R&D Outsourcing Strategy

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IDP is the concept that describes how procurement can add value to a firm's innovation processes.

This slide deck is about outsouring your R&D; the decision process and the supplier management implications.

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R&D Outsourcing Strategy

  1. 1. R&D Sourcing Strategy: increase effectiveness An Innovation Driven Procurement (IDP) Service Capgemini Consulting is the strategy and transformation consulting brand Tags: of Capgemini Group • Business Innovation • Procurement • Outsourcing • Business Model Innovation • Open Innovation • Co-creation
  2. 2. Outsourcing R&D requires a substantiated choice of the sourcing mode, as well as close alignment of the business models with Suppliers & Partners Many companies source the majority of their revenues from Suppliers and Partners. Outsourcing initiatives has been increasing significantly over the years. Following the Situation Open Innovation concept, companies have initiated co-creation with suppliers and partners. The next step is starting to outsource R&D. R&D is one of the most protected business functions in the large companies. Driven by IP and risk management this is not something likely to be shared with the outside Complication world. There is hardly any experience, leadership, culture, methods and tools available in current organisations to really open up – let alone to outsource R&D effectively. So how can companies outsource R&D (or at last a part of R&D) in order to increase Question flexibility and effectiveness, whilst maintaining focus and dedication to the value chain’s needs? Companies should assess the criticality of their innovation programs and decide on the appropriate model of sourcing using the Global Sourcing of Services (GSS) model. The GSS model is a decision support tool for the right sourcing strategy for their Business Services and / or functions. Answer Once an outsourcing decision has been made, suppliers/partners must be selected based on their ability and willingness to take over (part of) R&D. The business models need careful alignment and for current suppliers/partners, the change from contractor to developer will be substantial. 14/06/2010 2
  3. 3. Open Innovation concepts can increase the effectiveness of R&D by the concept of “Spin IN and Spin OUT” IDP based on Open innovation Value chain internal mechanisms  Allowing suppliers to leverage innovations in other value chains for increased profitability  Connecting existing suppliers with engineers  Searching and stimulating new developments within the existing supply base  Set up joint development programs, co-creation, partnerships  Provide toll gate services for new technologies throughout the innovation funnel Value chain external mechanisms  Ensuring influx of innovations from other value chains through suppliers Innovators outperform the market  Scouting for new developments outside the existing 3,4% supply base and in completely different markets 14,3%  Creating flexibility in supplier segmentation and dependency 11,1%  Building scenarios of future markets with boundary spanning networks  Connecting with new ventures inside & outside the 0,4% product chain  Changing the market focus or future market Return to Shareholders Margin Growth Source graphic: Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth from Industrial R&D, 10th Annual Innovation Convergence, Minneapolis, Sept 27, 2004 Source bar charts: S&P 1200 1995-2005 research 14-6-2010 3
  4. 4. A trade-off must be made how to source a Research & Development program, by deciding on the optimal Ownership, Location and Management style  The Global Sourcing of Services (GSS) model is a decision support tool which helps organisations to define the right sourcing strategy for their services/functions.  Eight different sourcing modes are defined Offshore varying in: Location - Location (onshore or offshore) - Ownership (in-house or outsourced) Onshore Light - Management Style (light or tight management) Management Tight Style  The GSS model ranks the different sourcing In-house Outsourced options based on attractiveness by Ownership evaluating the R&D program in scope, the organisation and the environment 14-6-2010 4
  5. 5. Each R&D program can be analysed by five sets of Environmental Characteristics that affect the choice of the right Sourcing Mode  Each set of characteristics provides a unique insight into what the current maturity and preferred sourcing strategy is for the R&D Organisation’s Service program in scope Characteristics Characteristics  Together they form the basis of the sourcing strategy and will facilitate SOURCING DECISION organisations to make these Customer Competitor sourcing decisions more effectively Demand Characteristics Characteristics by providing a systematic approach to diagnosing decision parameters Supply Market Characteristics  Based on the outcome of the GSS model and the subsequent discussions, companies will be able to determine their strategy based on research and best practices 14-6-2010 5
  6. 6. Using the analytics of the GSS model we build a Realistic Future Positioning of the R&D function of the company Example To-Be: Outsourced, Offshore and Tight The analysis of an R&D program Management. Offshore can result in a change in Sourcing Supplier is seen as (strategic) partner Mode. For any Sourcing Mode, there are two options with respect to suppliers: Location 1. Develop the current supply base Onshore 2. Extend and/or change the current Light supply base Management As-Is: Tight Style In-house, Onshore and Tight In-house Outsourced Management. Supplier is seen as Ownership contractor Analyzing the R&D program can result in a different supplier relationship or Innovation Partnership 14-6-2010 6
  7. 7. The Four Collaboration Enablers help a company to source the right partner Levers Levers  Organization  Definition of  Power struggle objectives  Key processes  Evaluation system  Procedures  Remuneration  Dashboards modes and indicators  Supplier  IT systems ARE THEY IS THERE AN development  Interface with  Pressure / other functions constraints ABLE INTEREST TO DO IT? FOR THEM? DO THEY DO THEY Levers KNOW WANT Levers  Training HOW TO DO IT? TO DO IT?  Participation to the  Knowledge transfer conception  Coaching  Emulation, Pride  Skills import  Management modes  Communication  Support basis  Experimentation  Collective project  Simulation exercise If any of the four enablers is answered with “no”, the company should decide whether to upgrade the current supplier/partner, or to source for a new or additional supplier/partner 14-6-2010 7
  8. 8. Once the suitable sourcing mode and supplier/partner is defined, the Business Models of the company and supplier/partner need to be synchronised  The business model shows the relationships between the customer, the value offered to the customer, and the organisational setup making it possible Resources Offer Customer Co-creation  As soon as the company decides to move activities to the partner network (suppliers), core capabilities within the Partner Network Customer Relationship company and supplier will need to shift  This shift in capabilities must be Core Value Value Distribution Customer Capabilities Configuration Proposition Channels Segment managed carefully in order to prevent redundancies, or worse, gaps  Furthermore, the deal structure must fit Cost Structure PROFIT Revenue Streams the cost and benefit drivers of both Financial Performance parties. The four enablers of collaboration must be monitored continuously Source: Adapted from Alexander Osterwalder, Business Model Generation 14-6-2010 8
  9. 9. Capgemini has extensive experience in sourcing R&D and supporting and managing suppliers in high-tech environments Piloted appropriate methods & tools Outsourcing transition Set up supplier mgt organization R&D Supported R&D transition to suppliers Increased supplier R&D capability Capgemini conducts R&D activities for management Outsourcing Airbus in a long standing partnership R&D and Collaboration methods and tools are set up for management of R&D by Airbus Other R&D and management Supply chain control for Siemens credentials supplier Supplier mgt optimization for Basell Supplier R&D mgt for Snecma Co-innovation process for Faurecia 14/06/2010 9
  10. 10. Koen Klokgieters| Capgemini Consulting Vice President Business Innovation Consulting koen.klokgieters@capgemini.com +31 (0) 6 27159293 Robbert den Braber | Capgemini Consulting Senior Consultant Procurement Transformation Robbert.den.Braber@Capgemini.com +31 (0) 6 15030901 Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group

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