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October 29, 2012

Where Innovations and Outsourcing Intersect

Geoffrey Moore’s 2005 book “Dealing with Darwin,” identifies 12 different types of innovation, grouping them into four zones based on the types of markets they affect.

In this post, I will discuss what Moore calls the Operational Excellence Zone, a category he applies to mature markets. I will also share my thoughts on how outsourcing might lend itself to such innovations.

Briefly, the innovations in Moore’s Operational Excellence Zone are categorized as follows:

Value Engineering Innovation. Businesses with this type of innovation find ways to focus on a particular offer and dramatically drive down associated costs. Companies benefiting from value-engineering innovations include Bic pens, Southwest Airlines and Motel 6.

Integration Innovation. Innovations of this nature involve delivering complete solutions to meet a particular demand, ideally at a low cost and with reduced complexity. Among the companies that have successfully used integration innovations are Yahoo!, Microsoft, SAP and Lego.

Process Innovation. These types of innovations center on establishing deep process differences that separate businesses from their competition. Dell’s deconstruction of the retail PC sales model is a good example, as is’s idea of using the Internet to deliver software applications as services rather than products.

Value Migration Innovation. This describes innovations that allow businesses to switch to related products or services. Oftentimes a change in the company’s business model is required as well. Examples of businesses with successful value migration innovations include Kodak, Sabre and Marvel Comics, the latter which has watched its value migrate from print media to licensable intellectual property.

While outsourcing is no longer an innovation — companies have been doing it for years —its processes could be applied to businesses in mature markets attempting to influence operational innovations.

When you think about it, software development has benefitted from those same processes. For years — even decades — the software industry has relied on the heroic efforts of individual programmers, while never seeing significant improvements in its overall development processes. Slowly though, processes have become strengthened to the point where you can contract with a company to develop software and have some assurance that the programmers have the skills and a style you are looking for. Outsourced software development firms today aren’t just providing individual programmers; they are providing a more predictable process.Whether it’s CMMI or simply Agile methodology, we’ve come a long way.

Another way outsourcing can help achieve operational efficiencies is by improving the software a business uses, thereby allowing the business to better serve its customers. For example, we offered services to a bus company, a client underwhelmed with its off-the-shelf software applications. Outsourcing is a way to provide them with custom applications that help with bus scheduling, staffing and maintenance. Custom software is ultimately a way for the bus company to improve its overall service and the value it provides.

Andy Hilliard

As CEO, Andy leads and advocates for the globalization and collaboration of great software teams with companies in search of talent, innovation and a globally-distributed extension of their engineering function and culture. Andy founded the ground-breaking nearshore software development services company, Isthmus Costa...

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