In collaboration with the Norwegian company StatoilHydro, Siemens is developing the world’s first floating wind turbine. In a departure from the method commonly used so far, instead of securing the windmill to the sea floor with a gigantic pylon, the power plant is to be stabilized by a special flotation buoy equipped with an anchor, reports the research magazine Pictures of the Future. The innovation makes it possible for the first time to have wind parks on the high seas, in addition to ensuring more efficient exploitation of the wind power and not endangering coastal fauna. Plans call for a prototype to be put into operation off the coast of Norway in 2009.

A new Economist Intelligence Unit study looks at the opportunities and challenges of outsourcing innovation in the manufacturing industry

While many manufacturers are comfortable outsourcing non-core parts of their business, most have been reluctant to outsource research and development (R&D). However, according to Outsourcing innovation: A manufacturer’s perspective*, a paper by the Economist Intelligence Unit and sponsored by Siemens PLM Software, this is about to change. In an online survey of 306 senior manufacturing executives conducted for this report, 57% of respondents said they expect to see an increase in the proportion of innovation coming from external partners.

Manufacturing companies pioneered outsourcing—especially in the automotive sector—as a way to cut costs and focus on core competencies. The survey shows that, decades later, these remain the top two motives for outsourcing. The survey also shows, however, that 22% of manufacturers use outsource-providers as a source of innovation—whether that be in product design or in process improvement.

Much more could be done, however. Fully 41% of firms admit that, in the past three years, little or no innovation at their organisation has been derived from external partners. A further 37% say that only about one-quarter of innovation has been derived from external partners. Respondents to the survey clearly see a benefit in seeking innovation outside of the organisation’s R&D laboratory—especially given the skills shortage in design and engineering. However, the biggest barrier to outsourcing innovation, according to the panel, is trust.

Companies fear losing intellectual property to partners and competitors. Most physical products start life as a blueprint on a computer and this is when they are most vulnerable. Five-years worth of R&D can be loaded onto a memory stick in a matter of seconds. While information technology security can go some way to preventing this from happening (through judicious use of firewalls, network access-rights, encryption, etc), the majority of respondents (57%) feel that their firms need to invest more in technology in order to facilitate the sourcing of innovation from external partners.

“With the war for talent intensifying, especially in the design and engineering arena, manufacturers can no longer rely on finding all the best ideas under their roof,” says Robin Bew, editorial director of the Economist Intelligence Unit. ”To keep pace with the breathtaking pace of product innovation, outsourcing elements of research and development may be the only viable way forward.”

Other key findings of the report include the following:

• The term “innovation” is generally applied to new products and services. Most companies measure innovation by counting the new products and businesses they launch (64%). The second most popular method is to calculate the proportion of revenue growth that is attributable to these new products and businesses (54%). Counting the number of patents filed comes in a distant third (32%), while some manufacturers still do not measure innovation at all (8%).

• Skills shortages will increase the need to look externally for innovation. Fully 58% of the survey sample said that, in the past three years, it has become somewhat harder or much harder to hire talented employees who can deliver innovative ideas.

• More openness is needed. Most respondents believe that establishing better communication channels with partners—both face-to-face and virtual—would make capitalising on their ability to innovate easier. The majority of companies believe that having an open culture in which knowledge is shared is essential to capitalising on innovation from external partners.

The research for the report is based on an online survey of 306 senior executives. The survey, which was conducted in March 2008, focused solely on manufacturing industries. Most of the firms were large, and one-fifth had annual revenues in excess of US$10bn. The participants were drawn from an global sample, but with an emphasis on Asia-Pacific (33%), western Europe (28%) and North America (24%). To obtain additional insight, EIU also conducted a series of in-depth interviews with senior executives and independent experts.

*Free copy available from Joanne McKenna, Press Liaison, +44 (0)20 7576 8188; joannemckenna@eiu.com