"feed R&d, or Farm It Out?" Team Case

Part I: Problem-Issue Formulation

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.

Bolman and Deal introduce a four-framed approach to thinking about business decisions and challenges, in part to illuminate the risk--and the risks for RLK Media are many. We start with Bolman and Deal's Structural frame, and the Control frame of the Competing Values Framework. These frames are focused on the structure of the organization and its operations. These frames help us understand how the structure of the organization might be impacted by a certain decision. There are several potential opportunities associated with outsourcing development of the iVid: for example, short term cost efficiencies, and an end product--should the company contract with Inova--that would be less tied to American design and therefore more suitable for ongoing development by innovators outside Ray's team. The challenges, however, are many, and include that of maintaining the in-house loose, creative structure while coordinating with a highly organized structured partner. It's somewhat questionable that RLK Media will be able to plan and coordinate with a much more structured partner whose employees are used to getting things done in-house, "like bees in a hive." With its innovation and product development outsourced, RLK Media would have less control over product development, and could be obligated to pay royalties forevermore to the outsourcing partner.

The Human Resource and Symbolic frames introduced in Bolman and Deal's book--which have a lot in common with the Collaborate and Create frames of the Competing Values framework-- are especially useful with this case, as they help us understand how this decision could impact employees and culture. Outsourcing could seriously impact RLK Media's culture which stands to disrupt their entire operation. RLK Media could potentially enjoy a morale boost by collaborating with Inova, if it can design a way to collaborate that works for both teams. We must also consider the associated morale benefits that would come from launching a product that originated in-house, from Ray. If it is a winner in the market, this could lead to increased commitment, enthusiasm, innovation and growth. On the flip-side, as stated earlier, the company might not be able to collaborate effectively with external folks. Over the history of the firm, internal R&D has been the life blood, the pride, of the firm. Employee morale could tank, with the loss of control over its R&D. Outsourcing R&D could seriously damage RLK Media's "unique creative culture, " and there is a high risk of talent churn if Ray is not behind outsourcing. Ray could leave, as could others in the company who were not directly involved in R&D, leaving the company in a challenging spot long-term.

Bolman and Deal's Political frame illuminates the challenges of putting together two functional groups that firmly believe in their way of doing things. Inova has a tested and proven method of innovating and developing, and RLK believes it has the same. The former seeks to act essentially as a new, turbo-charge engine of innovation for RLK Media, while the latter--at least according to Ray Kelner--is doing more than fine, what with its recent breakthrough with the iVid. Of course, RLK Media needs more funding to keep functioning as-is--which begs the question why, if its operations are effective?

The Compete frame of the Competing Values framework,