Newsgroup: it.discussioni.ingegneria
Titolo: Outsourcing Innovation

Qualche aggiornamento sul tema dei temi che ci riguarda direttamente.
http://www.businessweek.com/magazine/toc/05_12/B3925magazine.htm
http://www.businessweek.com/magazine/content/05_12/b3925601.htm
Outsourcing Innovation
----------------------
First came manufacturing. Now companies are farming out R&D to cut costs 
and get new products to market faster. Are they going too far?
As the Mediterranean sun bathed the festive cafés and shops of the Côte 
d'Azur town of Cannes, banners with the logos of Motorola (MOT ), Royal 
Philips Electronics (PHG ), palmOne (PLMO ), and Samsung fluttered from 
the masts of plush yachts moored in the harbor. On board, top execs 
hosted nonstop sales meetings during the day and champagne dinners at 
night to push their latest wireless gadgets. Outside the city's 
convention hall, carnival barkers, clowns on stilts, and vivacious 
models with bright red wigs lured passersby into flashy exhibits. For 
anyone in the telecom industry wanting to shout their achievements to 
the world, there was no more glamorous spot than the sprawling 3GSM 
World Congress in Southern France in February.
 Yet many of the most intriguing product launches in Cannes took place 
far from the limelight. HTC Corp., a red-hot developer of multimedia 
handsets, didn't even have its own booth. Instead, the Taiwanese company 
showed off its latest wireless devices alongside partners that sell 
HTC's models under their own brand names. Flextronics Corp. demonstrated 
several concept phones exclusively behind closed doors. And Cellon 
International rented a discrete three-room apartment across from the 
convention center to unveil its new devices to a steady stream of 
telecom executives. The new offerings included the C8000, featuring eye-
popping software. Cradle the device to your ear and it goes into 
telephone mode. Peer through the viewfinder and it automatically shifts 
into camera mode. Hold the end of the device to your eye and it morphs 
into a videocam.
HTC? Flextronics? Cellon? There's a good reason these are hardly 
household names. The multimedia devices produced from their prototypes 
will end up on retail shelves under the brands of companies that don't 
want you to know who designs their products. Yet these and other little-
known companies, with names such as Quanta Computer, Premier Imaging, 
Wipro Technologies (WIT ), and Compal Electronics, are fast emerging as 
hidden powers of the technology industry.
They are the vanguard of the next step in outsourcing -- of innovation 
itself. When Western corporations began selling their factories and 
farming out manufacturing in the '80s and '90s to boost efficiency and 
focus their energies, most insisted all the important research and 
development would remain in-house.
But that pledge is now passé. Today, the likes of Dell (DELL ), 
Motorola, (MOT ) and Philips are buying complete designs of some digital 
devices from Asian developers, tweaking them to their own 
specifications, and slapping on their own brand names. It's not just 
cell phones. Asian contract manufacturers and independent design houses 
have become forces in nearly every tech device, from laptops and high-
definition TVs to MP3 music players and digital cameras. "Customers used 
to participate in design two or three years back," says Jack Hsieh, 
vice-president for finance at Taiwan's Premier Imaging Technology Corp., 
a major supplier of digital cameras to leading U.S. and Japanese brands. 
"But starting last year, many just take our product. Because of price 
competition, they have to."
While the electronics sector is furthest down this road, the search for 
offshore help with innovation is spreading to nearly every corner of the 
economy. On Feb. 8, Boeing Co. (BA ) said it is working with India's HCL 
Technologies to co-develop software for everything from the navigation 
systems and landing gear to the cockpit controls for its upcoming 7E7 
Dreamliner jet. Pharmaceutical giants such as GlaxoSmithKline (GSK ) and 
Eli Lilly (LLY )are teaming up with Asian biotech research companies in 
a bid to cut the average $500 million cost of bringing a new drug to 
market. And Procter & Gamble Co. (PG ) says it wants half of its new 
product ideas to be generated from outside by 2010, compared with 20% 
now.
Competitive Dangers
Underlying this trend is a growing consensus that more innovation is 
vital -- but that current R&D spending isn't yielding enough bang for 
the buck. After spending years squeezing costs out of the factory floor, 
back office, and warehouse, CEOs are asking tough questions about their 
once-cloistered R&D operations: Why are so few hit products making it 
out of the labs into the market? How many of those pricey engineers are 
really creating game-changing products or technology breakthroughs? "R&D 
is the biggest single remaining controllable expense to work on," says 
Allen J. Delattre, head of Accenture Ltd.'s (ACN ) high-tech consulting 
practice. "Companies either will have to cut costs or increase R&D 
productivity."
The result is a rethinking of the structure of the modern corporation. 
What, specifically, has to be done in-house anymore? At a minimum, most 
leading Western companies are turning toward a new model of innovation, 
one that employs global networks of partners. These can include U.S. 
chipmakers, Taiwanese engineers, Indian software developers, and Chinese 
factories. IBM (IBM ) is even offering the smarts of its famed research 
labs and a new global team of 1,200 engineers to help customers develop 
future products using next-generation technologies. When the whole chain 
works in sync, there can be a dramatic leap in the speed and efficiency 
of product development.
The downside of getting the balance wrong, however, can be steep. Start 
with the danger of fostering new competitors. Motorola hired Taiwan's 
BenQ Corp. to design and manufacture millions of mobile phones. But then 
BenQ began selling phones last year in the prized China market under its 
own brand. That prompted Motorola to pull its contract. Another risk is 
that brand-name companies will lose the incentive to keep investing in 
new technology. "It is a slippery slope," says Boston Consulting Group 
Senior Vice-President Jim Andrew. "If the innovation starts residing in 
the suppliers, you could incrementalize yourself to the point where 
there isn't much left."
Such perceptions are a big reason even companies that outsource heavily 
refuse to discuss what hardware designs they buy from whom and impose 
strict confidentiality on suppliers. "It is still taboo to talk openly 
about outsourced design," says Forrester Research Inc. (FORR ) 
consultant Navi Radjou, an expert on corporate innovation.
The concerns also explain why different companies are adopting widely 
varying approaches to this new paradigm. Dell, for example, does little 
of its own design for notebook PCs, digital TVs, or other products. 
Hewlett-Packard Co. (HPQ ) says it contributes key technology and at 
least some design input to all its products but relies on outside 
partners to co-develop everything from servers to printers. Motorola 
buys complete designs for its cheapest phones but controls all of the 
development of high-end handsets like its hot-selling Razr. The key, 
execs say, is to guard some sustainable competitive advantage, whether 
it's control over the latest technologies, the look and feel of new 
products, or the customer relationship. "You have to draw a line," says 
Motorola CEO Edward J. Zander. At Motorola, "core intellectual property 
is above it, and commodity technology is below."
Wherever companies draw the line, there's no question that the 
demarcation between mission-critical R&D and commodity work is sliding 
year by year. The implications for the global economy are immense. 
Countries such as India and China, where wages remain low and new 
engineering graduates are abundant, likely will continue to be the 
biggest gainers in tech employment and become increasingly important 
suppliers of intellectual property. Some analysts even see a new global 
division of labor emerging: The rich West will focus on the highest 
levels of product creation, and all the jobs of turning concepts into 
actual products or services can be shipped out. Consultant Daniel H. 
Pink, author of the new book A Whole New Mind, argues that the "left 
brain" intellectual tasks that "are routine, computer-like, and can be 
boiled down to a spec sheet are migrating to where it is cheaper, thanks 
to Asia's rising economies and the miracle of cyberspace." The U.S. will 
remain strong in "right brain" work that entails "artistry, creativity, 
and empathy with the customer that requires being physically close to 
the market."
You can see this great divide already taking shape in global 
electronics. The process started in the 1990s when Taiwan emerged as the 
capital of PC design, largely because the critical technology was 
standardized, on Microsoft Corp.'s (MSFT ) operating system software and 
Intel Corp.'s (INTC ) microprocessor. Today, Taiwanese "original-design 
manufacturers" (ODMS), so named because they both design and assemble 
products for others, supply some 65% of the world's notebook PCs. Quanta 
Computer Inc. alone expects to churn out 16 million notebook PCs this 
year in 50 different models for buyers that include Dell, Apple Computer 
(AAPL ), and Sony (SNE ).
Now, Taiwanese ODMs and other outside designers are forces in nearly 
every digital device on the market. Of the 700 million mobile phones 
expected to be sold worldwide this year, up to 20% will be the work of 
ODMs, estimates senior analyst Adam Pick of the El Segundo (Calif.) 
market research firm iSuppli Corp. About 30% of digital cameras are 
produced by ODMs, 65% of MP3 players, and roughly 70% of personal 
digital assistants (PDAs). Building on their experience with PCs, 
they're increasingly creating recipes for their own gizmos, blending the 
latest advances in custom chips, specialized software, and state-of-the-
art digital components. "There is a lot of great capability that has 
grown in Asia to develop complete products," says Doug Rasor, worldwide 
strategic marketing manager at chipmaker Texas Instruments Inc. TI often 
supplies core chips, along with rudimentary designs, and the ODMs take 
it from there. "They can do the system integration, the plastics, the 
industrial design, and the low-cost manufacturing, and they are happy to 
put Dell's name on it. That is a megatrend in the industry," says Rasor.
Taiwan's ODMs clearly don't regard themselves as mere job shops. Just 
ask the top brass at HTC, which creates and manufactures smart phones 
for such wireless service providers as Vodafone and Cingular as well as 
equipment makers it doesn't identify. "We know this kind of product 
category a lot better than our customers do," says HTC President Peter 
Chou. "We have the capability to integrate all the latest technologies. 
We do everything except the Microsoft operating system."
Or stop in to Quanta's headquarters in the Huaya Technology Park outside 
Taipei. Workers are finishing a dazzling structure the size of several 
football fields, with a series of wide steps leading past white columns 
supporting a towering Teflon-and-glass canopy. It will serve as Quanta's 
R&D headquarters, with thousands of engineers working on next-generation 
displays, digital home networking appliances, and multimedia players. 
This year, Quanta is doubling its engineering staff, to 7,000, and its 
R&D spending, to $200 million.
Why? To improve its shrinking profit margins -- and because foreign 
clients are demanding it. "What has changed is that more customers need 
us to design the whole product," says Chairman Barry Lam. For future 
products, in fact, "it's now difficult to get good ideas from our 
customers. We have to innovate ourselves."
Sweeping Overhaul
India is emerging as a heavyweight in design, too. The top players in 
making the country world-class in software development, including HCL 
and Wipro, are expected to help India boost its contract R&D revenues 
from $1 billion a year now to $8 billion in three years. One of Wipro's 
many labs is in a modest office off dusty, congested Hosur Road in 
Bangalore. There, 1,000 young engineers partitioned into brightly lit 
pods jammed with circuit boards, chips, and steel housings hunch over 26 
development projects. Among them is a hands-free telephone system that 
attaches to the visor of a European sports car. At another pod, 
designers tinker with a full dashboard embedded with a satellite 
navigation system. Inside other Wipro labs in Bangalore, engineers are 
designing prototypes for everything from high-definition TVs to 
satellite set-top boxes.
Perhaps the most ambitious new entrant in design is Flextronics. The 
manufacturing behemoth already builds networking gear, printers, game 
consoles, and other hardware for the likes of Nortel Networks (NT ), 
Xerox (XRX ), HP, Motorola, and Casio Computer. But three years ago, it 
started losing big cell-phone and PDA orders to Taiwanese ODMs. Since 
then, CEO Michael E. Marks has shelled out more than $800 million on 
acquisitions to build a 7,000-engineer force of software, chip, telecom, 
and mechanical designers scattered from India and Singapore to France 
and Ukraine. Marks's splashiest move was to pay an estimated $30 million 
for frog design Inc., the pioneering Sunnyvale (Calif.) firm that helped 
design such Information Age icons as Apple Computer Inc.'s original Mac 
in 1984. So far, Flextronics has developed its own basic platforms for 
cell phones, routers, digital cameras, and imaging devices. His goal is 
to make Flextronics a low-cost, soup-to-nuts developer of consumer-
electronics and tech gear.
Marks has an especially radical take on where all this is headed: He 
believes Western tech conglomerates are on the cusp of a sweeping 
overhaul of R&D that will rival the offshore shift of manufacturing. In 
the 1990s, companies like Flextronics "completely restructured the 
world's electronics manufacturing," says Marks. "Now we will completely 
restructure design." When you get down to it, he argues, some 80% of 
engineers in product development do tasks that can easily be outsourced 
-- like translating prototypes into workable designs, upgrading mature 
products, testing quality, writing user manuals, and qualifying parts 
vendors. What's more, most of the core technologies in today's digital 
gadgets are available to anyone. And circuit boards for everything from 
cameras to network switches are becoming simpler because more functions 
are embedded on semiconductors. The "really hard technology work" is 
migrating to chipmakers such as Texas Instruments, Qualcomm (QCOM ), 
Philips, Intel, and Broadcom (BRCM ), Marks says. "All electronics are 
on the same trajectory of becoming silicon surrounded by plastic."
Why then, Marks asks, should Nokia (NOK ), Motorola, Sony-Ericsson, 
Alcatel (ALA ), Siemens (SI ), Samsung, and other brand-name companies 
all largely duplicate one another's efforts? Why should each spend $30 
million to develop a new smartphone or $200 million on a cellular base 
station when they can just buy the hardware designs? The ultimate 
result, he says: Some electronics giants will shrink their R&D forces 
from several thousand to a few hundred, concentrating on proprietary 
architecture, setting key specifications, and managing global R&D teams. 
"There is no doubt the product companies are going to have fewer people 
design stuff," Marks predicts. "It's going to get ugly."
Granted, Marks's vision is more than a tad extreme. True, despite the 
tech recovery, many corporate R&D budgets have been tightening. HP's R&D 
spending long hovered around 6% of sales, but it's down to 4.4% now. 
Cisco Systems' (CSCO ) R&D budget has dropped from its old average of 
17% to 14.5%. The numbers also are falling at Motorola, Lucent 
Technologies (LU ), and Ericsson. In November, Nokia Corp. said it aims 
to trim R&D spending from 12.8% of sales in 2004 to under 10% by the end 
of 2006.
Close to the Heart
Still, most companies insist they will continue to do most of the 
critical design work -- and have no plans to take a meat ax to R&D. A 
Motorola spokesman says it plans to keep R&D spending at around 10% for 
the long term. Lucent says its R&D staff should remain at about 9,000, 
after several years of deep cuts. And while many Western companies are 
downsizing at home, they are boosting hiring at their own labs in India, 
China, and Eastern Europe. "Companies realize if they want a sustainable 
competitive advantage, they will not get it from outsourcing," says 
President Frank M. Armbrecht of the Industrial Research Institute, which 
tracks corporate R&D spending.
Companies also worry about the message they send investors. Outsourcing 
manufacturing, tech support, and back-office work makes clear financial 
sense. But ownership of design strikes close to the heart of a 
corporation's intrinsic value. If a company depends on outsiders for 
design, investors might ask, how much intellectual property does it 
really own, and how much of the profit from a hit product flows back 
into its own coffers, rather than being paid out in licensing fees? 
That's one reason Apple Computer lets the world know it develops its hit 
products in-house, to the point of etching "Designed by Apple in 
California" on the back of each iPod.
Yet some outsourcing holdouts are changing their tune. Nokia long prided 
itself on developing almost everything itself -- to the point of 
designing its own chips. No longer. Given the complexities of today's 
technologies and supply chains, "nobody can master it all," says Chief 
Technology Officer Pertti Korhonen. "You have to figure out what is core 
and what is context." Lucent says outsourcing some development makes 
sense so that its engineers can concentrate on next-generation 
technologies. "This frees up talent to work on new product lines," says 
Dave Ayers, vice-president for platforms and engineering. "Outsourcing 
isn't about moving jobs. It's about the flexibility to put resources in 
the right places at the right time."
It's also about brutal economics and the relentless demands of 
consumers. To get shelf space at a Best Buy (BBY ) or Circuit City often 
means brand-name companies need a full range of models, from a $100 
point-and-shoot digital camera with 2 megapixels, say, to a $700 8-
megapixel model that doubles as a videocam and is equipped with a 
powerful zoom lens. On top of this, superheated competition can reduce 
hit products to cheap commodities within months. So they must get out 
the door fast to earn a decent margin. "Consumer electronics have become 
almost like produce," says Michael E. Fawkes, senior vice-president of 
HP's Imaging Products Div. "They always have to be fresh."
Such pressures explain outsourcing's growing allure. Take cell phones, 
which are becoming akin to fashion items. Using a predesigned platform 
can shave 70% of development costs off a new model, estimates William S. 
Wong, a senior vice-president for marketing at Cellon. That can be a 
huge savings. As a rule of thumb, it takes around $10 million and up to 
150 engineers to develop a new cell phone from scratch. If Motorola or 
Nokia guess wrong about the market trends a year into the future, they 
can lose big. So they must develop several versions.
With most of its 800 engineers in China and France, Cellon creates 
several basic designs each year and spreads the costs among many buyers. 
It also has the technical expertise to morph that basic phone into a 
bewildering array of models. Want a 2-megapixel camera module instead of 
1-megapixel? Want to include a music player, or change the style from a 
gray clamshell to a flaming-red candy-bar shape? No problem: Cellon 
engineers can whip up a prototype, run all the tests, and get it into 
mass production in a Chinese factory in months.
Moving Up the Food Chain
Companies are still figuring out exactly what to outsource. PalmOne 
Inc.'s collaboration with Taiwan's HTC on its popular Treo 650 smart 
phone illustrates one approach. Palm has long hired contractors to 
assemble hardware from its own industrial designs. But in 2001, it 
decided to focus on software and shifted hardware production to 
Taiwanese ODMs. PalmOne designers still determine the look and feel of 
the product, pick key components like the display and core chips, and 
specify performance requirements. But HTC does much of the mechanical 
and electrical design. "Without a doubt, they've become a part of the 
innovation process," says Angel L. Mendez, senior global operations 
vice-president at palmOne. "It's less about outsourcing and more about 
the collaborative way in which design comes together." The result: 
PalmOne has cut months off of development times, reduced defects by 50%, 
and boosted gross margins by around 20%.
Hewlett-Packard, a company with such a proud history of innovation that 
its advertising tag line is simply "invent," also works with design 
partners on all the hardware it outsources. "Our strategy is now to work 
with global networks to leverage the best technologies on the planet," 
says Dick Conrad, HP's senior vice-president for global operations. 
According to iSuppli, HP is getting design help from Taiwan's Quanta and 
Hon Hai Precision for PCs, Lite-On for printers, Inventec for servers 
and MP3 players, and Altek for digital cameras. HP won't identify 
specific suppliers, but it says the strategy has brought benefits. 
Conrad says it now takes 60% less time to get a new concept to market. 
Plus, the company can "redeploy our assets and resources to higher 
value-added products" such as advanced printer inks and sophisticated 
corporate software, he says.
How far can outsourced design go? When does it get to the point where 
ODMs start driving truly breakthrough concepts and core technologies? 
It's not here yet. Distance is one barrier. "To be a successful product 
company requires intimacy with the customer," says Azim H. Premji, 
chairman of India's Wipro. "That is very hard to offshore in fast-
changing markets." Another hurdle is that R&D spending by ODMs remains 
relatively low. Even though Premier develops most of its own cameras and 
video projectors, "the really core technology," such as the digital 
signal processors, is invented in the U.S., says vice-president Hsieh. 
Premier's latest wallet-size video projector, for example, was based on 
a rough design by Texas Instruments, developer of the core chip. With 
margins shrinking fast in the ODM business, however, Premier and other 
Taiwanese companies know they need to move up the innovation food chain 
to reap higher profits.
That's where Flextronics and its design acquisitions could get 
interesting. Inside frog's hip Sunnyvale office, designers are working 
to create a radically new multimedia device, for an unnamed corporate 
client, that won't hit the market until 2007. The plan, says Patricia 
Roller, frog's co-CEO, is to use Flextronics software engineers in 
Ukraine or India to develop innovative applications, and for Flextronics 
engineers to design the working prototype. Flextronics then would mass-
produce the gadgets, probably in China.
Who will ultimately profit most from the outsourcing of innovation isn't 
clear. The early evidence suggests that today's Western titans can 
remain leaders by orchestrating global innovation networks. Yet if they 
lose their technology edge and their touch with customers, they could be 
tomorrow's great shrinking conglomerates. Contractors like Quanta and 
Flextronics that are moving up the innovation ladder, meanwhile, have a 
shot at joining the world's leading industrial players. What is clear is 
that an army of in-house engineers no longer means a company can control 
its fate. Instead, the winners will be those most adept at marshaling 
the creativity and skills of workers around the world.

http://www.edn.com/article/CA601510.html
If you really want to worry about the state of our industry?for both our 
engineers and our companies?pick up a copy of the March 21, 2005, 
Business Week, which is available free online with registration or at 
your local library. The multifaceted cover story "Outsourcing 
Innovation" filled in the details with examples and numbers of what many 
of us already know or have heard: Not only engineering-design roles, but 
also all of the functions?the very essence of many companies?are "going 
away." We are helping them to evaporate.
This issue is not about simple globalization. Globalization 
itself?locating your staff worldwide to take advantages of various 
perceived attributes they offer, for both technical expertise and lower 
cost?is unavoidable given the time, cost, complexity, and pressures of 
today's designs. Also, globalization provides an around-the-clock 
advantage and the technology-enabled ease of transferring data and 
designs from Point A to Point B.
But why stop there, many companies are asking? You can outsource product 
design to a third party, which in turn may use big chunks of external IP 
(intellectual property); you can outsource physical manufacturing; and 
now, you can even outsource your research and development. The article 
gave plenty of examples of which companies are using this approach and 
the results in apparent cost (read "people") savings. What's left? Not 
to worry, many say: The companies that outsource so many aspects of 
their roles can do the upfront product definition, as well as the 
product marketing. Sounds like a plan, doesn't it?
However, all this outsourcing buries a reality: Once your outsource 
partners learn how you define products, how you market them, and 
whatever other "secret" understanding you have or you assume that you 
have, and you have an "in" on your markets, those partners no longer 
need you. It's that simple. The "secret sauce" you think makes a 
difference may not be such a secret or maybe isn't the barrier to entry 
that you thought it was.
ADVERTISEMENT
You already see this entry of new players in diverse markets, such as 
home appliances and consumer products. In these markets, companies most 
of us have never heard of are using widely available chip sets and 
components and quickly developing a significant presence in the markets 
of long-established market leaders.
If a company thinks it can survive and remain a market force if it just 
does marketing and branding, while abandoning true R&D, design, and 
innovation, the company is deluding itself. The shelves of Wal-Mart are 
full of brands that used to be real players and now exist only as 
nameplates.
Remember RCA? Once the undisputed leader in TV innovation, the company 
spent more than a billion in 1950s' dollars to develop color TV as we 
know it today, including architecture, CRTs, imagers, and much more. 
Then, in addition to its other corporate missteps, such as going to 
conglomerate mode and supplying home appliances, carpets, rental cars, 
and more, it began the process of shedding. It outsourced the labor-
intensive soldering of the wired TV chassis that predate pc boards, 
albeit using US-sourced components. Next, the manufacturing of these 
components?mostly passives?moved; then, the design of these components 
traveled. Next came manufacturing of the more complex parts; then, their 
design; and, soon, all that was left was an empty shell of a well-
respected brand, and a name that used to have distinctive value?but now 
had none.
When your functions and true added value have atrophied by that 
magnitude, anyone can step in and take away your markets, shelf space, 
and business. Today's smart move to outsourcing almost everything may be 
the dumbest long-term move a company can make.