In a previous corporate assignment, I was asked to participate in a misguided effort to save money by outsourcing a significant portion of the engineering function. At the time, it was a simple math exercise to deliver at least $ 25 million a year in cost savings. The number of engineers impacted was determined by looking at the labor rate differential between internal and external off-shore. A large, international business consultant had assured senior leadership that engineering could be easily off-shored like other back office functions and that everyone else was already doing this. My role was to be a subject matter expert.
As I walked away from the “kick-off” meeting, I felt I had just witnessed insanity. The only question I had at that point was whether I had the energy to try to change the thinking or should I roll over and play dead. The answer came quickly. Since there was no way I would want to have to pick up the pieces and be viewed as part of the problem, I had to be part of a rational solution. I needed to convince senior management that there were much more intelligent ways to deliver cost savings without desecrating the internal technical expertise and sacrificing an engineering function that had been a competitive advantage for years.
Now it was a given that challenging the recommendation of a million dollar consulting agreement and getting senior leadership to change their mind was risky, but I was convinced I was right and there were plenty of colleagues who shared my perspective. We rallied together.
The first thing we needed to do was educate leadership that what our engineers did was not just textbook calculations or routine drawings. Engineers possess a certain amount of domain knowledge (i.e., knowledge of the company’s products, processes and customers) that can only be acquired through experience with that company. This is true for most, if not all, companies. This domain knowledge is not readily purchased, especially from external off-shore contract engineers.
In addition, our company had a set of core competencies (i.e., things our company did well that provided customer benefits, were not easy for competitors to imitate, and could be leveraged widely across many products and markets) that needed to be maintained and protected. The engineering function played a key role in many of these core competencies and this expertise was developed through experience. Core competencies are what give companies a competitive advantage.
We were ready to make our case. The success of our company relied on our engineering function having domain knowledge and expertise in the company’s core competencies. This was not available for purchase and we needed an internal engineering function that would ensure this knowledge was sustained over time. There were more intelligent ways to deliver savings. Senior leadership listened and their response can best be summarized by a declaration made by one of them, “Engineering is not engineering!” They now understood that our engineers did much more than straightforward calculations and drawings and engineering was not a back office function. While this was an epiphany for some, it was a victory for us. I was also given a new role; lead the effort to define the intelligent solutions.
Now that we stopped the runaway train, we needed to get it turned around and on a different set of tracks. We needed to define how we could deliver cost savings while improving speed, quality and ensuring a sustainable solution.
We looked at how our workforce was deployed. We determined what tasks could and should be outsourced for speed, cost or quality benefits without jeopardizing our competitive advantage. We looked at our processes and developed lean, standardized processes. We leveraged the capabilities of our suppliers and vendors. We put metrics in place to assess our progress.
We also realized that the supply of engineers in the U.S. was decreasing as “baby boomers” retired and engineering enrollments were declining. A sustainable solution needed to consider this reality. We engaged some off-shore component in the work that was outsourced as a strategic move. While labor rates were lower today, the real benefit may be availability of enough engineering talent tomorrow.
In the end, we developed a plan to achieve the desired cost savings that employed multiple solutions tailored to our business. The solution was not a simple math exercise. It involved focusing our internal engineering resources on where they delivered value, outsourcing some of the routine tasks, working smarter and more efficiently through better processes, promoting joint development and leveraging the expertise of our suppliers and vendors.
While the original objective was misguided, we did realize that the time to implement a set of engineering solutions for tomorrow was now. Sometimes a crisis brings out the best in us. However, it is always easier to act before it gets to that point.