Can outsourcing really save me money?
Absolutely! If done correctly.
What are the pros and cons of outsourcing?
Cost savings is, after all, one of the primary reasons to outsource. But if you're only after cost-savings, thread carefully. Remember to factor in the loss of tax-credits (like the SRED in Canada, or State credits in the US), travel costs, and the overhead of managing a remote team.
As a general rule: the bigger the project, the greater the opportunity for cost savings through outsourcing. I've seen after-tax savings in the order of 50% for medium-size ($1 Million) projects.
But I can't stress enough the importance of choosing the right service provider and having the right people in place to manage the project. Done without care, those cost savings can quickly evaporate.
Can Software, Electrical, Firmware, and Industrial Design be Outsourced?
The obvious pro
to outsourcing is cost savings. But there are other reasons to consider as well:
- It can be the fastest way to quickly form an engineering team.
- An outsourced project team can easily expand and shrink to meet changing demands. That can be a challenge with an in-house team.
- Some outsource teams are actually better at what they do than your in-house team.
- Quality software development relies heavily on having the right infrastructure, processes, and culture in place. It can take a year or more to establish the necessary processes, implement software management tools, and change the internal culture. The right outsource vendor has it all in place and ready to go on day one.
- An outsource team can more easily stay focused. Internal teams are often (understandably) distracted by legacy support issues, customer/sales demands, etc.
So what's the down side?
- Finding the right team can be time consuming and costly. Is the project big enough to justify it?
- Outsourcing the next big sexy project that all the in-house engineers want to work on can have a negative effect on morale.
- The outsource team won't know your business the way your in-house people do.
- There can be significant cultural differences between the way your people work and the way an outsource team works.
- There can be communication and language issues working with outsource teams.
- There may be intellectual property protection issues to consider (some outsource destinations are better than others for this).
- Holding an outsource partner accountable for results may be more difficult.
- It may be difficult for your outsource-partner's engineers to travel to North America. This can be an issue if you need them to come to your location or to visit some of your customers.
Despite this list, I'm a big believer in outsourcing. These cons can be managed, and I believe that the pros more than make up for them. I've seen outsourcing work badly. But more often, I've seen well planned and managed outsourcing projects work extremely
well. The key? Have the right team, the right project, and the right management.
Software is generally the easiest of the 4 to outsource. The vendors are plentiful, the intellectual-property issues are simplest, and that job can be more easily demarcated from other aspects of a product or system.
How can I find a good Outsource Partner?
Firmware is a little more difficult to outsource. The supply of vendors is still a bit limited and the cost savings are not as easily attained. Also, because firmware is so much more closely tied in to the electrical design, separating it from the electrical design process is a bit trickier.
Electrical Design can be expensive to outsource. It generally makes the most sense if it is outsourced through a common OEM or ODM business arrangement. The challenge with OEM/ODM, especially in Taiwan or China (where it is most cost-effective), is that those vendors generally do a poor job with the firmware. I advocate a hybrid arrangement: where the Asian OEM/ODM partner does the hardware design and low-level firmware, and a separate firmware outsourcing partner takes on the firmware heavy-lifting.
Industrial Design is often very closely tied in with your brand marketing initiatives, so outsourcing it and still maintaining market- differentiation can be tricky. This question is best answered on a case-by-case basis. Sometimes the OEM/ODM agreement can be written to address this. Sometimes in-house designers can supplement outsource design. Sometimes, it is just better done in-house.
If you're looking to outsource just Software
then the answer is clear. Check out http://www.accelerance.com
. These folks (literally) wrote the book on Software Outsourcing and can put you in touch with a quality software vendor pretty well anywhere in the world. You will find a plethora of useful information on their web-site, including webinars and a free copy of the book: "Software without Borders" by Steve Mezak.
If you're looking to outsource Hardware
your options are much more limited. There are vendors in North America and Europe that do great work, but can be expensive. There are lower-cost vendors in Eastern Europe and ex-Soviet countries that do good work. There are also options in the Orient (Taiwan, China, Korea, Singapore ..) if an OEM/ODM or variant of that model will work for you.