How Outsourcing Kills Innovation

When companies outsource their manufacturing, suppliers close or move, engineers learn different skills, local colleges drop job-training courses, and the whole ecosystem shrinks.

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When one fisherman doubles his efforts, he doubles his catch. When the entire fishing village doubles its efforts, the fishery will be quickly depleted. Harvard Business School professors David Pisano and Willy Shih worry this is happening to the American economy—it is being depleted of its innovative spark—due to the rush to outsource manufacturing. "When companies outsource their manufacturing work, suppliers close or move, engineers learn different skills, local colleges drop some job-training courses, and the whole ecosystem shrinks."

What's the Big Idea?

What can be done to ensure that innovation and know-how remain plentiful raw materials? "In the private sector, [Pisano and Shih] argue, companies should spend more on creating products and less on marketing; articulate a credible long-term strategy to Wall Street and stick to it; accept that R&D outcomes are hard to predict; reinvigorate basic research; and add a committee dedicated to science and technology to each board of directors. For federal policy, they warn against trying to pick winners among existing companies and industries."

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