Outsourcing of new product development : a decision framework

Abstract: The focus of the thesis is the outsourcing of activities in the New Product Development (NPD) process. Outsourcing of NPD refers to the outsourcing of development activities for developing new products (goods and/or service), where all or the innovative part of the NPD process is purchased externally according to a contract from organizational units separate from the outsourcing firm. This definition implies that (A) the activity shall be an innovative part of the NPD process, (B) the activity shall earlier have been conducted internally, and (C) the activity shall be purchased in a contractual agreement between the organizations. The present thesis focuses on outsourcing of NPD in medium sized firms. The framework developed is probably useful for small or large firms as well, but for the three empirical studies presented in the thesis, samples of medium sized firms have been targeted. NPD is a knowledge intense activity that requires ability to handle insecurities and which is very dependent on the individuals involved in the process. That makes it different from production that (especially when producing standard items in large scale) is easier to control, monitor and evaluate costs. Therefore some considerations connected to knowledge acquisition and insecurity need to be addressed. A literature review reveals that research on outsourcing often have a focus on A) Large firms and B) outsourcing of production activities. Also research on NPD often has a focus on large firms, even if we can see that the interest for product development in small and medium sized firms have grown rapidly over the last years. As we can also show that outsourcing of NPD is a frequent method to get access to competence, and to reduce costs and/or insecurity, it can be motivated to study outsourcing of NPD in medium sized firms. The thesis presents a decision framework that is based on three empirical studies (two survey studies and one case study) and a theoretical framework. The theoretical framework presented in the thesis is commonly used to understand outsourcing questions in general, but in the present framework applied in the specific situation of outsourcing a knowledge intense activity (as NPD) in a context of medium sized firms. Theories revisited in the thesis are transactions cost theory, resource based theory, resource dependency theory, knowledge based theory, agency cost theory, and institutional theory. Outsourcing can lead to advantages in form of lower costs, access to knowledge or other resources, or access to markets, but it can also lead to knowledge drain, lower motivation for in-house staff, or an increased level of dependency on external organizations. Therefore the decision to outsource is not always a good decision. The pros and cons must be carefully evaluated. The result of the thesis is a decision framework mapping factors affecting the decisions to make when outsourcing NPD. The implications can be of value for the outsourcing firm as well as for the potential outsourcing partner. The framework has been presented for the firms in the studies and to some extent been of value already. The framework will also be used for the design of the studies hopefully moving towards my PhD degree, with a new survey study and a case study focusing on knowledge integration.