As companies look to cut costs and increase revenues, outsourcing certain capabilities that aren't tied to their core competencies can be an enticing proposition: it can give them increased leverage by reducing expenses while expanding their capabilities. The decision is not so easy in the case of a company like RLK Media who has multiple factors at play. RLK has diminishing sales and desperately needs a new hit product. Its only prototype will require headcount it does not have to complete. To further complicate the situation, if RLK outsources these headcount gaps, it will be outsourcing its core competency and potentially threatening its brand image. When we view the situation through the lens of the four frames introduced by Bolman and Deal in their book, "Reframing Organizations," as well as the Competing Values Framework discussed at length in "Becoming a Master Manager: A Competing Values Approach," we can see the complexity of this situation. In the case "Feed R&D--or Farm It Out?", Lars Inman, CEO of RLK Media, is grappling with the issue of whether or not he should outsource the development of a new product-- when in fact he should be asking whether RLK Media should be building it at all.
The original concept for the iVid, the product Inman believes is the future of RLK Media, arose from RLK Media's in-house R&D team, led by Ray Kelner--founder of the company, and arguably the man responsible for drawing together and maintaining the R&D culture that is the "soul" of the company. To further develop and produce the device, Ray believes he must double his staff, which--given poor sales of RLK Media's other devices in a competitive market--isn't something the company is willing to invest in. Lars considers ways he can cost-effectively introduce Ray's new iVid headset after receiving a sharp scolding from RLK's chairman for not introducing any valuable new products to market. With his job on the line if he doesn't turn the ship around, Lars turns to Inova, a lab in India known for its high standards and exceptional innovation.
Rather than being a firm to which RLK Media can simply one-directionally outsource its work, Inova seeks a stake in the business. Inova has a strong staff of educated, organized developers. They want to work with RLK Media's staff to produce the product to get it out the door fast, charging far less than their competitors. Instead of a higher base fee, Inova requires a 5% royalty on the sales of the products they develop.
As we study the case of RLK Media, we see a number of red flags. First, the company's core competency has failed to drive it forward in its recent past, indicating that RLK Media's chairman, Keith Herrington, is spot-on in his observation that the company has lost sight of what its customer wants. That leads us to the second red flag: why, then, is Lars convinced that the company's customer wants the iVid enough for RLK Media to outsource, and risk seriously compromising the culture of the company? Successfully outsourcing to Inova would require dramatic, measured, likely costly structural and cultural changes within RLK Media to make the company more open to collaboration. All of these changes could be for naught if the product is a failure in the market.