How Outsourcing will Make Your Business More Innovative

Shaunvir Mahil June 27, 2018

Most businesses are not ‘innovative’. It’s a universal truth.

But then an obvious question comes to mind. Why is it that most businesses aren’t innovative, when most of them do, at some point, have ‘innovative ideas’?

The answer to this question lies in the fact that there is a big difference between having great innovative ideas and being an innovative organization.

To be an innovative organization, I believe we need four elements:

  1. Creativity: The big ideas
  2. A Culture of High Experimentation: A lot of your ideas are going to be bad. The difference between an organization that is innovative and one that is not is that the former keeps experimenting until it ‘hits the big idea’. Even innovative organizations have a lot of bad ideas. The only difference is that they keep experimenting. You have to fail a lot before you succeed.
  3. Strategy and Execution: In order to have a culture of high experimentation, you need lean project management implementation so that your projects are launched in the most efficient manner possible.
  4. Time to Market: You need quick access to resources. If you spend months acquiring resources every time you want to launch an experiment, you eventually won’t be able to get through the failed experiments fast enough before getting to the idea that ‘strikes gold’.

Viewed from this perspective, the lack of innovation in most organizations is one of culture, strategy and resources as opposed to creativity. This is why outsourcing can play a role in helping us make the jump from just having an ‘innovative idea’ to running an organization that is continuously ‘pushing the boundaries’.

Lean methodology already provides us with a solution to the third critical pillar of innovation – strategy and execution. In the book The Lean Startup, Eric Ries tells us that the goal of a start-up should be to ‘learn how to build a sustainable business’ and to ‘test your assumptions’ as quickly as possible. The faster we learn, the faster we can validate or dispel our hypothesis.

Building complex prototypes, spending countless hours deciding on what features to build and strategizing endlessly over a white board is a waste of time. Instead, what we need to do is to build an MVP or a Minimum Viable Product because it is the quickest route to testing our hypothesis as it gives us real data. The mistake that most start-ups make, in the words of Eric Ries, is to ‘achieve failure’, that is, you successfully execute your business plan, only to find that no one wants your product or service.

According to Eric Ries, if you have an innovative idea, you shouldn’t worry about having that idea stolen by a larger competitor. You shouldn’t even launch a project solely on the basis of having an innovative idea. Rather you should launch a project only if you can learn faster than anyone else, for that is the only route to building a sustainable long-term business. This, in turn, makes legal protection a moot point.

Lean methodology and an MVP thus provide us with a shortcut. Rather than investing a huge amount of time in building a highly complex and comprehensive product, an MVP consumes a mere fraction of the time and cost, while at the same time, it enables you to learn about your market. The faster you launch, the faster you learn, the faster you iterate, the faster you have something that the market wants.

Eric Ries cites the example of a start-up that was building a ‘subjective’ search engine. Rather than spending a year to program this software, the founders just ‘faked it’. They themselves pretended to be the search engine. Of course, this was a highly inefficient way of working, but it was a highly effective way of learning about their market. Rather than learning about their customers after a year, by faking it, they were able to start learning from day one. It is clear that lean methodology shortens the time frame of Stage 3.

But just like lean methodology provides us with a shortcut, outsourcing can provide us with one more. By outsourcing, we can we get to the learning stage even faster than by just applying lean methodology alone. That’s because outsourcing is a plug-and-play solution and it is ‘ready to go’, instantly. You don’t have to waste time on recruitment, setting up an office or infrastructure. Outsourcing helps us with the fourth pillar of innovation – fast time to market.

Eric Ries is saying that if it takes you one year to develop a highly robust and intricate prototype, instead, just build an MVP that might only take you only two months. The point I am making is that it might take you three months before you get to a position where you can start building your MVP. Outsourcing can take that period of two months right down to zero.

For instance, before you can build your MVP, you might need to raise funds for the office you want to lease, the infrastructure you need to purchase, the coders you need to recruit and so on. But when you outsource, you might only need one-fifth of the funds that you originally needed. So, you might not have to spend as much time raising funds. As a result, you can build your MVP faster. Instead of spending two months screening coders, when you outsource, you have a much larger talent pool to choose from, meaning you can often hire highly qualified individuals instantly.

Lastly, instead of spending weeks to source an office and set it up, when you outsource, you don’t actually need one (or at least a significantly smaller one).

The cycle & timeline of innovation can be depicted as follows:

If the name of the game is speed, outsourcing will get you to that stage of launching faster by making Stage 2 in the cycle significantly shorter. Outsourcing and lean methodology together give you a ‘double win’ on time. Both Stages 2 and 3 are now shortened.

But is speed really that important? According to Nick Ray, the former Head of Innovation at Priva, it really is. In 2016, I met Nick at Priva’s office. He told me that by hiring Virtual Employee’s embedded hardware and software engineers, he was able to start his projects six months faster and that launching faster is more important than even patenting the idea because the ‘first to market gets 25% of the market share’.

Watch Nick’s full interview:

When we have a great idea, our gut instinct is to protect it, particularly by way of patenting it. But should time that is spent on legal protection be spent on launching and learning? If you believe in lean methodology, then the answer to that question is obviously ‘yes’. But if you see the merits in lean methodology and if you are making shifts in your approach such as this (that is, not wasting time in getting patents but instead building MVPs), then surely the faster time to market advantages outsourcing confers on our businesses also cannot be ignored? If we appreciate the value in shortening the length of Stage 3 in the cycle of innovation, then surely the same must hold true for Stage 2?

In 2015, I met Robert Hess, the CEO of Paragon Print Systems, who revealed that it was taking him six months to hire software developers locally versus just a couple of days with us,! Taking a couple of months to just hire developers truly is a disaster scenario if we wish to run a highly innovative organization. The correlation between outsourcing and innovation is clearly strong.

But it is not only in Stage 2 where outsourcing can help us. Outsourcing can also play a pivotal role in Stage 4 – by creating a culture of high experimentation within our organization. The only way we can create a culture of high experimentation is if we are very comfortable with a high degree of failure.

Whether our project fails or succeeds, either way, the next step in creating a highly innovative organization is to keep experimenting. We need to repeat the process and go back to square one and launch the next big idea.

If we do not repeat this loop, our organization quite simply will not be an innovative one. Innovation is a culture of continuous growth. It continuously pushes the boundaries and it is not a one-time endeavour.

The problem for most CEOs is that most of their big ideas will fail. Thus, before we get an innovative breakthrough, we will most likely have to experience several project failures first. The problem with this is that failure results in financial loss. That is something most CEOs naturally aren’t too comfortable with. This obviously plays a pivotal role in stifling innovation.

Since the cost of experimentation is much lower when you outsource, we can more readily accept and experience failure. We can give our teams greater freedom and ask them to truly ‘push the boat’ because if they fail, it’s not the end of the world.

In short, getting ‘comfortable’ with failure is mandatory for creating an organization of high experimentation. By outsourcing and reducing your fear of failure, you can achieve this and launch more projects that otherwise would simply be too costly (and hence too risky) if launched locally.

This point was also made by Olivier Cant (the CEO of Exxoss, a Belgium-based Infrastructure-as-a-Service company that hired several software developers from Virtual Employee):

However, risk is not the only inhibitor of a culture of high experimentation. As in Stage 2, access to talent is a pain point for Stage 4 as well. To develop a culture of high experimentation, you need immense business agility and thus quick access to a wide diversity of technically skilled professionals.

Often you may need to deploy such professionals for only short periods of time. You cannot create a culture of high experimentation if you simply do not have a huge pool of highly talented individuals instantly available.

The reason we fail to appreciate the disastrous effect slow time to market and a fear of failure have on innovation is because we think of innovation in the wrong light. We associate innovative organizations as those that have ‘innovative ideas’. This, I believe, is incorrect, for innovation has very little to do with the ‘whiteboard’. This is precisely why start-ups make the mistake of building prototypes instead of MVPs as Eric Ries explains in his book. And also why CEOs fail to appreciate the severity and insidious impact of a delayed time to market and the fear of failure.

When we typically think of the advantages of outsourcing, we think in terms of ‘faster time to market’. But the phrase ‘faster time to market’ does a poor job in connoting the real value and power of outsourcing. The power of outsourcing, in the context of wanting to develop innovative organizations, can only be realized once innovation is viewed through the lens of the four-stage cycle that I have proposed above.

We should then evaluate where and how outsourcing reduces our time to market and which projects outsourcing enables us to play around with more of our ideas. Once we do this, we can then more objectively appreciate the correlation between outsourcing and making our organizations more innovative – namely going from a lean organization to a ‘super’ lean and agile organization.

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