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MARCH 21, 2005
R&D Jobs: Who Stays, Who Goes? A recent in-depth outsourcing study of a hypothetical 1,000-person team found only 722 needed to be kept. Others say that's way too many After decades of streamlining and downsizing practically every aspect of their businesses, corporate budget-cutters and efficiency wonks are zeroing in on one of the most sacrosanct areas of the organization: research and development. R&D can account for anywhere from 5% to 18% of the costs of a major electronics company. Human considerations aside, the task is fraught with risk. Do nothing, and a company could end up at a severe disadvantage against nimbler, lower-cost rivals that have mastered the art of using networks of contractors, design partners, and technology providers in India, China, or Eastern Europe. But cut too deeply, and the whole product-development process could go out of whack. Over the long run, a company could even lose its ability to generate future breakthrough products. "PORTABLE" POSITIONS. So how to assess which jobs must remain in-house and which ones can safely take place more cheaply and efficiently offshore? This is a red-hot question in management circles today, with consultants busily applying cold calculus to each step of the product-development process. "R&D used to be treated as one big black box," says Vivek Paul, CEO of Indian info-tech services giant Wipro Technologies (WIT ), whose contract R&D service employs 8,000 engineers. "Now, companies are deconstructing the whole R&D chain, sorting out what's strategic and what's not." To help provide answers, Parametric Technology (PTC ), a Needham (Mass.) producer of collaborative design software for 31,000 clients worldwide, commissioned a study of a typical R&D workforce of a typical electronics company. It concluded that about 30% of the jobs were "portable," meaning companies could shift them offshore. The PTC study used two basic questions: First, how critical is a particular job to the company's competitive advantage? Second, how easy is it to physically transfer that task to a remote location? CREATING CRITERIA. More specifically: Does an employee add enough value to the company to justify the higher cost of keeping that slot on the U.S. payroll, or is the employee doing more routine, low-value work that an offshore worker could accomplish for much less pay? Is the staffer mainly upgrading or reducing costs of existing product lines, or devoted to future products? Is he or she integral to creating technology that the company regards as part of its strategic core, or can the intellectual property be purchased on the market? Deciding whether a job can move also involves even deeper issues: Can it be digitalized and done entirely on a computer, or does it require close personal contact with customers or other members of a team? Can the entire task fit into one distinct piece, or "module," that can be plugged in or out of a product-development project, much as a chassis or seat assembly can be bolted onto a car? If so, can that entire module of work move out of the company? Does a staffer have special institutional knowledge of the corporation's culture, needs, and history that any outsider lacks? Using such criteria, the PTC study classified each R&D position as "most critical," "moderately critical," or "less critical." It then estimated how many of the jobs in each category were easily transportable. Starting with an R&D operation of 1,000 engineers, PTC's details its opinion as to whittling down the operation: Most critical: Only about 150 staffers fall into this category. It includes product managers who develop and guide strategies for product lines, and program or project managers who monitor development milestones, schedules, and budgets. Systems engineers, who define a product in its broadest terms, also rank as critical. They set specific performance standards, for example, for core components such as certain digital displays, microprocessors, and software platforms. Only 9 of the 150 positions can be outsourced, the PTC study estimates. Head count: 991. Moderately critical: Mechanical analysts who determine if designs hold up to certain levels of stress and electrical engineers who scrutinize the performance of a circuit board fall into the moderately critical category. So do engineers who translate conceptual designs into working prototypes as well as computer engineers who supply the information-technology systems needed to develop a product. Of the 600 jobs in this category, PTC tags 144 for outsourcing. Head count: 847. Less critical: Here's where the real downsizing can take place. Those who can go: designers of auxiliary systems the company can purchase from the outside and "value engineers" who mainly upgrade products already on the market or find ways to reduce their manufacturing costs. "Documentation specialists," who do detailed schematic drawings for the factory, write operating manuals, or compile lists of components also come under this category. Some 250 of the 1,000 workers do these types of jobs, and 135 of them can be outsourced. Final head count of R&D staff: 722. Of course, many other analysts find this figure conservative. Wipro's Paul believes anywhere from 40% to 60% of an electronics company's R&D jobs can be farmed out overseas. One thing that's clear: R&D jobs may not stick around, but outsourcing them will.  By Pete Engardio in New York
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