Innovation outsourcing: A SWOT analysis

Every successful venture begins with a single good idea. What bridges this idea with success is intelligent execution. In a world brimming with ideas, it’s important to have someone who can turn your vision into reality.

A report by Statista shows that the revenue of the IT outsourcing industry worldwide has steadily increased from 2019 to 2024, and is expected to grow by 51% by 2028. Clearly, outsourcing is in demand, and we need to talk about it. In this article, we’re going to discuss what is outsourcing, how it is used in the context of innovation, and finally, a complete SWOT analysis of innovation outsourcing.

What is outsourcing?

Cost efficiency: The popular narrative

Most of us have heard about outsourcing- most probably as a way of saving costs. The popular narrative is that outsourcing lets you delegate repetitive tasks on a contract basis to third party.

That way, not only can you concentrate better on doing the more important and complex work, but also save some money in the process. The cost savings usually come by underpaying the outsourcing partners, or choosing overseas vendors who sell their services at a lower cost owing to the currency difference. But few people know the other strategic benefits of outsourcing.

Innovation outsourcing

Traditionally, outsourcing is done for repetitive manual tasks like data entry, writing code, proof reading documents, etc. Sometimes, more complex functions are also outsource by various departments like HR, marketing and finances. But the typical idea is that once these tasks are outsourced, the core team can focus on generating new ideas for the business.

Well, things are changing now. There is a new domain of outsourcing, wherein freelancers and experts are hired to help in developing a product or solve a problem. Say for example, you are a real estate firm and you want to build an app to help your partners navigate the process of selling or renting out their property.

Your tech team is already swamped with other projects, so you hire someone from an outsourcing vendor that specializes in software development. From design to dashboard, your app will be delivered and ready for your review- you can decide how often you want to give your inputs and attention.

SWOT Analysis: Strengths, Weaknesses, Opportunities and Threats

Strengths: Benefits of innovation outsourcing

A 2018 survey by TechPro found that 70% of respondents said their company was working on a digital transformation strategy. Clearly, companies are prioritizing innovation and novel strategies, especially in terms of digital upgrades.

Surviving in such a competitive market often requires us to speed up the brainstorming process. One way of doing that is to access a larger talent pool on the global level. You don’t have to create departments and hire full time employees just because of one project.

You also don’t have to restrict yourself to a particular region or time-zone. Outsourcing really expands your hiring options. Moreover, you can hire different people for different projects, depending on the specific requirements. So, you don’t have to break your head about hiring a sort of perfect, multipurpose inhouse team.

Moreover, employees often complain that innovation is thwarted because of bureaucracy and organizational hierarchies. Outsourcing innovation enables you to benefit from creative processes by a third party without any special adjustments to your organization’s workflow.

Weaknesses: When outsourcing goes wrong

When you outsource a function, especially something as crucial as innovation and design, you lose out on valuable learning experiences. In the long run, it’s quite inconvenient to rely on third party vendors every time you want to implement changes or solve a problem.

There is a way to avoid this- at the end of the project, you can give an opportunity for internal and external teams to share knowledge. That way, with every outsourcing collaboration, you will add a little more value to your collective skills and expertise.

The advantage of outsourcing is that you can easily access global talent- and the disadvantage is that anyone can easily access it. So, it’s hard to stay ahead of the competition when the same ideas and methods are being outsourced to multiple clients.

A tried-and-tested solution works well for tasks like data analysis, but for something like product design or marketing strategies, uniqueness is a dealbreaker. Instead, when a tool or product is developed by an in-house team, you can guard your ideas as a trade secret.

Finally, if you are outsourcing something, you have less control over the outcome. Sure, you can ask them to make tweaks and small changes to the final product, but that will get you only so far. It’s quite different from being involved in the process and ideation right from the start.

Opportunities: What outsourcing can do for you

Outsourcing work allows you to access a global talent pool – you can also tap into new markets and target new demographics. You can collaborate across countries and even continents, without making changes to the internal structure of your company.

That’s one of the biggest advantages of outsourcing- you can change the way you work, without actually changing who you are. You can take on large projects and quickly scale up or down based on market demands for certain kinds of products- without having to change the size and strength of your company.

Threats: Things to be mindful of

An obvious threat of outsourcing, as mentioned earlier, is lack of uniqueness and more competition. As more companies turn toward outsourcing for innovation, they might be offered cookie cutter solutions, and your company won’t be able to stand out in the market. It’s like asking for personalized art, and being offered a standard template with minor changes in colors and design.

Moreover, when you share your data with outsourcing vendors, you run the risk of security breaches. Many outsourcing companies operate virtually, mainly because they do business across various countries. The more complex work you outsource, the more data you need to share, and greater is the risk of cybersecurity threats.

If you are someone who is interested in understanding outsourcing and innovation, we hope this article was helpful in weighing its pros and cons. At the end of the day, every company, and every entrepreneur, has to carefully assess their needs to make good decisions about outsourcing.