless connection executives saying that more face-to-face meetings
with almost anyone you work with at a close level,” says would help to increase the flow of innovation from
Don Goeman, who heads the design and development outside suppliers, while 26% point to communication
function at Herman Miller. “It used to be like throwing channels such as e-mails, instant messaging, video-
things over a wall and now there’s information and data conferencing and collaborative project systems.
moving all over the place all the time.” Almost one-half (47%) agree that capitalising on
However, Mr Goeman stresses that technology external innovation would be made easier by having
tools need to be supported by good management and a dedicated manager responsible for fostering the
clear lines of communication. “It’s really important,” exchange of ideas with partners.



Conclusion

F
aced with talent shortages and the need to to outsourcing innovation is the fear of loss of
speed up the time it takes to get new products intellectual property.
on the market, companies clearly recognise While this is a very real concern, companies
the need to look outside their organisations for new that put in place contractual arrangements,
sources of innovation. These sources can range from robust collaborative project systems and efficient
web-based communities of consumers and customers communication channels can minimise the risk
to universities, business partners and manufacturing of others capitalising on their ideas. In addition,
suppliers. growing availability everything from data encryption
However, our study shows that although companies systems to enterprise rights management software
acknowledge a need and intention to look externally means companies can shore up protection of their
for new ideas, evidence of activity in this area is most valuable intellectual assets.
weaker, with many respondents reporting that in the And savvy companies have recognised that if they
past three years little of their innovation has been can strike the right balance between protecting these
derived from external partners or from organisations intellectual property assets and giving outsource
or individuals outside their network of suppliers. partners sufficient access to information about their
In part, this may be because companies’ definition products and processes, those outsource partners
of innovation—based on the number of products can provide not just cost savings and flexibility, but
launched—means that they are not taking account also the ideas and innovations that, in a business
of other innovations in the manufacturing process environment moving ever faster, will help them
already taking place. However, the biggest barrier continue to secure competitive advantage.


Appendix: Survey results

Appendix
In March 2008, The Economist Intelligence Unit surveyed 305 executives from manufacturing industries around
the globe. Our sincere thanks go to all those who took part in the survey. Please note that not all answers add up to
100% because of rounding or because respondents were able to provide multiple answers to some questions.

How does your organisation measure innovation? What are the main drivers for your organisation to use
Select all that apply. outsourcing partners? Select up to three.
(% respondents) (% respondents)

Number of new products or businesses launched Cost cutting
64 60
Percentage of revenue growth from new products or businesses Ability to focus on core competencies
54 59
Number of patents and trademarks filed Speed in getting products to market
32 39
Time to market (cycle time) Flexibility to adjust production
30 31
Improvements in total-factor productivity (that is, the efficiency New sources of innovation
of a firm’s operations defined as the ratio of outputs to inputs) 22
25
Diversification of sources of production
Quality of manufactured goods (number of defects and the rate of delay) 19
25
Proximity of production to customers
Number of employees for whom innovation is a performance measure 9
15
None of the above; We don’t use outsourcing partners
Total shareholder return 4
11
Other
Other 2
2
Don’t know
We don’t measure innovation 1
8

In the past three years, to what extent has your
In the past three years, what proportion of innovation at organisation solicited innovation and ideas on an
your organisation has been derived from external partners, open-source basis (ie, from organisations or individuals
in your estimation? outside your network of external partners)?
(% respondents)
(% respondents)

Little or none 41
Not at all 14
About one-quarter 37
Small extent 54
About half 13
Moderate extent 22
About three-quarters 3
Large extent 6
All or nearly all 2
Don’t know 4
Don’t know 5



In the next three years, do you expect the proportion of Do you think your organisation is successful at capitalising
innovation and ideas in your organisation that come from on external sources of innovation?
external partners to increase or decrease? (% respondents)
(% respondents)

Successful 40
Increase 57
Neither successful
Stay the same 35 nor unsuccessful 42

Decrease 4 Unsuccessful 10

Don’t know/ Don’t know/
Not applicable 4 Not applicable 8

What is the biggest barrier for your organisation to source
In the next three years, do you expect the proportion of innovation and ideas from external partners?
innovation and ideas in your organisation that come from (% respondents)
open sources to increase or decrease?
(% respondents) Lack of trust of external partners
31
Communications barriers with external partners
Increase 59 20

Stay the same 33 Closed culture among employees who see their ideas as career-building tools
18
Decrease 2
Internal communications barriers
Don’t know/ 13
Not applicable 5
10
Other
8

What would most facilitate an increase in the amount
of innovation and ideas derived from external partners,
in your view?
How many external partners does your organisation (% respondents)
collaborate with in sourcing innovation and ideas?
(% respondents) More face-to-face meetings with external partners
27
More channels for communication with external partners, such as e-mails,
None 5 instant messaging, videoconferencing, and collaborative project system
1 to 5 57 26

6 to 20 20
Contractual agreements for the sharing of intellectual property
26
21 to 50 3
Sharing office space with external partners
More than 50 7 11

Don’t know 9 Don’t know/Not applicable
7
Other
3



What changes in organisational structure would make What technologies and systems would make capitalising on
capitalising on external sources of innovation easier, in your external sources of innovation easier for your organisation?
view? Select all that apply. Select all that apply.

Use of cross-functional teams and/or communities of practice Collaborative project system
57 68
Dedicated manager responsible for fostering exchange An intranet accessible by external partners
of knowledge and ideas with external partners 41
47
A company website soliciting proposals from any organisation or individual
Secondment of partner representatives to your organisation 32
39
A corporate wiki (a collection of web pages that can be edited by a group)
Secondment of employees to partner organisations 26
33
Videoconferencing sessions
Other 25
1
Use of open-source websites such as InnoCentive and NineSigma
Don’t know/Not applicable 20
6
Use of 3D virtual worlds such as Second Life
8
Other
1
Is an open culture, in which knowledge is shared, essential to
capitalising on innovation from external partners, in your view? Don’t know/Not applicable
(% respondents) 7

Yes 85
In the past three years, has it become easier or harder to hire
No 10
talented employees that can deliver innovative ideas?
Don’t know 5 (% respondents)

Much easier
3
Somewhat easier
20
No change
18
Somewhat harder
39
Much harder
19
What investments would your organisations need to make to
facilitate the sourcing of innovation from external partners? Don’t know
1
Select all that apply.
(% respondents)

Investments in technology
57
Investment in training courses
47
Investment in change management consultancy
44
Investment in additional staff
35
Other
2
7



Do you think your organisation would be more successful at What would be the main danger to your organisation of
sourcing ideas and innovations in-house or externally? deriving more innovation and ideas from external partners?

Loss of intellectual property to competitors
More successful 25
in-house 51
Loss of control of intellectual property to partners
More successful 24
externally 38
Erosion of in-house skills and talent
Don’t know/ 16
Not applicable 10
Loss of motivation for R&D teams
11
Dilution of in-house creativity
9
Employees may leave to start ventures that compete with your organisation
6
6
Other
What parts of your organisation’s business do you think would 3
benefit most from outsourcing innovation and ideas?
Select up to three.
(% respondents)
What would be the main benefit to your organisation of
Research and development
53
deriving more innovations and ideas from external partners?
(% respondents)
Product/service development
38 Overall competitive advantage
Process efficiency 29
35 Greater speed in getting products to market
Supply chain management 26
32 Cost savings
Operations 15
29 Access to new pools of talent in countries such as India and China
Cost controls 13
24 Diversification of products
Sales and marketing 13
21 Don’t know/Not applicable
Product/service quality 3
17
Don’t know
1
Other
1
None of the above; We would not benefit from outsourcing innovation
2



What technologies/techniques does your organisation use to
protect its intellectual property when collaborating with About the respondents
partners? Select all that apply.
(% respondents)

Passwords and encryption
49
Limiting the amount of data that leaves the organisation In which region are you personally based?
(eg, only submitting the digital equivalent of blue-line (% respondents)
drawings to partners, not full CAD drawings)
49
Asia-Pacific
Discrete systems/project areas for collaboration protected by firewalls 33
33
Western Europe
Read-only hardware devices and documents 28
30
North America
Digital/enterprise rights management software 24
26
Middle East and Africa
Water-marks on design documents 7
20
Eastern Europe
Hosting partners in-house to negate need to information to leave site 5
17
Latin America
Time-lapse document protection 2
12
Forensic copying of data storage devices
8
Other What is your primary industry?
6 (% respondents)

Industrial manufacturing
21
Healthcare, pharmaceuticals and biotechnology
18
IT and technology
15
Consumer goods
14
Automotive
8
Other manufacturing, please specify
8
Chemicals
6
Aerospace and defence
5
Telecoms equipment
4



What are your company’s annual global revenues in US dollars? What are your main functional roles?
(% respondents) Please choose no more than three functions.
(% respondents)

$500m or less 44 General management
$500m to $1bn 12 37
Strategy and business development
$1bn to $5bn 16
35
$5bn to $10bn 8 Operations and production
$10bn or more 19 28
R&D
23
Finance
17
Marketing and sales
16
Supply-chain management
14

What is your title? Customer service
(% respondents) 11
Procurement
Board member 8
4
IT
CEO/President/Managing director 8
20
Information and research
CFO/Treasurer/Comptroller 6
7
Human resources
CIO/Technology director 3
4
Risk
Other C-level executive 3
5
Legal
SVP/VP/Director 2
14
Other
Head of Business Unit 3
7
Head of Department
13
Manager
20
Other
8


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of this information, neither The Economist Intelligence
Unit Ltd. nor the sponsor of this report can accept any
responsibility or liability for reliance by any person on
this white paper or any of the information, opinions or
conclusions set out in the white paper.

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