1) The document discusses outsourcing R&D by increasing effectiveness through an Innovation Driven Procurement service. 2) It recommends assessing criticality of innovation programs and selecting the appropriate sourcing model, ensuring business models are carefully aligned with suppliers and partners. 3) Open Innovation concepts like "Spin IN and Spin OUT" can increase R&D effectiveness by leveraging innovations from other value chains and connecting with new ventures.

1. R&D Sourcing Strategy: increase effectiveness
An Innovation Driven Procurement (IDP) Service
Capgemini Consulting is the strategy
and transformation consulting brand Tags:
of Capgemini Group
• Business Innovation
• Procurement
• Outsourcing
• Business Model Innovation
• Open Innovation
• Co-creation

2. Outsourcing R&D requires a substantiated choice of the sourcing mode, as
well as close alignment of the business models with Suppliers & Partners
Many companies source the majority of their revenues from Suppliers and Partners.
Outsourcing initiatives has been increasing significantly over the years. Following the
Situation Open Innovation concept, companies have initiated co-creation with suppliers and
partners. The next step is starting to outsource R&D.
R&D is one of the most protected business functions in the large companies. Driven by
IP and risk management this is not something likely to be shared with the outside
Complication world. There is hardly any experience, leadership, culture, methods and tools available
in current organisations to really open up – let alone to outsource R&D effectively.
So how can companies outsource R&D (or at last a part of R&D) in order to increase
Question flexibility and effectiveness, whilst maintaining focus and dedication to the value chain’s
needs?
Companies should assess the criticality of their innovation programs and decide on the
appropriate model of sourcing using the Global Sourcing of Services (GSS) model. The
GSS model is a decision support tool for the right sourcing strategy for their Business
Services and / or functions.
Answer Once an outsourcing decision has been made, suppliers/partners must be selected
based on their ability and willingness to take over (part of) R&D. The business models
need careful alignment and for current suppliers/partners, the change from contractor
to developer will be substantial.
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3. Open Innovation concepts can increase the effectiveness of R&D by the
concept of “Spin IN and Spin OUT”
IDP based on Open innovation
Value chain internal mechanisms
 Allowing suppliers to leverage innovations in other
value chains for increased profitability
 Connecting existing suppliers with engineers
 Searching and stimulating new developments within
the existing supply base
 Set up joint development programs, co-creation,
partnerships
 Provide toll gate services for new technologies
throughout the innovation funnel
Value chain external mechanisms
 Ensuring influx of innovations from other value
chains through suppliers
Innovators outperform the market  Scouting for new developments outside the existing
3,4% supply base and in completely different markets
14,3%  Creating flexibility in supplier segmentation and
dependency
11,1%
 Building scenarios of future markets with boundary
spanning networks
 Connecting with new ventures inside & outside the
0,4% product chain
 Changing the market focus or future market
Return to Shareholders Margin Growth
Source graphic: Prof Henry Chesbrough UC Berkeley, Open Innovation: Renewing Growth
from Industrial R&D, 10th Annual Innovation Convergence, Minneapolis, Sept 27, 2004
Source bar charts: S&P 1200 1995-2005 research 14-6-2010 3

4. A trade-off must be made how to source a Research & Development program,
by deciding on the optimal Ownership, Location and Management style
 The Global Sourcing of Services (GSS)
model is a decision support tool which helps
organisations to define the right sourcing
strategy for their services/functions.
 Eight different sourcing modes are defined
Offshore
varying in:
Location
- Location (onshore or offshore)
- Ownership (in-house or outsourced)
Onshore
Light
- Management Style (light or tight management) Management
Tight Style
 The GSS model ranks the different sourcing In-house Outsourced
options based on attractiveness by Ownership
evaluating the R&D program in scope, the
organisation and the environment
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5. Each R&D program can be analysed by five sets of Environmental
Characteristics that affect the choice of the right Sourcing Mode
 Each set of characteristics provides
a unique insight into what the
current maturity and preferred
sourcing strategy is for the R&D Organisation’s Service
program in scope Characteristics Characteristics
 Together they form the basis of the
sourcing strategy and will facilitate SOURCING
DECISION
organisations to make these Customer Competitor
sourcing decisions more effectively Demand Characteristics
Characteristics
by providing a systematic approach
to diagnosing decision parameters
Supply Market
Characteristics
 Based on the outcome of the GSS
model and the subsequent
discussions, companies will be able
to determine their strategy based on
research and best practices
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6. Using the analytics of the GSS model we build a Realistic Future Positioning of
the R&D function of the company
Example
To-Be:
Outsourced,
Offshore and Tight The analysis of an R&D program
Management.
Offshore
can result in a change in Sourcing
Supplier is seen as
(strategic) partner Mode. For any Sourcing Mode,
there are two options with respect
to suppliers:
Location
1. Develop the current supply base
Onshore
2. Extend and/or change the current
Light supply base
Management
As-Is: Tight Style
In-house, Onshore
and Tight In-house Outsourced
Management.
Supplier is seen as Ownership
contractor
Analyzing the R&D program can result in a different supplier relationship or
Innovation Partnership
14-6-2010 6

7. The Four Collaboration Enablers help a company to source the right partner
Levers Levers
 Organization  Definition of
 Power struggle objectives
 Key processes  Evaluation system
 Procedures  Remuneration
 Dashboards modes
and indicators  Supplier
 IT systems ARE THEY IS THERE AN
development
 Interface with  Pressure /
other functions constraints
ABLE INTEREST
TO DO IT? FOR THEM?
DO THEY DO THEY
Levers KNOW WANT Levers
 Training HOW TO DO IT? TO DO IT?  Participation to the
 Knowledge transfer conception
 Coaching  Emulation, Pride
 Skills import  Management modes
 Communication  Support basis
 Experimentation  Collective project
 Simulation exercise
If any of the four enablers is answered with “no”, the company should decide whether to
upgrade the current supplier/partner, or to source for a new or additional
supplier/partner
14-6-2010 7

8. Once the suitable sourcing mode and supplier/partner is defined, the Business
Models of the company and supplier/partner need to be synchronised
 The business model shows the
relationships between the customer, the
value offered to the customer, and the
organisational setup making it possible Resources Offer Customer
Co-creation
 As soon as the company decides to move
activities to the partner network
(suppliers), core capabilities within the Partner
Network
Customer
Relationship
company and supplier will need to shift
 This shift in capabilities must be Core Value Value Distribution Customer
Capabilities Configuration Proposition Channels Segment
managed carefully in order to prevent
redundancies, or worse, gaps
 Furthermore, the deal structure must fit Cost
Structure
PROFIT
Revenue
Streams
the cost and benefit drivers of both
Financial Performance
parties. The four enablers of collaboration
must be monitored continuously Source: Adapted from Alexander Osterwalder, Business Model Generation
14-6-2010 8

9. Capgemini has extensive experience in sourcing R&D and supporting and
managing suppliers in high-tech environments
Piloted appropriate methods & tools
Outsourcing
transition
Set up supplier mgt organization
R&D
Supported R&D transition to suppliers
Increased supplier R&D capability
Capgemini conducts R&D activities for
management
Outsourcing
Airbus in a long standing partnership
R&D
and
Collaboration methods and tools are
set up for management of R&D by Airbus
Other R&D and
management
Supply chain control for Siemens
credentials
supplier
Supplier mgt optimization for Basell
Supplier R&D mgt for Snecma
Co-innovation process for Faurecia
14/06/2010 9

10. Koen Klokgieters| Capgemini Consulting
Vice President Business Innovation Consulting
koen.klokgieters@capgemini.com
+31 (0) 6 27159293
Robbert den Braber | Capgemini Consulting
Senior Consultant Procurement Transformation
Robbert.den.Braber@Capgemini.com
+31 (0) 6 15030901
Capgemini Consulting is the strategy
and transformation consulting brand
of Capgemini Group