New Knowledge and Innovation of RLK Media - Article Example

 New Knowledge and Innovation of RLK Media Executive Summary The CEO of RLK was given an ultimatum as the company was not doing well. The research and development department wanted more time to launch something innovative. This also called for further investment which the company was not equipped for. Faced with the dilemma, the CEO visited India and decided to outsource the R&D functions. The company has never outsourced before and this makes the technical team apprehensive of the capabilities and the protection of intellectual property. However outsourcing has several benefits that outweigh the challenges and risks associated with first time outsourcing. These challenges can easily be overcome if outsourcing is taken as a tool to meet the corporate goals. It should be aligned with the company’s missions and then it can help to create more value from the same internal resources of the company. Besides, the company gains on time and benefits from the added knowledge of the new partner. Synergies also generate new knowledge and innovation is enhanced. The CEO has to convince the technical head of the benefits and involve him in every step of the decision making process. This is necessary because the middle management tends to feel insecure when outsourcing decisions are taken. Outsourcing the R&D is the best option for the company and this will reap benefits. Table of Contents 1. Problem statement 1 2. Alternative strategies 1 2.1 Short-term objective 2 2.1.1 Challenges in outsourcing 2 2.1.2 Middle managers 3 2.2 Long-term objective 2.2.1 Outsourcing – a strategic option 4 2.2.2 Benefits of outsourcing 4 2.2.3 Overcoming challenges 2.2.3.1 Use it as a corporate strategy 5 2.2.3.2 Collaborative learning 7 2.2.4 Resource-based View 8 3. Conclusion 8 4. Implementation 9 References 13 1. Problem statement In the competitive marketplace, it is important not just to be innovative, but to be ahead of the competitors. This implies that RLK Media cannot afford to wait 18 months for their new product launch. Besides, the research and development department cannot even give assurance that their new product would be what the consumers want. Stagnancy in an organization can cost it much more than the executives realize. The old products may be good but no more appealing to the consumers. They always seek something fresh and new. The problem in the organization is a strategic issue which has risen due to difference between two departments. Irrespective of the way that the CEO handles the issue, the bottom line has to be achieved. The technical department wants 18 months and addition to their R&D team, to bring the company back on the track but the Chairman thinks that the company is already losing its brand image of brilliant innovation in high-end consumer electronics. A company cannot sustain for long on its brand equity and something needs to be done urgently. The CEO has to take an immediate decision to bring about a turnaround or bare the consequences. 2. Alternative strategies Managing activities internal to the firm is not sufficient. The CEO has to respond to the challenges posed by the immediate and remote external environment (Evans, 2000). Strategic management requires conducting an analysis that reflects the company’s internal conditions and capabilities. It is essential to take into account the resources available and evaluate each option. The options have to be in alignment with the corporate mission. A company has to engage in internal situation analysis of the current situation and its own strengths and weaknesses. This allows them to determine their long-term objectives and set their long-term goals. The CEO is faced with two alternatives to the solution. In the competitive business environment, most companies are outsourcing their research and development instead of expanding it. The technical team at RLK is very strong and has the advantage of being located under one roof. They have developed a prototype of a new innovative product, for which RLK is well known. However, to bring this product into fruition, they need some celebrity engineers added to their team. This would cost the company a fortune and the alternative before them is to outsource. The R&D team is strongly against outsourcing as it could mean risking their intellectual property rights. 2.1 Short-term objective Keeping research and development in-house would be a short-term objective because product innovation has to be an ongoing process. This is because consumer tastes and preferences keep changing and this has shortened the product life cycle. The technical head’s concerns are two-fold – loss of intellectual property and the problems of cross-functional teams due to difference in the two cultures – the American and the Indian culture. 2.1.1 Challenges in outsourcing The technical head is against outsourcing for several reasons. The disadvantages in outsourcing can occur under certain circumstances. Outsourcing may not necessarily result in cost reduction and in fact may even raise the costs (Stanko, Bohlmann & Calantone, 2009). This may occur due to the inability to control spending to the contractors. Outsourcing can also result in generic product with no innovation when the vendor has several clients with similar requirements. Turning to outsourcing too late can delay the process as the vendors have to learn all that has been developed in-house. Other challenges in outsourcing R&D include protection of intellectual property. This is a critical issue but India has passed an IP law in 2005 giving greater protection for IP (Balachandra, 2005). Effective collaboration between the two teams is essential for the success of outsourcing. The communication channels at the two ends have to be equally strong. Cultural differences and language barriers can pose problems. Sharing data electronically can be risky in outsourcing. Security measure must be in place to prevent leaking of information or fraudulent acts. The global R&D activity should be aligned with the business strategy. Central leadership is required to manage the R&D process. 2.1.2 Middle managers Outsourcing for the first time give rise to several issues and one such issue is the de-motivation that can rise among the middle managers. To handle this issue requires a radical shift in managerial thinking and political ideology because this can provide support and legitimize the outsourcing practices (Lewin & Johnston, 2000). Outsourcing need not necessarily lead to downsizing but it can lead to decrease in employee motivation and commitment to the organization. The entire workplace environment can be characterized by low levels of trust and high levels on insecurity. However, the middle managers are responsible for translating the statement of direction into concrete corporate objectives and strategies. They determine how the firm will compete and what the core competencies is (Evans, 2000). The CEO is responsible for the long-term direction and ultimately for the success if the strategy. The CEO cannot have an autocratic approach but must adopt an approach towards participative decision making. 2.2 Long-term objective 2.2.1 Outsourcing – a strategic option Outsourcing should not be taken as a short-term measure to cut costs. Unless it is implemented as a long-term objective, a company may mortgage their future opportunities for short-term advantage (Leavy, 2004). Hasty and near-sighted outsourcing may result in the loss of critical learning opportunities. 2.2.2 Benefits of outsourcing It is no more practical to have a bricks-and-mortar R&D infrastructure and hold innovation within the four walls (Huston & Sakkab, 2006). Mature companies have to create organic growth of 4-6% each year. In a less competitive world, firms could rely on research and development to drive that growth. The invent-it-ourselves model is no more capable of sustaining high levels of top-line growth. Proctor & Gamble had discovered that important innovation was being done at small and entrepreneurial companies. The existing innovation models are no longer able to support the requirements and fresh investment in innovation is difficult. P&G shifted to connect and develop innovation model. It is no more sufficient to introduce an innovative product. It is essential to understand the consumers’ needs for sustained and steady top-line growth. This model is not based on cost factors but in getting innovative and creative ideas to enhance and capitalize internal abilities. High technology companies from the US have been outsourcing software development extensively to Indian companies. This is not merely based on cost-cutting factors is a combination of quality service at affordable prices. Outsourcing has a number of benefits to companies which stretches beyond cost savings. It allows the parent firm to have access to skilled personnel across the world (Rao, 2004). Follow-the-sun model helps to improve delivery schedules, which is one of the concerns of the technical head at RLK. The time zone difference, in fact could be beneficial to the company rather than cause loss of time. Outsourcing also makes up for the gaps in the internal capabilities of the firms. In addition, outsourcing frees up assets and reduces costs in the immediate financial period and help firms focus on core activities (Harland, Knight, Lamming & Walker, 2006). RLK, at this juncture cannot afford to spend an additional $6 million in employing elite engineers. Outsourcing allows organizations to separate the business units and departments and the barriers between them. It is particularly beneficial to larger organizations where their hierarchical structure makes them more agile. 2.2.3 Overcoming challenges 2.2.3.1 Use it as a corporate strategy Outsourcing strategies promise focus, scale without mass, disruptive innovation and strategic positioning (Leavy, 2004). Despite the risks involved, outsourcing can be used as a support to the strategy being employed by an organization. Outsourcing allows a company to focus corporate resources on the key activities in the value chain. It is important to know the key value drivers – whether to focus on product leadership or operational excellence. Outsourcing also allows a company to grow in market presence without a corresponding expansion in organizational size. Disruptive innovation urges a company to outsourcing its functions. As budgets have tightened, companies are in a dilemma on how to strike the right balance between internal and external efforts at innovation (Stanko, Bohlmann & Calantone, 2009). Companies that had success with innovation used outsourcing as a strategy, under four circumstances – 1. When companies need to add new knowledge to innovate 2. In the early stages of the project when new technical obstacles appear every day 3. New ideas can be easily replicated and when intellectual property cannot be protected 4. When companies have prior experience with outsourcing. Work usually moves to where labour is cheaper and where skills are available in plenty. R&D has become a sector where outsourcing has been increasing. Outsourcing R&D allows 24x7 access to the process as the two locations operate under different time zones (Balachandra, 2004). Thus work can be carried out simultaneously and the project time is compressed. Outsourcing research and development benefits the parent company to benefit from a skilled pool of labour. In India the pool of scientific and technical labour is growing. Since the wages are low, a larger number of researchers can be engaged leading to higher volume of possible innovations. 2.2.3.2 Collaborative learning The project manager has to function as the liaison between the two teams and deal with this challenge using four strategies. It is essential to have the adaptation strategy in which the manager acknowledges the cultural gap openly and works around them (Brett, Behfar & Kern, 2006). The shape of the team can be set and through managerial intervention, the norms should be defined right in the beginning. Once the two teams acknowledge and name the cultural differences, adaptation is easy. Team members can be motivated to participate in solving the problem themselves. The technical head insists that his in-house team would be ideal as they can work harmoniously together. However, when such teams perform something and receive recognition, they feel satisfied and the progress ends there (Coutu, 2009). If the two teams are constantly countering each other, through such collaboration and challenges, the team members get an opportunity to reflect on their own ideas and suggestions. This process helped them to learn more from each other and enhanced their understanding on issues which were impediments to their progress (Jabri, 2004). R&D teams need an influx of new talent to maintain creativity and freshness. Hence, cross-functional teams can perform better when they combine their perspectives in an interactive way (Malik, 2004). Collaborative learning takes place. Teams should be able to foster the learning and growth of the individual members. Globally dispersed teams are ideal for product development and innovation. They have the potential to provide a practical and economical way to develop new products and services (McDonough, Kahn & Barczak, 2001). Such teams have higher levels of creativity and can provide better alternatives to problems. 2.2.4 Resource-based View Resource-based approach to outsourcing can create value through different mechanisms to firms. Outsourcing extends the firm’s value creation opportunities by supplementing the internal resources that may be costly to develop internally (Verwaal, Commandeur & Verbeke, 2008). Outsourcing, under the circumstances, becomes an efficient way to gain access to these resources. More importantly, new resources when combined with internal resources can generate synergies which add value to the existing resources. Finally, internal resources can be enhanced because access to new knowledge is obtained. This enhances internal learning, processes and skills. Thus resource access opportunities become the principal drivers of strategy outsourcing decisions. 3. Conclusion When any company is at the cross roads, decisions become difficult. Firms that contemplate outsourcing for the first time definitely have concerns. These concerns range from loss of intellectual property, to delays and communication and cultural barriers. Cost should not be the prime criterion in the decision for outsourcing. At times, the costs may be higher, especially the first time a company may not be able to control the costs. Selection of vendor needs to be right so that the same vendor does not attend to several similar clients. This would stifle innovation. However, all of the challenges including the communication and language barriers can be overcome with the right approach to outsourcing. The benefits in outsourcing R&D far outweigh the challenges. Outsourcing should be a strategic decision to optimize and enhance the internal resources and capabilities. This also leads to collaborative learning and synergies between two teams can generate new knowledge. When budgets tighten and when companies need new knowledge to innovate, outsourcing is the answer. Of the two alternatives – to keep R&D in-house or to outsource, outsourcing appears to be the right strategy. Challenges exist but these are not insurmountable. With the involvement of the CEO, the middle managers can be involved and motivated to move in the right direction. However, outsourcing should be aligned with the corporate values and mission. 4. Implementation RLK has been planning and working on a new product but the market study has not been conducted whether it fulfills the customers’ needs. The company should first conduct a study to confirm that the product envisaged meets customer expectations. This step ensures the formulation of a strategy that takes into account the expectation from the product, the things that are expected from outsourcing R&D (Gaitonde, 2007). The scope of work to be outsourced has to be defined and the company must list down all activities that have to be outsourced. The plan then has to be entrusted to an outsourcing manager who would be able to present the proposal to the stakeholders. Documents would have to be prepared that would list the risks involved and the benefits expected from such outsourcing. Vendor selection is the next step which has already been carried out by the CEO. The CEO must introduce the technical head (Ray) to iVid in India. Once Ray makes a trip to India and familiarizes himself with the technical facilities and the engineers available, it would be easier to implement the process. After the trip to India, Ray has to motivate his own team back in the US. Much would depend on how he presents the picture to his team. At the moment Ray has a closed approach to work and research which has to be changed. The middle management feels insecure when the decision to outsource has to be taken. He has to understand that collaboration can reap benefits to his team and the company. His feeling on insecurity has to be dispelled by allowing him to hire a few elite engineers. This would motivate him that his value is recognized in the company. Ray should be involved in the formulation of the strategy which would boost his confidence and make it easier for him to understand the benefits of collaboration. As far as vendor selection is concerned, iVid is the right choice because they have developed something unique for the closest competitors. The CEO at RLK has already identified a firm in India, through which collaborative partnership can help the company achieve its goals. However, RLK has to ensure that the technical team that has worked for the competitors should not work for RLK. The credentials of the vendor have been evaluated by the CEO on his first visit and hence this has not been left to chance. As far as the loss of intellectual property is concerned, India has passed a law in 2005, which offers security and protection. Besides, the CEO has studied that the Indian company and found that they are aware of the intellectual property rights. The CEO finds that the Indian company is reliable and worthy of trust. Hence, Ray can eliminate such anxieties and focus on the core issue. The costs too have been found to be much less compared to hiring new engineers in the US and keeping R&D in-house. Although cost is not the primary driver of the strategic decision to outsource, it does influence the process of decision making. The agreement between the two nations The Indian engineers are well educated and most in the IT sector are well-conversant in English. However, communication could pose other problems such as non-verbal cues or even understanding each other’s accent. This is also largely dependent on the national culture. Hence, before the start of the project, cross-cultural training should be given to the two teams. Then, the key members of the team India should be invited to the US for orientation and familiarization with the key people. Additionally, a few key engineers from the US should be posted in India to gain confidence in the facilities in India. This would enable both the teams to understand the work environment of the other. This then, could facilitate collaborative learning. Collaborative learning fosters innovation and this is precisely what RLK needs at the moment. To keep the communication process effective and transparent, the facilities at the Indian end would have to match those in the US. This however, does not appear to be an issue because the Indian companies are dealing very regularly with multinationals across nations. However, this should not be overlooked because projects can fail if this is lacking. The agreement between the two teams should carry details of the team work the communication process, the innovation expected, the exchange of information, the security concerns and the costs. Outsourced R&D should be used as a tool for the company’s competitive advantage. Outsourcing companies can help the parent company to focus on the core competencies. References: Balachandra, R. (2005). Outsourcing R&D. Retrieved online 07 December 2009 from http://w.cba.neu.edu/igim/thoughtLeadership/working_papers/igim_wp05-04.pdf Brett, J., Behfar, K., & Kern, M. C. (2006). Managing Multicultural Teams. Harvard Business Review. November 2006 Coutu, D. (2009). Why Teams Don’t Work. Harvard Business Review. May 2009 Evans. J. (2000). Management & Strategy. McGraw Hill Gaitonde, G. (2007). What Are The Best Practices In Managing Outsourced R&D Projects? Retrieved online 07 December 2009 from http://www.xoriant.com/papers/Xoriant%20WP%20What%20Are%20The%20Best%20Practices%20In%20Managing%20Outsourced%20RnD%20Projects.pdf Jabri, M. (2004). Team feedback based on dialogue. Journal of Management Development, 23 (2), 141-151 Harland, C., Knight, L., Lamming, R., & Walker, H. (2006). Outsourcing: assessing the risks and benefits for organisations, sectors and nations, International Journal of Operations & Production Management, 25 (9), 831-850 Huston, L., & sakkab, N. (2006). Connect and Develop: Inside Procter & Gamble’s New Model for Innovation. Harvard Business Review. March 2006 Leavy, B. (2004). Outsourcing strategies: oppurtunities and risks. Strategy & Leadership. 32 (6), 20-25 Lewin, J. E., & Johnston, W. J. (2000). THE IMPACT OF DOWNSIZING AND RESTRUCTURING ON ORGANIZATIONAL COMPETITIVENESS. Retrieved online 08 December 2009 from http://www.allbusiness.com/management/benchmarking-strategic-planning/719190-1.html Malik, K. (2004). Co-ordination of technological knowledge flow in firms, Journal of Knowledge Management, 8 (2), 64-72 McDonough, E. F., Kahn, K. B., & Barczak, G. (2001). An investigation in the use of global, virtual and colocated new product development teams, The Journal of Product Innovation Management, 18, 110-120 Rao, M. T. (2004). Key Issues for Global IT Sourcing: country and individual factors, IS Sourcing, Information Systems Management, www.ism-journal.com, Summer 2004 Stanko, M. A., Bohlmann, J. D., & Calantone, R. J. (2009). Business Insight (A Special Report): Innovation --- Outsourcing Innovation. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 30, 2009. pg. R.6 Verwaal, E., Commandeur, H., & Verbeke, W. (2008). Value Creation and Value Claiming in Strategic Outsourcing Decisions: A Resource Contingency Perspective. Journal of Management, 35 (2), 420-245 Read More