Outsourcing R&D: Pros and Cons
Research and development are crucial for long-term growth in any industry. Organizations of every size rely on new ideas, services and products to compete – and they can’t afford to get the process wrong. That’s why more and more decision-makers have looked outside their organization’s research and development services. Outsourcing R&D operations offers a range of advantages and disadvantages but is consistently the smart choice for developing the new materials, products and solutions you need to grow.
Why Outsourcing R&D Makes Sense
Companies that outsource research and development have capitalized on the most underrated asset in manufacturing: focus. New markets, changing consumer tastes and regulatory guidance can pull manufacturers in dozens of directions, spreading internal teams thin and impacting production capacity.
Outsourcing R&D Pros
The benefits of third-party R&D vary based on industry, scale and other variables. In most cases, they offer financial, competitive and quality advantages over in-house R&D.
- Bandwith advantage – R&D operations can be costly, especially if they add exorbitant strain on existing proprietary operations. Jumpstarting a new research project can overwhelm personnel and facilities, leading to rushed work, incomplete testing and rework.
- Financial advantage – Expanding existing facilities, leasing additional laboratory space and hiring staff is expensive and often unnecessary. Constant expansion leads to bloated and often fixed expenses that exceed operational needs once the required product is developed.
- Expertise advantage – Food manufacturers have a wealth of institutional knowledge but may have little or no experience working with new ingredients or formulations. Outsourced R&D allows manufacturers to quickly tap into cutting-edge information and expertise and use those resources to educate internal teams.
- Speed advantage – The sum result is speed. Outsourcing research and development helps companies get a viable product to market faster, often with a lower financial investment.
Outsourcing R&D Cons
There are some negatives associated with third-party R&D, although these aren’t universal.
- Privacy & Security – Businesses often cite security and intellectual property rights as a chief concern with outsourcing services. Do your homework, review industry standards and company policies, and read the fine print of all proposals and agreements.
- Communication – Meaningful research and development include minute details and complex processes. It’s essential that both parties clearly communicate organizational structure, expectations, project timelines and endeavor to keep lines of communication open.
- Knowledge Gap – In some cases, the knowledge gap works against both parties.
- The manufacturer may not understand the specifics of the research topic, its implications or the development process.
- The researcher may not understand the manufacturer’s industry, market and specific demands required of the project.
- Intellectual property – Who owns what? While establishing ownership over IP is usually negotiated in the initial agreement, there are additional risks when third parties are involved. Provisional patents are expensive to establish, and litigating patent infringement is costly.
Making a Decision: Outsourcing vs. In-house Research and Development
There’s no one-size-fits-all formula for choosing between in-house and third-party R&D. It’s best to gather stakeholders and make decisions based on several factors. Only you and your leadership team know your capabilities, resources and expectations.
Ask your team these questions:
- What is our timeline? What is our ideal speed to market?
- How much budget can we dedicate to development?
- How will this project impact the success of our internal team’s current work?
- Does this project match our organization’s core competencies?
- How likely is our team to succeed? What are the immediate and long-term consequences of failure?
- How will we establish or negotiate intellectual property rights for the product? Will we also own the process?
Need help shaping the conversation? Tilley Distribution has been helping organizations make this type of decision for more than 70 years. We’ll help facilitate this discussion, even if we aren’t the right fit.
Where It Works – And Why
From technology to food manufacturing and beyond, industries have made the shift to contract research organizations (CROs). Comprised of academic and private entities, CROs are positioned to readily absorb complex projects and the “legwork” required to get them off and running. One industry, in particular, has embraced CROs as idea incubators – pharmaceuticals.
Outsourcing R&D in the Pharmaceutical Industry
The close relationship between CROs and pharma leaders has tightened further in recent years. One leader, AstraZeneca, signed several partnership agreements with CROs in 2013. The company cited the value of the local university for its move to Cambridge and now has contracts with Cancer Research UK, the Medical Research Council Laboratory of Molecular Biology and several other academic organizations.
They aren’t alone. Bristol-Myers Squibb, Pfizer and GlaxoSmithKline all rely on similar agreements to drive their R&D program. With pharma R&D spending expected to grow at 4% annually, totaling more than $200 billion in 2025, outsourcing will play a critical role in cost-effective product development.
We Develop Solutions
Tilley’s technical team provides bespoke solutions for food manufacturing, specialty chemicals and other markets. We combine experience, expertise and proprietary laboratory facilities to engineer market-ready ingredients and products. See what we can create for you; contact a Tilley representative today.