Outsourcing NPD – Marketing Expert View
Outsourcing is something many dairy companies look at periodically as it can improve efficiency, lower costs and potentially increase quality. It is of especial interest at the moment where, despite buoyant dairy markets, consumer demand on a European basis is subdued with significant deflation coming through pan-European retailers. Of course many dairy firms already outsource key activities, ranging from logistics, advertising and payroll to their food and drink PR setups. However, many dairy businesses such as Arla, Milk Link, Dairy Crest, Friesland Campina all have in-house R&D, whereas others see the benefits in outsourced R&D.
Outsourcing in the Dairy Industry
Within dairy, outsourcing can range from an entire NPD function being external to the business, or more commonly, certain skills being bought in to tackle key tasks or for strategic planning. Conversely in house NPD teams can vary from one centralised department for all NPD with the manufacturing sites as satellites from this central department to devolved NPD where one or two NPD staff are based in each manufacturing unit.
Outsourcing part or all of new product development functions can offer many advantages. For instance, it can be more cost-effective and flexible as it can make a specialist resource available when and where required, as opposed to a specialist being on the payroll all year whether used for their skill or not. It can keep up momentum on key projects where lack of time, attention or resources can stall a project. It can give an external and objective perspective, including the ability to tell the truth about a project which could be political internally. It avoids the need for the time and cost of training staff. The resource can be scaled up or down depending on the need. It provides specialists and potentially a more effective and sustained solution through the expertise deployed on the brief. In cases where a team is under resourced through key staff leaving, illness or workload it can provide a quick and capable remedy. It also avoids a growth in headcount and wage bill and is a spend that can be cut immediately in the event of financial pressure.
However, there are downsides to outsourcing. It diverts resources away from a coaching and development focus, which builds skills in house. It can demotivate existing NPD staff. It can focus on the completion of measurable projects at the expense of other, less tangible projects or wider business objectives. Other projects outside of the outsourcing contract can be starved of airtime and resource. It will almost certainly be more expensive on a per hour worked basis as the cost includes an element of profit for the NPD provider. At the end of the project, the organisation needs to work hard to capture the learning from the project so the learning is retained within the business.
The role of in-house versus outsourced NPD does depend on the business model. For instance, having a branded focus would require fewer, but larger innovations and these would typically be large leaps in format or platform development. Own label focused businesses would have a high requirement for existing Product Development, as pack weight, label and formulation changes are frequent, but typically modest as they are designed to deliver differentiation to individual retailers.
In the final analysis, individual companies need to take a judgment on what business guru Gary Hamel called core competencies. So, considering your in house NPD capability and your business strategy, ask three questions. Is it difficult for competitors to imitate our NPD?
Can our NPD be re-used widely for many dairy products and markets? Does our NPD contribute to the end consumer’s experience of the products? If you can answer yes to all three then investing in your own NPD capability is sensible. If not, then you should look seriously at outsourcing all or some of your NPD.
In reality, many leading dairy businesses have a mixed economy on NPD. This sees in house capability augmented by external contractors and consultants for strategic planning purposes, or where bespoke resource is needed. Branching out into a new market is a classic scenario where expert NPD & FMCG Marketing advice can bring perspective, objectivity and implementation skills to a project, significantly increasing the chances of success. Another is setting the strategic direction where external experts can facilitate a strategy session to identify the key Marketing & NPD objectives for the business.
Outsource v In House NPD:
If the project is existing product development or small in the context of the business – in house. Initial product or market brainstorm session outsourced. Facilitated evaluation of product concepts prior to feasibility – either. Projects where key expertise not present on the payroll – outsourced. Project management – in house.
Developing strategy so NPD links with Marketing & Sales Strategy outsourced – contact us for more on this, we are here to help.