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The research decision: in-house or contract out?

Many companies, upon initiating market or business development research, simultaneously confront a key question: should research be done in-house or contracted out? Given the diversity of circumstances which prompt the need for research - expansion, exporting, new product development and more - there isn't a single benchmark which answers the question. What can be provided however, are five major factors to be considered. When used as a checklist, these allow for an objective choice to made, no matter what industry or market you're in.

1. TIMING: The first key factor to be examined is the timing of the market research, relative to your company's internal decision cycle.

When the market research is exploratory in nature and no decision has yet been made to commit the company to expansion or developing the new product, having initial research conducted in-house is a safe route to pursue. At this stage, the focus of the research will be more on getting a |feel' for the market, a |green light' to move forward.

Once your company is further along in the decision cycle - for example, the decision to expand into US. markets has been made - then the nature of the information sought, i.e. should you be going into the Northeast or Northwest U.S.?, requires the input. Input should come from a firm or researcher closer to the market or more experienced in supporting business expansion. When these circumstances prevail, contracting out is the alternative to choose.

2. OBJECTIVITY is a closely related factor which also must be weighed in the in-house versus contract research decision.

In cases where the research is to be conducted on new markets or new products about which your staff do not have biases and there is little risk of subjectivity entering their findings, the in-house approach can safely be pursued. The decision to introduce a new product or tackle a new market provides an excellent opportunity to elicit employee input or ideas.

However, if the markets being researched are ones in which your company has been established for some time, current staff may be too familiar with the market or too quick to fall back on assumptions which will mar the objectivity of the results. It is particularly important, if the markets under investigation are those in which growth is flat or market share has eroded, that a full measure of objectivity be brought to bear. Contracting with an outside research house will ensure you gain new insights about directions to take.

3. FlNANCING is usually the pivotal factor in deciding to have market research done in-house; since there is no visible outlay of funds, the illusion of |saving money' is created.

At times, this may be true. If your company has a traditional |slow' period during which qualified staff are available to do the work then there may be financial advantages to conducting the research in-house. Since salaries, benefits and overheads will be covered anyway, the time can be put to good use.

When no such 'window of opportunity' exists and research must be worked around regular duties, no real saving will result. Either the research will be poorly done or regular tasks will be under-performed. Continuity, which is a critical factor in successful research, may be lost altogether. Even when these circumstances don't exist, before a decision is made to do the work in-house, the costs to the company must be analyzed. Not only should employees' hourly rates and benefits be calculated, the overhead costs to your company of maintaining these employees need to be assessed. These figures, when totalled up, may come surprisingly close to the cost of contracting out the work. When the costs of disrupting activities to do the work in-house or of having research done spottily are high, then contracting out may be the better option.

4. RESOURCES: Equally critical is the factor of human resources and whether staff available to do the work in-house have the skills and expertise necessary to conduct reliable research.

In highly technical industries, such as defence, computers, etc., detailed technical product knowledge may play an important role in conducting successful research. This is especially true if the respondents to a survey are technical people and technical jargon will be used, as may occur during an investigation aimed at identifying ways to improve existing products. On such occasions, in-house research, using current staff or semi-retired senior employees, may be the best option.

On the other hand, if your preliminary analysis shows the information you need has to be sourced from competitors or will best be sourced from customers on a confidential basis, or a combination of similar factors affects the project, using a third party will prevent problems and provide you best option. A similar decision should also be made if in-house research staff lack specialized expertise or are so overloaded with current research that an additional project will be poorly handled.

5. RISK: Along with the other factors, the risk involved in doing your own research versus contracting out needs to be evaluated.

Exposure may be a critical issue if your market research is to support the introduction of a new product or expansion into new markets. It may be unwise for your company's name to be connected with the work. But if the danger of being copied is low or the investment in equipment relative to the production cycle restricts the possibility of other players entering the market quickly, then there is less risk in having your name linked to the research.

Along with anonymity, the other risk factor to assess is the long-term cost to the company relative to the investment being made. When market research is undertaken to support extensions of existing product lines or penetrating new markets with existing products, your company is not likely to be involved in major capital expenditures, meaning there is less risk involved. When plans call for new plants or additional capacity, the risk is higher and can be reduced by having one or more third parties conduct the research and lend their objectivity to the exercise.

While there will always be a variety of issues to resolve in making the decision on whether to conduct research in-house or contract it out, using the above guidelines will ensure you can make the best choice in the least amount of time.

Deborah C. Sawyer is President of Information Plus Inc., a firm of information brokers and consultants. Since 1979, the firm has provided market research and related services to a range of clients.
COPYRIGHT 1991 Canadian Institute of Management
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Sawyer, Deborah
Publication:Canadian Manager
Date:Mar 22, 1991
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