Engineering Outsourcing 101

The trend towards engineering outsourcing continues to accelerate as more companies embrace the value proposition and become more proficient at leveraging outside resources. As more companies adopt outsourcing, it is increasingly important to be fluent in managing outside engineering resources. This article discusses some of the factors driving this trend and provides insights on how to best choose and use outside engineering resources.

I should begin by clarifying that "outsourcing" does not necessarily mean "offshoring." In this article, we will consider "outsourcing" to be any engineering work that is handled by outside resources including temp employees, independent contractors, small and large North American design services organizations, ODMs, and both project-based and captive design center offshoring. We will also focus on outsourcing relative to development of embedded systems.

The primary benefit of outsourcing is accelerating time-to-market. To build a new engineering team, you must:

• Define job descriptions,
• Post positions,
• Sort resumes,
• Interview,
• Make offers,
• Acquire and set up engineering tools, and
• Get the team working effectively together.

This process is extremely time-consuming. There are also secondary issues to consider including

• The risk that new hires do not prove to be the right fit,
• The long-term commitment to fixed overhead (i.e., the new hires' salary), and
• The increased fixed costs in operations, IT, HR, facilities, management, and the like.

The traditional approach of pushing all engineering through a fixed "pipe" of internal staff also presents resource allocation problems. Most companies have multiple projects running at once. To prevent project delays, staff levels can be set based on the peak demand across all projects. However, this approach leaves staff underutilized during non-peak times. Alternatively, design starts can be serialized based on capacity constraints. The problem here is that project scheduling becomes disconnected from market demand: Instead of targeting market windows, schedules are set by staff levels. Either way, the approach is becoming outmoded. The tech market is dynamic, with garage and venture-backed startups continually challenging the innovation of established leaders. Product designers simply cannot afford an inefficient engineering process.

The underlying technology continues to evolve at a rapid pace as well. Every month there are introductions of new DSPs, MCUs, FPGAs, ASSPs, tools, algorithms, and the like. Companies that use new technologies quickly can capture immediate market share gains and significantly increase profits over the product lifecycle. Outside resources often have familiarity with the newest technologies, which can further reduce development cycle time. As an example, consider TI's newest DaVinci SoC, the DM6467. Nuvation is already developing a number of products based on this device. Some of this development work started before the device was even announced. We have been told that we were first to implement DM644x, first with H.264 on DM642, and first with ADI's TigerSHARC 201.

In short, outsourcing can significantly increase time-to-market while controlling fixed overhead and reducing risk. This applies to startups and established companies alike. For example, two-thirds of Nuvation's clients are firms of more than 1,000 employees and some of our largest clients are in the Fortune 100.

Choosing individual contractors and temp agencies
Consideration of outsourcing usually starts when you have more projects than people. If you need a few engineers to come onsite and integrate within a larger team, you can just contact your favorite contractors or temp agency. Contractors and temp agencies generally rely on specialized technical skills to fit a particular piece of the puzzle. You will need to supply:

• The job requirements,
• Facilities and (often) tools,
• Project and personnel management, and
• Quality control programs

Using temp resources within a larger team can be the optimal approach for new product development, especially if the development requires substantial use of in-house teams or "tribal knowledge." We suggest not using teams of independent contractors for project-based work. Independent contractors lack the team knowledge and cohesion needed to work together as a unit. Trying to have one person handle multiple disciplines can also increase project risk. Independent contractors are generally very seasoned, but there will be knowledge gaps if you stretch someone too far. Figure 1 illustrates the various outsourcing options and the pros and cons of each.

Figure 1. The outsourcing options.