5 Questions to Consider When Choosing Between Outsourced or In-House Engineering

Seventy percent of OEMs are already using professional services or are planning to in the future, according to a 2013 survey by VDC Research.  But how should business managers choose between outsourcing an engineering project to a professional engineering design services firm, or assigning the work to an in-house engineering team? 

When considering outsourcing engineering projects, I’ve sat on both sides of the table, and I’ve seen my share of failures as well as successes. Here are five questions to ask yourself when considering whether to outsource your project or tackle it internally:

1. Does your project require expertise you don’t have? Some projects are a natural fit for your team’s skills, whereas others require knowledge your team doesn’t have—such as deep experience with a particular vendor’s chipset, or proficiency with network security, or specialized knowledge of digital video streaming.  Engaging an engineering services firm can be a quick and cost-effective way of bringing extremely broad and senior talent to bear on your project.  When managed well, the outsourcing firm can also train your in-house staff on important technologies while helping meet your immediate need.
2. Does your internal staff have the bandwidth to tackle the project? Very few engineering teams are sitting idle waiting for the next project to come in. Partnering with a reputable contract-engineering firm can be a good way to manage the occasional resource surges.
3. What is the importance of hitting the schedule?  Although in-house teams hate to hear it, the best engineering services firms often have a greater chance of success at delivering on a tight schedule.  The reasons are mostly structural.  Engineering services firms are structured so that they can be faster than in-house teams to ramp skilled personnel onto a project. Furthermore, the organization of those firms means their engineers are less likely to be pulled away for mid-day interruptions or emergency bug-fixing on the previous project. (It has been documented that interruptions are amazingly costly for development engineers.) The net result is that your partner’s engineers are often more likely than your internal staff to get large blocks of undisturbed time to focus on the project at hand, and thus they can be more productive.
4. How coupled is the work for this project to internal interfaces or processes within your company? It’s just not possible to outsource some projects.  If the project has an inordinately high number of interdependencies with your internal processes, or with undocumented internal APIs in your company’s other products, then it’s probably a bad candidate for outsourcing.  The best projects to outsource to a partner have fewer such undocumented interdependencies.
5. To what extent does this project contribute to your company’s sustainable competitive advantage? The best venture capitalists and business strategists I’ve known are ruthless about identifying the one or two things their company needs to do well—and then outsourcing virtually everything else.  If this project is really a part of your core knitting, then you probably want to do it with internal staff.  On the flip side, in my experience a lot of the work of most in-house engineering teams really isn’t core. Outsourcing this work can free up both internal resources and—more importantly!—internal management bandwidth to focus on the most important projects.

Howdy Pierce has held senior engineering management roles for over 20 years.  For the last 11 years he has been the founder and managing partner of Cardinal Peak, a 50-person engineering design services firm in Lafayette, Colorado. He blogs about engineering management at http://www.cardinalpeak.com/blog