Outsourcing your soul

I don’t have enough data points to label this a real trend, but I’ve come across a wild business shift with 3 very different US companies in the last 3 months. These companies have gone way beyond simply outsourcing manufacturing to India and China– they have completely eliminated their Engineering staff!

In one case, this slashed a 35 person engineering department down to 7. The company dropped down to 2 designers (guys with 2 year drafting degrees) who are simply there to translate CAD files from the various supplier CAD platforms. The remaining 5 people carry the title “Program Manager” and essentially manage a Microsoft Project GANTT chart for each product.

I’m quite sure this is a response to our soft market and competitive labor cost pressures. Admittedly, I’m not smart enough to understand all the nuances of international corporate finance… but my gut tells me this is a short term band-aid that will kill the future of these companies. I suspect we’ll see these companies collapse in 3-4 years. And, that collapse will come 12-24 months after the C-level management guys responsible for the strategy walked out the door with a fat wallet.

I am a huge proponent of free markets and globalization. So, don’t take my comments here as a “buy American” slogan. I just think there is something seriously wrong with killing off your own in-house capacity to develop products and innovate.

  • What keeps your people coming to work in the morning?
  • How can anyone retain a sense of company pride?
  • How can it make sense to own the product, but to not internalize the expertise required to design and develop that product?
  • How do you take responsibility for warranty exposure when you don’t truly understand your own product?

When my customers make the move to this format, it quickly becomes clear that we won’t be doing any more business together. Who’s going to drive upfront CFD when you no longer employ Engineers? While it’s sad to see these relationships expire, we’ll eventually recover as suppliers and engineering outsourcing firms add more upfront CFD capability to meet the demand. I do, however, fear that the US companies engaging in this strategy will not recover their former glory.

Update: Later, I looked at this from a totally different perspective in this post.

2 comments

  1. Chris Riordan · ·

    Oh Jeff, you’ve hit a truly big issue here. Considering that much wealth is brought to the country through development and manufacturing of products and that service sectors merely transfer wealth, this country could be in big trouble if we move both manufacturing ( and the expertise to manufacture) and product development ( with all it’s intellectual property ) to other countries.
    But that is exactly what is happening. I have left the furniture industry which is moving following the exact model you describe. In fact part of my job as a Program Manager was exactly paying homage to the all mighty gantt chart and excel spreadsheet for project management. Had I not been an engineer with experience in product development and manufacturing, I’d be in a world of hurt. However, consider over time when companies lose sight of the value of experienced engineers in favor of the generic project manager. How will those folks succeed when they do not know what it takes to engineer products or overcome engineering challenges. Your prediction that these companies will fail is a safe bet. But who filles the void and will there be enough money left in the American economy to sustain our infrastructure and living standard? This is a big question.

  2. Chris Riordan · ·

    Oh Jeff, you’ve hit a truly big issue here. Considering that much wealth is brought to the country through development and manufacturing of products and that service sectors merely transfer wealth, this country could be in big trouble if we move both manufacturing ( and the expertise to manufacture) and product development ( with all it’s intellectual property ) to other countries.
    But that is exactly what is happening. I have left the furniture industry which is moving following the exact model you describe. In fact part of my job as a Program Manager was exactly paying homage to the all mighty gantt chart and excel spreadsheet for project management. Had I not been an engineer with experience in product development and manufacturing, I’d be in a world of hurt. However, consider over time when companies lose sight of the value of experienced engineers in favor of the generic project manager. How will those folks succeed when they do not know what it takes to engineer products or overcome engineering challenges. Your prediction that these companies will fail is a safe bet. But who filles the void and will there be enough money left in the American economy to sustain our infrastructure and living standard? This is a big question.