A Short Musing on Intellectual Property and Outsourcing

Plugging a remote team into your development process is a great way for enterprises to boost internal development capacity on-demand, control overheads by eliminating expensive, idle developer time and access talent resources that their local markets may otherwise not offer.  

Progressive businesses are awake to the benefits of contract outsourcing to remote teams, but it is still new territory for many, and there are common concerns that arise.

We often get asked by clients who are considering using a remote team in our network, “How do we control and secure our IP?”

There are two parts to the answer - the first part is around process and how you manage who builds what.

In our experience, the most common model is one where the enterprise has their own internal software development team(s), and are augmenting with external talent.  This team will design and build the core technology, but seek to farm out some of the less critical work or peripheral elements.  Decisions to outsource modular/elemental pieces can be based on a multitude of reasons, including: limited internal capacity; inability to add permanent resources as required; requirements may be outside the internal core competencies; economic/cost benefits, and; economies of scale.  Dividing up the non-core elements is probably the best and most obvious way to control aspects of any IP that may be developed.

To use an analogy, we could liken a large enterprise software project to that of designing and building a new car. The real IP of the car is its overall design and the way that those pieces are assembled and put together.  The enterprise would chose to retain the core pieces internally - say the engine, gearbox, drive train, chassis and interior. They could then allocate the less critical elements, such as bumpers, side mirrors and windscreen to suppliers who are experts in those fields.  A supplier working on one of those individual elements would find it impossible to know anything about the overall IP of the project (the new car).

This highlights another query that clients have, which is “Can we work with a remote team that may also be working with our competitors?”

To go back to the car analogy - the simple answer is, yes.  Even if Car Company A outsources the side mirror manufacturing to Supplier X, and Car Company B also uses Supplier X, the risks of cross-contamination are close to nil.  In many cases, the work can be so compartmentalised that Supplier X would know almost nothing about the new car.  In fact, they may not even be able to tell if the side mirrors are for a small compact car, a sports car or a SUV, based on the side mirrors alone.  Thus, Car Company A is highly unlikely to lose any advantage to Car Company B by sharing a common supplier.

Schematic of hybrid solution for internally built and remote-outsourced software development
Schematic of hybrid solution for internally built and remote-outsourced software development

We should not lose sight of normal market dynamics either.  Business is becoming increasingly competitive and it is not in the best interest of Supplier X to betray the confidentiality agreements and NDA’s that they would have signed, as they would quickly forfeit future work and risk compromising their brand.  Additionally, there remain all the usual legal recourses to IP protection, so a remote team doesn’t add additional risk beyond any other 3rd-party provider relationship.  Interestingly, studies show most cases of IP theft or leakage have been traced back to internal sources and employees; the risks are not external.

Part 2 of the answer, is the slightly uncomfortable realisation that it is really quite seldom truly novel IP being created that needs to be carefully guarded. These novel kinds of IP would fall into what technology entrepreneur Peter Thiel calls the “zero to one” category. Doing what someone else already knows how to do takes the world from “1 to n”, by adding more of something familiar. But when you do something truly new, you go from 0 to 1. (Read more about this: “Zero to One” by Peter Thiel).  For the vast majority of businesses, their true IP and key to success is in how they pull together and combine a wide variety of factors, and not a new piece of tech that can be copied.  

The secret sauce for the enterprise, really lies in their ability to, firstly, design the “best car”, and then to effectively make decisions about who makes what, which pieces they keep internal, and finally their ability to collate and assemble all of the parts into a novel, beautiful car - and then sell it to willing consumers to make a profit.  

In this global, boundaryless economy, working as an isolated, fully self-sufficient entity is simply no longer a viable option.  Best we figure out how to work with each other, with trust.

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