Monday, June 28, 2010

Outsourcing and innovation

Somebody on LinkedIn asked if innovation will be outsourced.

In some sense, outsourcing is decentralization of production, but not quite so... because in some cases, General Motors for example, you get one large entity, GM, surrounded by a constellation of suppliers, which are entirely dependent on GM, who in turn calls the shots. Outsourcing was made possible by the increased level of coordination, and by the sophisticated logistical tools we have at our disposal. Technology made it possible. Its success demonstrates that production is more efficient, more flexible, more reliable, if it is organized on a broad base of well-coordinated small and specialized entities. Does the production network need to be centralized? If there is good coordination among these entities centralization is not necessary. In other words, in today's world enhanced with the new technology it is not necessary to have a strong center of command and control, like GM for example, to have a stable network capable of innovation, production and large scale distribution. Both structures can coexist, and many variants in between, and they will compete to impose their hegemony during this transition from the old economy to the new. In the end, I believe that big verticals will fall by shedding weight, outsourcing, and finally by morphing and dissolving into decentralized super-networks.  

Outsourcing means externalizing highly formal processes. Processes that can be specified and controlled very well. People now are asking the question, can innovation also be externalized? I just think this is the WRONG question to ask, because I think the "box" paradigm is obsolete. Future organizations that will drive innovation will not look like a box, but rather like a gravitational system, therefore there is no sense in talking about internal and external.

If you want to know weather India will play a role in innovation in the future, my answer is YES. Is innovation coming to India the way outsourcing came? My answer is NO. In the near future innovation will happen within (semi-) open collaborative networks - see the Discovery Network concept. Open networks are far more creative than boxes, if there are effective processes in place. Because of that, and because of the very effective tools of communication, collaboration, and coordination we have at our disposal,  (semi-) open collaborative networks will drive innovation, and they will drag within them highly specialized units of production and distribution, prototyping units, manufacturing units, marketing units, etc. The old classical boxes, the companies, will be surpassed in creativity, and starved on resources. So don't wait for a big company to pay you in India to innovate, rather take initiative and join these collaborative networks just emerging, capable of putting an idea on the market, being limited only by coordination, using the redundancy and under-capacity already existing in our economy.

By AllOfUs

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