White Paper

THE OUTSOURCED EE: Employee or Contractor

By: Michael R. Wilkinson, President

ABSTRACT

EEs are creative problem solvers with hopes for fulfilling careers. But are they fulfilled? Does the corporate world expect, appreciate and acknowledge excellence and creativity? This session provides insights into a growing opportunity for EEs who want more from their corporate career path but fear the ups, downs and uncertainties of contract work. A new opportunity full-fledged, full-sized outsourcing operations that provide innovative design and development, plus an entrepreneurial flair. This session discusses pros and cons of working within an outsourced engineering company, from ownership of projects, autonomy, responsibility, and personal and corporate fulfillment, to quality of work and life issues, salaries, personalities and perks. Hear these and other aspects of an engineers career at an outsourcing company.

Introduction

Job satisfaction and quality of life too often collide with our expectations for our job, our career and our daily design and development tasks. How many of us are content with our jobs, careers and what we do every hour of the work day?

Today, well talk about our jobs, our likes and dislikes, what we need and want, and the opportunities for building an engineering career.

Here are the questions we will answer:

Is engineering everything its cracked up to be?
Am I satisfied with my job, and if not, what can I do about it?
Is it even realistic to expect my job to bring security and fulfillment?
What career opportunities exist for me today?
How do I know if Im suited to be a corporate engineer, contractor or outsourced provider?
If Im not really suited to be an outsourced engineer, how can I best work with such providers and what do I look for?

The Brave New World of Engineering

It appears to be a brave new world for engineers. According to various sources, engineers are generally happy with their careers and employers. The majority of engineers responding to EE Times salary survey said they like their jobs, salaries, and feel pretty secure and respected.

At first glance, it seems there has been no better time to be an engineer or high-tech worker. For example:

Americas electronics and information technology industry is driving national economic growth. It underpins Americas fastest-growing industries, totaling 4.5 million high-wage jobs. (American Electronics Association White Paper, June 1998)
The average salary for experienced EEs is $72,000, up more than 8 percent from the previous years salary survey. (EE Times)
There are fewer pay freezes occurring in companies (EE Times)
EE unemployment fell to as low as 0.4 percent this year. (EE Times)
Overtime remains the exception rather than the rule for American engineers. (EE Times)
Demand for computer engineers is expected to jump 109 percent totaling 451,000 (Bureau of Labor Statistics, Monthly Labor Review, November 1997)
Demand remains high for engineers. The number of bachelors degrees in electrical, electronics and communications engineering decreased 37 percent between 1985 and 1995. (National Center for Education Stations, U.S. Department of Education)

But are we satisfied? Do we like getting up in the morning to go to work? Unfortunately, there isnt a lot reported about quality of life.

Job Satisfaction

What brings job satisfaction? Money? Bonuses? Flex hours? Absolutely. But for most engineers, theres got to be more.

Engineers are creative creatures born to conceptualize, build, adapt and brain-twist problems into solutions. Unfortunately, many of us end up in dead-end situations that kill creativity and force cookie-cutter kinds of design and development. What we end up doing with our professional lives is having to choose between our duty and our dreams.

Duty demands regular paychecks, health care benefits, security and stability. We buy in to the system and end up spending our lives in an empire of cubicles working on vanilla-flavored projects. Duty also often moves us into management where we anticipate different and larger responsibilities. It can happen. But the opposite being promoted to a dead-end job may also happen.

Our dreams are bigger and brighter. We envision the engineering entrepreneur, the self-sustaining individualist who crafts a product that revolutionizes the industry, that works on a plethora of projects that range widely in scope, size and specialty. Were our own boss, we get to interact on business and technical levels, and we make lots of money. This dream usually comes in the form of leaving the company and becoming a contractor. Unfortunately, the dream quickly dissipates for many, who suddenly find themselves without the skills to handle sales, marketing, operational, financial, managerial and technical issues.

So is this it? Corporate vs. contractor, paycheck vs. the pursuit of happiness? The good life vs. the gamble?

There is more. Job satisfaction can be tangible and available, even in the corporate and contractor models. Its been my experience that theres a better opportunity that provides the best of both worlds. Its the world of outsourcing.

Outsourcing Is In

Spurred by downsizing, ongoing budget constraints, quests for quality and real-time ramp-up of new products, outsourcings growth continues to escalate.

Katherine Gay, The Financial Post said, "The key logic behind outsourcing is that the third party organization will perform the function better and more efficiently than you."

According to the Outsourcing Institute, outsourcing by U.S. companies continues to grow at more than 26 percent per year. Already a $100 billion industry, outsourcing is being accepted and used by more than 51 percent of all U.S. organizations, according to the New York City-based Institute. A survey of 303 multinational companies shows that they outsource as little as 10 percent in some divisions to as much as 65 percent in other divisions.

Corporations are beginning to understand and apply outsourcing because of its key strengths. For example, outsourcing can:

reduce costs, saving time and money
speed up product design, development and delivery
helps achieve long-term competitiveness
align with existing corporate resources, priorities and budgets
expand excellence, experience and innovation.

The Outsourcing Institute outlines some of these top reasons for outsourcing:

Improve company focus
Gain access to world-class capabilities
Reduce and control operating costs
Resources not available internally
Free resources for other purposes
Accelerate re-engineering benefits
Specific function or functions are difficult to complete in house

The institute also reports that information technology continues as the function most likely to outsource, representing 30 percent of all outsourcing expenditures. (See Figure below)

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Manufacturers account for nearly two-thirds of all outsourcing, with durable manufacturers accounting for 39 percent and non-durables for 25 percent. (See Figure below)

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More companies are outsourcing. What does this mean for you? It means added opportunities for you to work in an outsourced provider of specialized engineering services, and it means that you will soon be working with outsourced provider of specialized engineering services.

Lets talk about how you can be prepared.

Understanding the Outsourced Engineer

First, lets clarify the distinctions.

The Corporate Engineer

This engineer is typically salaried, receives a W-2 every year, has an office, works on site and is given projects to complete. He or she directly reports to one or more managers within an organization.

Independent Contractor Engineer

This engineer is usually paid by the hour, receives a 1099 every year, and is hired to perform a certain task or group of tasks for an organization. He or she is hired to be another resource or sometimes as an expert in a given field of expertise, may be hired through a consulting firm and the work span is a relatively short period of time. There is also a pseudo independent contractor. We call them "invisible independents." This is a person who is usually paid by the hour, receives a 1099 every year, but spends the majority of his time on site at the company, using the companys office equipment and space, from chairs and computers to printing paper, pens, file cabinets and software. The work span is also a relatively extended period of time. In some cases, the invisible independent also receives company benefits. This is the "independent contractor" that Uncle Sam wants to find and re-classify, giving him or her an immediate W-2.

Disguised Independent Contractor

One who receives a 1099 every year, but Uncle Sam found out, he would be placed on salary and given a W-2 immediately. He walks and talks like a contractor, but the employer provides tasks, direction, computers, equipment, software, a chair to sit in, and sometimes even employee benefit programs; however, this is the real kiss of deathto the employer. If anyone has any questions, please consult Microsoft and other well known corporations who have tried to avoid the IRS. Other reasons corporations take the risk in hiring disguised independent contractors are to alter some of the financial ratios within the company that are related to headcount. If the company has 100 employees and 25 contractors with $1,000,000 revenue. 10K/employee when it should be 8K/employee. The independent contractor is not responsible for project budget or schedule any more than a typical employee.

Section 530 of IRS publication 1976 at http://www.irs.ustreas.gov/prod/bus_info/pub1976.pdf outlines the requirements to be a legally independent contractor.

The Outsourced Engineer

This engineer is usually paid contractually on a project basis, is part of a larger engineering team managed and employed by another company. In the best world, an outsourced provider of specialty services, such as embedded systems design/development. The engineer is involved in multiple aspects of the business, beyond just the technical design. Legally, he or she is an employee, but functions more as a partner and team member. This person has ownership and technical input into the process, and is involved from start to finish.

Differentiators

	Corporate Engineer	Contractor Engineer	Outsourced Engineer
Ability to respond rapidly to changing needs	Maybe	Yes	Yes
Reduced management cost	No	No	Yes
Established documentation standards	Maybe	No	Yes
Included in project budget creation	No	No	Yes
On budget performance measurement	No	No	Annual review
Included in project schedule creation	No	No	Yes
Accountability for schedule	Slightly	No	Yes
Perform to only agreed upon schedules	No	No	Yes
Implement creeping elegance features only with schedule or budget relief	No	Maybe	Yes
Avoid sustaining engineering (legacy products)	No	No	Yes
Accountability for product performance	Yes	No	Yes
Ability to use specific highly specialized skills	Maybe	Yes	Yes
Ability to lead project development	Maybe	No	Yes
Communicate with exec. customer mgmt.	No	No	Yes
High quality documentation created	Maybe	No	Yes

Paychecks still come whether project is on time or not. Annual review schedule performance are relative to other engineers within the company. Since the average engineering project is considerably late, no schedule accountability.

Why Become an Outsourced Engineer?

It provides the best of both worlds the regular paycheck and sense of security from the corporate world and the creative input, front-line interaction and project diversity of the independent contracting world.

Look at the reasons to become an outsourced engineer:

Tangibles

Salaries. Salary was ranked as the number one career concern among respondents of the 1998 EE Times Salary and Opinion Survey. The survey also found that salaries are rising and that the average salary for experienced EEs (average age of respondents was 40) is $72,000. The survey did add a note of caution that such findings were prior to the Asian economic problem, which may effect hopes for salary increases and job security. A more recent report from Forbes magazine dated December 28, 1998 indicated average engineering salaries around $38,000. This includes all engineering disciplines unlike the EE Times survey. The EE Times survey is slanted toward Windows application programmer, RF designers and includes all levels of engineering management.

Until recently, Corporate America has been forced to hire engineers at whatever cost to produce the next generation products. Because of this, engineering staffs are constantly being upsized and downsized during periods between development and when economic downturns occur. The best recent example is the Asian Stock Flu crisis in early 1998. Technology companies that were targeting the Asian market were hit hard. Outsourcing companies were affected less because they are not subject to any particular industry segment. Team development efforts are hard to generate when the staff is constantly changing.

Because of the raging salary issues, the average duration of employment at a particular company has been reduced from 15-20 years in the 1960s to 1-2 years in the 1990s.

Our experience as an outsourced provider reveals that our salaries remain competitive with the marketplace over time. Outsourcing firms do not have the ups and downs that industry specific technology companies observe. We are also able to recruit and retain top-notch talent by extending offers that provide good salaries as well as great intangibles. On any given day; however, an engineer with an outsourcing firm can always find a higher paying job somewhere. Security at that new job is another thing. A multi-national telecom company moved to Richardson, Texas and began hiring over 1000 employees, mostly engineers. Their offer to engineers was 20% above their current paycheck stub. Obviously, lots of engineers responded to this offer. Due to the Asian economic problems and corporate business decisions, many of those engineers were terminated in less than one year. Meanwhile the former employers have found replacements. In the end, did they make the smart move?

Asked what they consider to be high and low salaries for EEs in the United States, respondents deem $46,000 as low and $99,500 as high. Managers, in general, enjoy higher pay raises than engineers.

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Benefits. Outsourced providers depending on their size provide competitive benefits plans to their employees. More and more benefits are becoming available to smaller companies. A sample of benefits coverage includes:

Medical Insurance
Dental Insurance
Vision Insurance
Life Insurance
Cafeteria Plans (pretax money used for medical, dental, vision, etc. expenses)
401K retirement plans, Simple IRA plans
401K matching funds
Profit Sharing
Stock and Stock Options
Bonuses

Intangibles

Flexible hours
Quality of life
Quality of work
Innovation in a variety of industries and products
A to Z product development cycle, not just subproject involvement.

Creativity. Engineers are really creative people who want to solve a problem, design a solution and build a better mousetrap. Outsourcing capitalizes on that innate strength since engineers arent consumed with maintenance. Their job is typically innovation, new designs, new ideas. Theyre not there for one phase of the development cycle.

Diversity. Diversity impacts creativity and an engineers knowledge base. Diversity provides opportunity to apply varied This parallels creativity. Because of the diversity in client base and technology infrastructure, creativity remains high.

Shared Knowledge/Shared Growth. Gain hands-on knowledge and growth by working with other engineers, who leverage their experience and specialties. For example, at Paragon Innovations, we hire "bilingual" engineers those who can address hardware as well as software issues and specs.

Customer Interaction and Input. Such interaction and input is typical at various levels, from design review meetings to presentations with a clients executive management. When was the last time you had the opportunity to express an innovative idea to the customer executive team?

Business and Engineering Experience. Get the opportunity to learn and understand the game of business and management, not just design/development. Understanding the entire business model makes engineers better designers. In many cases, engineers dont understand the reasons why features and requirements are placed on projects.

Recognition. Gain recognition for work completed. While some companies give rewards based on certain criteria and popularity contests, executive management and shareholders only respond positively to profitable work. The outsourced engineer can measure his or her performance in concrete terms and can communicate to management their corporate worth.

Ownership. The outsourced engineer is responsible for the success or failure of the project. Period.

Autonomy. Because the outsourced engineer is involved in the proposal process, he or she has great autonomy in system design. They can make sure the bid includes the correct time allotted and correct outside expenses such as PCBs, components, development tools.

Too often, engineers arent really aware of the cost of their actions and the effect of scheduling problems and component shortages.

Extras/Rewards

Its Fun. What makes outsourced engineering so appealing is its potential for fun. Our engineers have worked hard and had fun working on a variety of projects. When was the last time you got to work on:

Underwater robotics. Electronics at 10,000psi.
Telecom outside plant test equipment or telecom automated database verification equipment
Laser-based velocity detectors
Handheld PDA design
Medical instrumentation including open heart surgery equipment
Automatic Teller Machine design
Automated Time Delay Safes with bill detectors
HDTV transmission via DS-3 telecom network
Extreme high voltage power line test equipment
Speech compression designs

Whats It Take To Be an Outsourced Engineer?

There are some key personality traits we seek when interviewing job candidates. We evaluate whether they are:

Creative
Detail oriented
Technically astute
Business-minded, thinking of technical requirements while also understanding what this means to the customer, the industry, etc.
"Bilingual," meaning experience and/or expertise with hardware and software design/development
Customer service-focused
Meet deadlines
Enjoy diversity and juggling projects
Opinionated
Self-motivated
Entrepreneurial
Think "out of the box"
A strong sense of responsibility, accountability, honesty and integrity

Working For an Outsourced Provider like Paragon

You can expect all the tangibles and intangibles already mentioned. You will also:

Apply your brainpower to collaboratively develop solutions with a team of engineers. Collective brainpower experience and expertise is the best way to deliver products on time and on budget.

Enhance your design and development skills and your WRITING skills. Documentation is critical. Unfortunately, most engineers are extremely poor at documenting what was done when, where, how and why.

Attend a comprehensive writing course since documentation for a customer is where the gold is. Its intellectual property. Its vital to long-term success. For the customer, for the outsourced provider and for you.

No Thanks?

Theres room in the world for engineers who prefer to be corporate engineers and contractors. Without them, the ever-growing niche of specialized, outsourced engineering services couldnt exist. But as outsourcing grows as does the likelihood that you will soon be collaborating with such a provider you need to know the definition, role and benefits of an outsourced provider. Heres some practical insight.

Collaborating with Outsourced Providers

Selecting a development outsource partner is very much like selecting a manufacturing partner. The same pros and cons apply.

Benefits

The result is product design and development that is ready to roll out the product. Outsourcing product development is often less expensive than in house resources. Between major development projects, design engineers are usually required to continue supporting manufacturing, sustaining work, documentation changes, etc. This prevents them from concentrating on the new project.
Outsourcing partners typically can juggle resources more effectively in the event that the project requires temporary resource adjustments.
Outsourcing partners are not involved in other aspects of the company and are therefore not lured into meetings, discussions, and other details, although interesting, not important to the mission.

Cons

Selecting a bad outsourcing partner could mean late product delivery, poor quality and workmanship, lack of documentation.
If the outsourcing partner and the existing engineering staff cannot work together and communicate freely, the cost and schedule will definitely suffer.

Its common to find companies that avoid outsourcing because they fear the outsourced provider will wreak havoc, create conflicts and be a nightmare to manage. Thats why its so important to find outsourcing providers that have a strong combination of technical, personal and professional skills. With the right mix, the result is a long-term relationship.

Good outsourcing providers also deliver corporate clients with new perspectives, innovations and specialization based on multidisciplinary experience. An outsourcing provider should be thinking out of the box for the customer, giving broad-based knowledge from diverse experiences in different industries and in various types of design. Using specialized engineering gives the customer maximum expertise without having to offer maximum pay.

Quality outsourcing starts with quality outsourced providers. First, the provider should understand your business requirements and mesh into your style, processes and approach. Make sure the outfit has happy customers and happy employees. Make sure the team not just the principal works well with your in-house team and that all are personable, intelligent and focused.

Expect availability and adaptability. Do they return your messages promptly and regularly interact with you and your team? Do they consistently meet deadlines and treat you as if you are their only customer? Are they adaptable? Do they collaborate or command, listen or talk, respond or react? Quality providers also deliver new perspectives, innovations and specialization based on multidisciplinary experience. The process and result should include creative, out of the box thinking that results in innovation and competitive advantage.

Of extreme importance is the outsourced providers commitment to documentation.

Documentation is essential in protecting and maintaining your investment in your intellectual property and is vital for long-term success. Skipping documentation which is common in the rush to market results in poor quality control and a lack of history for the project. Many companies are surprised to learn that projects that havent been documented have to be re-designed and re-documented. Paragon Innovations has stringent documentation requirements and even provides multimedia documentation for its customers so they have everything -- from flow diagrams, schematics and part numbers in one central location.

When considering an outsourced partner, here are some basic dos and donts.

DO: Look at the companys on-time, on-budget performance. Its past history is likely to reflect the level of performance you can expect.

DO: Ask detailed questions about the companys staff members. Are they permanent or temporary? You should feel confident that the engineers working on your project, and the company for that matter, will be around for its completion.

DO: Find out about company standards. See that the company maintains consistent standards. Standards such as sets of measurements and vocabulary vary among companies and industries.

DO: Check the companys facilities. Take a tour and meet everybody.

DO: Ask for references.

DO: Talk to the engineers. You want to feel like they are truly interested in your project and have taken ownership of their work. If so, youll see higher-quality work.

DO: Require that companies provide documentation. Be specific about how you expect to receive documentation.

DO: Review the proposal in person with the provider and make sure you understand the contract.

DO: Evaluate how detailed the proposal is. Is it just a one page? Rounded-off estimates of prices? Or can you see there was some thought put into how the company would build your project and where the costs lie?

DO: Determine if the company is willing to work for a fixed price. If there is undefined scope or risk, it could be valid to refuse a fixed price. Otherwise, the company is simply not comfortable with its own ability.

DO: Avoid "Midnight Operators," two buddies in a garage doing your project as a night job, for instance. On-time delivery is often sacrificed for the "real" day job, i.e. an engineer that has to work late puts your project on the back burner.

DONT: Hire a company with no history. How long has the company been established? Even check its credit history. You want it to still be in business to complete your project and offer support afterwards.

DONT: Choose a company solely focused on meeting your deadline. Theres no need to sacrifice quality for quick turnaround when both can be achieved.

Conclusion

No matter where you fit into the engineering spectrum, you are a creative problem solver who prefers a challenging career, appreciates personal recognition, good pay and more. EEs no longer face the frustrating predicament of having to choose between corporate America and self-styled contracting. Theres a new way to exercise personal talents and goals: through outsourced engineering.