Sensational stories pertaining to loss of jobs in the U.S. have appeared both on radio and television as well as in print media in the past six months. The common theme of all these stories is that these jobs are lost to overseas companies resulting in layoffs, inability to pay mortgages and consequent loss of homes, difficulty in finding alternate employment leading to anger and resentment. This is truly sad and unacceptable. Outsourcing is NOT meant to displace workers in the United States. Proper planning of outsourcing should result in more and better-paid work here and that should keep the American dream alive. Ad hoc, arbitrary and erratic transportation of work abroad is the result of poor planning and greed, and has nothing to do with the concept of outsourcing.

Outsourcing is big business. Michael Corbett Associates refer to (see Outsourcing’s Next Wave on Firmbuilder.com) Dun & Bradstreet’s estimate of a $ 1 trillion global market for outsourcing! In the same report James Brian Quinn is quoted as calling outsourcing "One of the greatest organizational and industry structure shifts of the century" and Harvard Business Review’s ranking of outsourcing is shown as one of top business ideas of the past 100 years! Hyperboles aside, clearly the bandwagon is beckoning!!

Scope of Outsourcing

In the Fifth Annual Survey Index published by the Outsourcing Institute (OI), percentage of outsource type activities of those surveyed included IT (55%, i.e. 55% of the companies surveyed outsourced IT activities), Administration (47%), Finance (22%), HR (19%), Manufacturing (18%), Call Centers (15%), Sales/Marketing (13%) and Transportation (9%). This list covers a wide variety of business activities except for an important and conspicuously absent function in this data i.e. engineering services.

What could be the reasons? Traditionally, engineering functions in technology oriented business have always been looked upon as the heart and soul of the business. Apparently it continues to be closely guarded by engineering organizations. And perhaps rightly so in view of the profitability of the business being directly tied to the excellence of its engineering department, especially in high technology organizations. Product concepts, design ideas, advanced analyses tools, drafting, experimental data, prototype test results, fabrication and manufacturing techniques can all be of a proprietary nature in a competitive environment and therefore it is not at all uncommon to develop a protective attitude towards engineering functions.

Outsourcing Engineering functions

And yet engineering is likely to be the function that can benefit considerably from outsourcing because it is indeed one of the most expensive part of an enterprise as it contains highly qualified and compensated, creative individuals whose skills in research, analysis, design, testing and development contribute to high quality products and services, and thus the success of the company. How can the concept of outsourcing be applied to this sector of a company whose ideas and designs are the very basis of eventual products and therefore held close to the chest by individuals and companies? Such attitude on the part of engineers and engineering management was the norm a decade or two ago. Clearly it seems to be the case in many companies even now. But a change in this view is in order and appears to be taking place. The reason is obvious and that pertains to the fact that certain percentage of even such work must contain work packages, perhaps of a routine nature, that need not necessarily be done in-house. If that is so, then it must be cost-effective to get it done elsewhere. Identification of such work packages is not always easily accepted by staff unless it is viewed as non-threatening. Thus a successful outcome from outsourcing activities will require careful planning, education of the workforce and a well-defined strategy on the part of the sponsors. Otherwise it is bound to fail. Such failure will result in lost opportunities to both the sponsors and potential vendors. More important, an unusual potential to build a creative work force and to focus its talents towards innovation will be minimized. Further, the opportunity to nurture and develop competent vendor companies to receive support on demand will also be lost.

Approach to outsourcing

It is tempting therefore to consider the feasibility of carving out some areas of engineering functions to outsource. In a highly competitive environment, it is not unrealistic for top management to pose the question: Can some part of the engineering functions be outsourced? The answer/s to this question helps the management to determine policy. But the answer/s to this question also depends upon the perception of stated goals of management by the rank and file in the organization. If the rank and file do not share the values of top management in the context of outsourcing, outsourcing will be resisted and avoided. Therefore unless the strategy is defined such that the staff sees an advantage to them, it is hard to expect successful results from them. How can this be done?

In the survey by OI cited above, 55% of the 1100 companies surveyed stated that the principal driver for outsourcing is to "improve company focus" followed closely (54%) by the need to "reduce operational costs." These are two good reasons in any case but the acknowledgement of focus is particularly noteworthy because of its potential to enhance innovation in the sponsor’s organization. Thus talents of staff can be tuned to an optimum and cost reductions may then follow as a natural outcome of a more efficient organization. Therefore the outsourcing mission of the sponsor must emphasize innovation as the primary reason. The corresponding stated goal can then be a redirection of the talents of staff towards a more creative, out-of-the-box innovative considerations aimed at securing the future of the company. This raises the bar and assures the staff of a better, different and long-term view of the company, a desirable view in both good and bad times. The inevitable fear of immediate or subsequent reduction of staff is thus minimized. However it also implies a clear need for vastly increased skill sets throughout the organization. The stated goals of the management will then be viewed as of an assuring nature so that the rank and file would not consider outsourcing as a threat to them or to their organization. If they perceive it to be so, then outsourcing will simply not work.

At the originating organization, the emphasis on innovation as the primary driver to outsource certain selected engineering functions serves two purposes. First it underlines the real motive and, in an ideal world, it should increase and not decrease opportunities in the sponsoring company. Secondly under this scenario, tensions in the organization and the community at large should minimize. Otherwise the risk of alienating the staff and the local community that depends on a reliable employer will not be acceptable.

Some experts suggest that executives may need to devote as much as 30% of their time to assure success in outsourcing. This may not be practical but only time will tell. The implication is clear. Outsourcing will be a high priority item in business. It may lead to creation of a new function and responsibility in the form of a Chief Outsourcing Officer in big companies. Again the responsibility of such a position is to assess the outsourcing potential and define a measure of success. Therefore, outsourcing needs to be planned, communicated and executed very carefully.

Conclusion

The true intent of outsourcing is to help workers in corporations to grow into higher levels of activity. The key aim is to build innovative enterprises here at home. This goal is essential for U.S. business to keep abreast of business in other countries and stay on the leading edge. It is only when this strategy is in place and working that a company could decide to get work of a routine nature done elsewhere. To simply lay off workers and transport their work abroad is not only immoral but makes no business sense.

As the single most important goal of a business unit is to make a profit, clearly outsourcing makes sense. Outsourcing should be viewed only in this context where both the sponsoring and the performing organizations benefit. The dramatic improvement in communication (e-mail, faxes, video conferences) has given a new meaning to the words "global village." It is time to exploit these resources worldwide to enhance innovation in all sectors of society by re-invoking the spirit of interdependence.

An unintended consequence of outsourcing may be a decrease in levels of immigration from the vibrant and developing nations to the west. This is because an improved economy from flow of hard currency inevitably raises the standard of living there. Better housing, better recreational facilities, increased access to better transportation systems, better restaurants and hotels spring up to exploit increased affordability of young people who serve the firms which receive outsourced work. Thus the tendency to migrate for a more attractive life style may not be anywhere near what it used to be in the recent decades. It is too early to speculate the advantages/disadvantages of this phenomenon to the developed nations as the latter have depended, for decades, on educated immigrants to serve in the academia, business, industry and health care.

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