Low cost and innovation are essentially poles apart. Right? Innovation requires R&D and often lots of it and this costs money. How can we then create low cost innovation? To solve a conundrum one often needs to think outside the box. Think differently. That often entails not following the track well beaten. Does Low Cost mean Cheap? Does innovation mean one of a kind?
At Stretch we see that the Global trend within IT continues unabated. Many large companies are establishing their IT departments in India within the four walls of their own company. This counters the disadvantages with traditional outsourcing (namely that the employees of the outsourcing company do not understand the business of the company who’s IT they are handling) by taking advantage of the cost advantages that IT in India provides namely access to highly skilled staff at a lower cost. This also undermines a key reasoning that was long held namely that “in-house IT” needs to be produced locally. Most of the big Nordic companies are truly global so local in that sense is not equivalent to where the head office is placed. Again another conundrum. Local in a global sense means anywhere in the world.
Nonetheless, there are companies bucking the trend. One large Nordic company is bring outsourced IT in-house and producing it locally in the nordics. The jubilation that such a decision might once have generated might be tempered by the reasoning that in order to relocate outsourced IT to “in-house IT” in India you need to bring it back to the head office and under control within the four walls of the company. Only time will tell. Nevertheless, the trend is clear. Like all areas more needs to be delivered for less and IT is no exception. In many cases Outsourcing 1.0 has not brought any cost efficiencies with it and the response is to bring IT in-house firstly locally and then globally. What should we in the Nordics do once “in-house IT” is produced globally?
Quite simply, we need to think global and act local. In order to be a low-cost producer (rather than just plain cheap) we need to be efficient and develop innovative solutions. What is innovation then? It is many things however in the IT world it is harnessing the innate value of the internet to produce new services that create value for individuals and businesses. Examples of this are many. On the consumer side we have Payment solutions such as Klarna, Entertainment platforms such as Spotify and Netflix as well as Trading platforms such as Blocket. These solutions are based around basic human needs, they are scalable, can be generated in large volumes and therefore are low cost to consumers as they can be produced in a repetitive fashion. They have grown large and global very quickly mostly during the last ten years and left more traditional industries bruised and battered. Blocket for example is present in 29 markets. A paid version was launched a little over 14 years ago. Through innovation and harnessing IT we in the Nordics can also be “low cost IT providers”. Low cost IT is a relative term.
A large part of the economic welfare of the post war era in the west was built upon industrial production where we humans were an integral part of the production process. This occurred at a time when globalization was not yet a reality. Now it is and this has led to industrial production being moved offshore because local production was too expensive with both our wages and social taxes. If we are to regain industrial production we need to pack products with more innovation in order to do it “low cost”. An innovative car that drives itself thanks to navigation capabilities provided by Nokias Here solution and produced locally is relatively low cost as compared with a car produced in China that needs to be driven (if one values ones time of course). Another example of this is Tesla Motors where cars are produced in California of all low cost places. Of course a Tesla is not cheap but given that one can avoid buying oil for the lifetime of the car many might regard it as low cost. The trick is to not equate Low Cost with cheap. Something that is cheap doesn’t cost a lot whereas something that is low cost is low cost relative to something else. What we should be spending our time thinking about is how to mass produce innovative products and solutions low cost to solve basic human needs by harnessing the power of the internet. Only then can we regain industrial production.
One area where we are just getting started is health and DNA management. This area is focused on how to harness insights on our DNA and dietary habits to make us healthier and live longer. Examples such as Dynamic Code provide DNA health analysis over the internet. Another is customer insights and how to harness the value of Big Data to enable us to perform smarter situation and preference based marketing.
Innovation needs to be more clearly placed on the agenda in all of its forms. We need to be better at identifying where costs arise (whether they be transaction, personal or whatever) occur and how the internet can be harnessed to make transactions more efficient. We need to spend more time identifying how production process can be streamlined using robots and other solutions so that we can also keep industrial production local.
Once we outplace parts of our companies we have reached for a short term solution to a long term problem when we rather need a long term solution. We need to identify solutions that are required by citizens globally and that can be produced locally.
We are still at the beginning of the IT revolution and we need to master it. I wish that I had a whole platter of innovative solutions to list but unfortunately I don’t but there is certainly many out there. The solution however is not to hope for a return to the way things were because such a return is often very brief. Stretch has placed time and effort into investigating internet health based upon DNA solutions. We need to do more but we are not alone.
Read more about Digitized Health in our Whitepaper and blog.