When is externalized research better than internalized research and vice versa?

DARPA doesn’t do any research in house, which has several advantages. However even in the domain of Mission-focused research examples like Lockheed Skunkworks, Bell Labs, and others have demonstrated that internalized research can produce excellent results and has clear advantages. Internalized research lowers some set of Transaction costs, enables closer collaboration between disciplines, smooths transition to manufacturing, and makes capturing value easier. The fact that internalized vs externalized work is not a binary distinction but a spectrum makes the situation even more complicated. My hunch is that there is some class of work where the advantages of externalized research dominates and another class of work where the advantages of internalized research dominates. I don’t have a good answer to where that line is, but it is an important question to address.

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