Ten Things You Should Know Before Outsourcing

Is outsourcing the new Holy Grail for R&D organizations? The IT departments in the enterprise went first and discovered lower costs and improved efficiencies by outsourcing call centers and back office projects offshore. Now the R&D development department in the same enterprise wants to follow the same outsourcing route and realize comparable results. It’s true that outsourcing can yield significant benefits. However, as many early adopters of outsourcing learned, there are some important signs a smart company takes note of before venturing into outsourcing. Long Circle recommends keeping the following points in mind to take you to your goals.

Outsourcing is a process that must be managed

If a company assumes that outsourcing means that they can toss their R&D projects over the fence (or in the case of offshore outsourcing, across the ocean) and extraordinary results will follow, they’re about to have a learning experience. Outsourcing is a process and processes must be managed to reap the best results.

The outsourced piece involves planning, including these high-level steps:

• Identify key stakeholders and the internal outsourcing team
• Obtain and retain executive sponsorship
• Assign the right project manager to interface with offshore outsourcers
• Identify goals, both long-term and short-term
• Identify suitable projects to outsource
• Define the process that feeds the offshore vendor
• Define metrics, including stages and dates
• Plan for and transfer technology
• Communicate goals and change to employees
• Measure performance

A good outsourcing project manager is hard to find

The project manager may have the most important role on your internal outsourcing team. Their abilities and skill set directly impacts the outcome of your outsourcing project. If Superman or Wonder Woman were available, they would be ideal. The next best thing is to search for an individual with the extraordinary characteristics that make up a good project manager. First of all, individuals with the greatest technical expertise do not necessarily make the best project managers. Can they understand the strategic impact positive and negative— that the project will have on the enterprise? Do they have the leadership and management ability, planning and execution skills to implement the project? How flexible are they? Can they adapt to change and overcome obstacles or unexpected glitches that crop up? If your project manager can understand the business objective of the outsourcing project, communicate clearly and implement, you’re on your way to success.

What time is it over there anyway?

Can your internal team get jet lag when they don’t leave the ground? You bet! Your in house project manager and team members can easily get burned out due to the amount of time they will put in working with the offshore team in a different time zone. The ideal situation is when your onshore team sends work to the offshore team at the end of their day in the U.S., goes home, and finds the work that the offshore team completed waiting for them the next morning. When the development engine is working around the clock, products reach the market sooner. However, to orchestrate this process requires both onshore and offshore teams to communicate effectively. Inevitably, conference calls must be scheduled to communicate with offshore team during hours that accommodate everyone, which means either early morning or late night calls.

The 3 C’s of communication: communicate, communicate, and communicate

Communication is often cited as one of the biggest challenges in outsourcing. The most obvious example is the language barrier; however your offshore team may also lack understanding of the U.S. cultural, business, and R&D norms. It’s a good idea to ensure that your vendor will have employees at customer interface points that not only have a good command of English, but also a good understanding of U.S. R&D protocol and best practices. In addition, having protocols and processes and regularly scheduled meetings are key. Communication channels must be developed within multiple levels and multiple facets: management-to-management; project-manager-to-project manager engineers-to-engineers; and accounting-to-accounting. The more ties between the organizations, the less likely loose ends will cause the project to stumble.

Uncover the hidden costs of outsourcing

Businesses rightfully expect to realize a good return on their outsourcing investment; however they may not be prepared for some of the costs associated with outsourcing. A reputable vendor should work with you to identify and contain costs in areas such as these:

• Decision to outsource: crisis mode instead of as part of a long term business strategy
• Identifying projects best suited for outsourcing
• Travel costs during vendor selection process
• Vendor’s level of expertise with embedded systems R&D and associated learning curve
• Vendor’s understanding of U.S. project management practices
• Vendor’s communication protocols and channels
• Costs associated with transferring technology to outsource
• Intellectual property safeguards and the real benefits

Lower cost is probably the first benefit that comes to mind when businesses explore outsourcing and it is a powerful short term benefit. Other tactical benefits include:

• Reduced project time
• Increased productivity and efficiency
• Increased technical expertise
• Reduced hiring costs
• Access to flexible work force

However, forward-thinking businesses realize that outsourcing offers strategic long-term benefits beyond cost savings. Outsourcing enables companies to focus on innovation and the high-value core products that increase market leadership. Eventually, businesses that embrace outsourcing as a change agent develop a new business model, a far better business model that can transform a business.

Communicate with your employees

When a company is implementing an initiative, such as outsourcing, that brings change to an organization, it’s important to communicate to employees at all levels the new process, the reasons behind it, and the benefits it will bring to the entire company. Without accurate information, rumors spread and misconceptions often lead to uncertainty, dissent, and low morale among employees. Keep in mind that familiarity leads towards favorability and let your employees know outsourcing is in the works.

Take the time to identify the work to be outsourced

One of the challenges of outsourcing is identifying the projects that will deliver the greatest return on your outsourcing investment. Straightforward projects with clear processes and objectives are good candidates for outsourcing, although the impact likely will be short term. Additionally, the person responsible for scoping the project must thoroughly understand the business objectives, project/product requirements, customer expectations, as well as the material, time, and people resources available.

Is it IT or R&D?

Embedded product research and development is not the same as IT development. IT development projects are targeted at a company’s internal customers. R&D product development is end market-driven and focuses on quality, time to market, feature sets, and cost of production. As a rule, an embedded R&D outsourcer should have expertise in embedded Linux, digital signal processors (DSP), FPGA, ASIC, communication stack, or mobile platforms and applications.

Choose your outsourcing partner carefully

After all, you’re considering putting your valuable intellectual property in the hands of an outsourcing vendor. Here are some of the things to look for:

• Ironclad intellectual property safeguards
• Attrition rate
• Expertise and experience in hardcore embedded R&D according to U.S. standards
• Best practices in communication protocols
• Corporate culture centers on quality, with methodologies such as Six-Sigma
• Corporate culture that encourages innovation
• Top employees and a corporate culture that respects and values them
• Vendor’s business processes align with yours
• Vendor demonstrates stability and inspires trust

For the early adapters, outsourcing especially offshore was uncharted territory and many lessons were learned. The benefits of outsourcing are many and are available to the R&D departments of the enterprise, but will only be fully realized by those companies who take the time and steps to prepare themselves.

About the Author

Hayden Hong, the founder and CEO of Long Circle, has over a decade of outsourcing and consulting experience. Prior to founding Long Circle, Hong was the president and founder of MacaoDude, a consulting firm that counts among its clients Motorola, Nortel, and various high technology companies in the Boston 128 area. In 2005, Hong merged the two companies to provide U.S. companies with low-risk, convenient access to China’s engineering talent, manufacturing industry, and emerging markets. His background includes managing U.S.–China offshore R&D projects for GE, as well as management positions at Broad Reach Communications, a GE partner. Hong received a MSEE degree from Purdue University and a BSEE degree from Northeastern University, graduated magna cum laude.

About Long Circle

Long Circle provides outsourced engineering services to companies whose products and services rely on embedded software and hardware technology. Long Circle and the Long Circle China Center of Excellence enables U.S. companies to reduce costs, increase engineering bandwidth, and broaden market reach by providing low-risk, strategic access to China’s engineering talent, manufacturing industry, and emerging markets. To learn more about Long Circle, visit http://www.longcircle.com.