Product design and development doesn’t simply involve creating a new product from scratch. The design cycle has several key steps including brainstorming, product prototyping, mass production, evaluation, marketing, and finally commercialization strategies. Not every new product makes it from conception all the way to the mass production phase. Small to medium-sized companies often have operational constraints like financing, equipment, and labor shortages. Many startups and product inventors face similar technical issues in the middle of the product development process.
Transforming a product from an idea to a mass-produced success is never an easy undertaking, even if you work for a multinational company with a large workforce, multiple facilities, financial resources, and access to great manufacturing vendors. While it’s true that all business ventures require the highest possible efficiency in resource allocation, giant enterprises are better equipped to handle the losses associated with the failure of a new product. On the other hand, micro companies often can’t afford to take that kind of risk. Small firms may choose to focus on staying cash flow positive with their current product roster, rather than risking profitability with a new product line.
In some cases, hiring staff and building an in-house product development team can drastically increase the burn rate for a small company. In these cases, companies may opt to outsource their product development initiatives and maintain lower overhead. Each approach has pros and cons to be considered.
In-house Product Development
In-house product development refers to using the company’s available resources to conduct all activities aimed at introducing new products, in an attempt to satisfy consumer demands or market niches. Every bit of research including market and profit projections are also performed by the company’s existing departments. If you have to hire new employees to handle relevant tasks, you must pay them on your payroll, too. Hiring a team of freelancers also counts as outsourcing.
☑ Pros: The company has full control of how the product development process is carried out. You have the freedom to assign every part of the task to certain employees and to directly supervise their performance. Since the process is most likely handled by multiple individuals, having an in-house product development team may improve efficiency, particularly if the team consists of individuals who have previously worked together to complete a project successfully.
✘ Cons: This can be a resource-demanding project, not only regarding funds but also employees’ qualifications. Without any qualified professionals on your team product development can be a nightmare at best or an unavoidable business disaster at worst. If you don’t have any immediate plans to hire new employees to compensate for the lack of proficiency in related fields, in-house product development is best avoided.
In-house product development takes time, effort, and money to deliver the kind of products that will give your company a competitive edge in your market niche. Only go with the in-house approach if your company has the professionals, readiness, and confidence to handle the full life cycle of releasing a new product. Also, careful hiring may be a worthwhile investment, since it allows your company to speed up the process for future product development initiatives.
Outsourcing Product Development
Outsourcing product development involves hiring a 3rd party (or a team from another business entity) to manage the product development initiative. You can outsource the whole job or only part of your project, depending on your in-house resources and technical capabilities.
☑ Pros: Outsourcing product development involves a smaller investment than its in-house counterpart because of the minimum strain to your workforce and other resources. There is no need to spend money on new equipment and facilities typically associated with the job, such as office space, CAD software, prototyping machinery, etc. Outsourcing saves you from a lot of paperwork in market research and bookkeeping. The providers will use their own tools to assign the tasks to their own employees on your behalf for a fee.
✘ Cons: Although you’ll still be involved in the process, you don’t have total control over how the process unfolds. The general idea of the product is yours, however, you’ll need to communicate that fact in detail to avoid mistakes and misinterpretations. The biggest disadvantage is that your company will miss the learning opportunity for future product development, but it’s a fair trade-off to achieve rapid results with minimum strain to your in-house resources.
There isn’t any definitive reason to say that one approach is better than the other. Both in-house design and outsourced product development have the potential to improve your company’s efficiency. Conversely, both may result in a product failure from poor design execution. From the perspective of efficiency, outsourced product development can turn out to be a money-saving approach especially if you calculate the investment on a per-project basis. In the long run, as your company grows, you should plan to have a team of product development professionals on your payroll to streamline operations.
Knowing When to Outsource
If you run a small business, it doesn’t always mean you’ll struggle to keep up with larger competitors’ product development cycles. Outsourcing product development allows you to focus on the things you do best: generating ideas, building a customer base, and enlarging your business networks in between product generations. It sounds great, but outsourcing may not be a wise long-term solution. As your company develops, you’ll want to handle every part of the business venture without too much involvement from an external party. In the meantime, learn to identify your company’s limitations so you can make an informed decision whether or not to outsource.
The following are some common indicators to tell if outsourcing is right for your project:
☑ Product development rush: You need to realize that consumer demand often outpaces the market’s ability to introduce new products. Even for a company that has been practicing in-house product development for many years, it’s normal to outsource occasional tasks. Every company has its own product scheduling, determined based on viability and resource availability. When the market calls for new products faster than they can be produced, however, the best option is to outsource the development so that the in-house resources can be utilized for other ongoing projects. This means that multiple processes can run simultaneously without restraining the already allocated resources or the occupied workforce.
☑ Deficiencies in your workforce: Even if you have a vague idea of what your next product should be, product development requires more than an abstract concept. It involves everything from prototyping to commercialization. A micro company with only a handful of employees might not have what it takes to handle the job. Product development requires people with multiple areas of expertise, including product design, analysis, documentation, prototyping, and production, to work together to form a collective.
☑ Limited funds: Engineering and product development firms understand that many companies choose to outsource certain tasks to external parties mainly due to the heavy financial burden commonly associated with product development. Those firms offer their services accordingly, at exceptionally competitive prices, because they too are facing fierce competitions in the market.
☑ The need for specialized software: The software used by product development firms can be pricey. Some even require subscriptions instead of a one-time purchase to be able to access all of the functions and to receive regular updates. Let’s not forget that it may take an employee months (if not years) to master new software. While the potential profits of the finished product can justify the cost of acquiring software, keep in mind that the capital investment also includes the training process. If you’re in a hurry, outsourcing the project is more likely a better deal.
Companies are now more committed to product evolution than ever before. Competition is increasing, with new brands introducing more options for consumers. To thrive in an aggressively saturated market, every company needs to push the boundaries of creativity to save valuable resources while continuing to improve at the same time. Product development outsourcing is an excellent business strategy to cope with the constantly mounting demands for innovations and affordability. Still, the outsourcing approach isn’t without its risks.
Possible Drawbacks
There have been quite a lot of instances where outsourcing product development is a poor design process. A lot of its issues revolve around the quality of service from providers and communication difficulties. Company culture also has everything to do with how successful or awful the approach can be. Potential disadvantages and hindrances include:
✘ Sub-par product quality: The mistakes that lead to design issues are probably caused by either the company or service provider. Significant quality concerns can happen if the company fails to provide enough details about the product idea or simply bad performance on the developer’s part. Either way, the most likely result is a substantial design flaw. When the flaw is so severe that a recall or replacement is required after launch, product development outsourcing earns a bad reputation.
✘ Misplaced trust: One of the most important elements in product development outsourcing is the company’s willingness to share information with the development provider, and vice versa. This task naturally generates a large amount of data, some well documented, some not. Unfortunately, it’s far too common for individuals from both parties to lack access to shared information, rendering the cooperation ineffective or time consuming.
✘ Technical difficulties: Outsourced product development comes with a lot of technical challenges, for example, difficulties in measuring return on investment and adhering to company procedures or standards. The different parties involved will have different policies and company cultures.
✘ Loss of control: In theory, working with a separate company to achieve the same goal should make things easier, but, in reality, differences and disputes do happen. A company (or the existing product development department of a company) is at risk of losing control over the undertaking because the service provider performs most of the jobs. The company remains involved but only to a limited extent.
Product development outsourcing does have the appeal that you don’t have to worry about every detail of the process and you get the finished product in accordance to your specifications. An external entity handles the job in its near entirety with very little involvement on your part. Still, many things can go wrong in the middle of the road, leaving you with an unfinished product or one that does not live up to its market or profit projections. To prevent the cooperation from becoming a business calamity, keep the suggestions below in mind.
1. Assume Control
You don’t outsource because you lack product design ideas, but because of limited resources to bring an idea into reality. The service provider does everything in the product development process based on your idea. You have the vision of what the product would look like and how it should function, so there’s no reason to present those ideas only to receive an entirely different product at the end of the process. Taking control doesn’t mean you have to scrutinize every little detail, but you need to stay informed and be the one to make all the important decisions concerning the project.
2. Insist on Having Proper Checks and Balances
Some product development firms hire professionals experienced in organizational communication strategies and project-relevant technicalities to do the supervision on your behalf. This approach is an excellent business practice because those professionals report back to you objectively. For the sake of achieving an even better practice of checks and balances, you too must assign supervisors from your own company. It isn’t a sign of distrust, but strictly professionalism. After all, you must protect your investment, which is being handled for the most part by an external entity.
3. Outsource to Firms That Recognize Your Value
There are plenty of product development firms that will gladly accept your project and promise you the world. Keep in mind that not every one of them has the right engineers and professionals to work on your specific project. Every company has a different approach about how to make a product, including various aspects of quality, durability, price point, appearance, etc. In short, a product should represent the identity of your company. Make sure the firm is experienced and knowledgeable enough to recognize the difference between your company and any other.
4. Outsource To Firms That Specialize in Your Market
The firm must also specialize in developing the type of product you have in mind. You don’t want to outsource product development of fashion accessories to an automotive engineer, sporting goods to a mobile app developer, or computer hardware to an architect. Do your due diligence before pouring the financial investment into the wrong product development firm.
5. Have A Test Run
Rather than asking a single firm to do the entire job right away, try to have a test run of its capabilities by asking the firm to do only a small part of the project design at first. If you like the results, proceed with the collaboration. Otherwise, have another test run by another firm. This method limits the risk of investing with the wrong firm. Be careful not to share your full plans with any product development firm until you have offered them the final contract, however.
All in all, product development outsourcing is more than just a method to save money. It can be a strategic tool to keep up with competitors and a learning opportunity to understand further how a product evolves from an idea into a marketable commodity. The lessons and experiences learned during the process are invaluable for the future of your company.
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