Top 3 Reasons To Outsource Product Development By Ralph Paul Director of Product Engineering MPR Product Development

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1 Top 3 Reasons To Outsource Product Development By Ralph Paul Director of Product Engineering MPR Product Development Copyright 2014 MPR Associates, Inc. All Rights Reserved

2 In today s environment, almost every element of a business faces a make or buy decision and product development is no different. Things used to be simpler, an R&D group within an organization would develop an internal team, prioritize the projects on hand, and then get to work. But in today s environment, almost every element of a business faces a make or buy decision and development is no different. In today s market, R&D groups tend to be stretched to their limits and still asked to do more. New cross product and platform technologies create a challenge to have expertise in all the areas you need to develop a modern product. Instead of fighting this trend, you should be turning it into a positive by determining the most advantageous times to outsource while establishing trusted development partners. So why should you outsource product development? In the end, it comes down to answering the following three questions. Question#1 - Do you have enough resources available to achieve your goals? This is the most obvious reason to outsource development you simply do not have enough people on staff to get everything done. You can choose to put off development activities until resources free up or you can find a development partner to help move these activities along. As with any of these decisions, you are looking for value versus cost. So you have to answer the following three questions: 1. What is the value of moving forward this development project? 2. How much will it cost me to outsource this development project? 3. What is the cost of putting off this project until resources are available?

3 If there is not enough value being generated by the project, then you will not be able to justify outsourcing. Likewise, if the development costs are too high relative to the value, then there will be no business case. The third question is critical, but often not asked. Sometimes, the cost of putting off a project is indirect or hard to quantify, but if you ignore this cost, it can lead to a poor decision. Let s start with an easy example. One of our clients is a start-up company. When they first raised money and started the development process, they were faced with this basic decision hire staff and develop the product in-house or outsource development to a trusted partner. When making this decision it is important to consider all the costs and risks of developing in-house. Of course, you have to hire development staff (including salary and benefits), you need offices and associated infrastructure and a development lab. You may still be faced with having to outsource some elements of development for example, if you need software or electronics support but cannot justify a full time hire. Our client decided to keep a very lean organization (Founder, General Manager, Marketing Manager) and leverage MPR s organization for development. They avoided the fixed, long-term costs of direct hires and the overhead of a facility. MPR provided a diverse set of resources needed to develop the product, including project management, industrial design, mechanical design, embedded systems/software development, electrical design, risk management, and quality assurance. MPR also provided the needed infrastructure, including a state-of-the art development lab and supporting services and an ISO certified quality assurance program. Our client was able to behave like a much larger organization without the significant up front investment that would have been required. If you are part of an established R&D organization, you can also find yourself in a position where you do not have enough resources to reach your goals especially in today s lean environment. Smart organizations will tend to have more projects than they can get done to maximize the productivity of their R&D team. One example is a major medical device company that was developing the next generation for one of their products. They made a decision to do the development using their internal development resources. However, early on, they recognized that it was going to be a very aggressive schedule and a major risk was going to be completing design verification on a potentially expedited schedule. They decided to outsource the design verification effort to MPR, including development and validation of an automated test system to allow simultaneous testing of 30 devices at a time. Their team was able to focus on the product design and resolving any issues that came up, while MPR s team could focus on making sure the design verification testing was properly planned and executed. Having MPR s extra resources available made a big difference when some issues came up during verification and additional, expedited testing was needed to finish the development on schedule. It is worth highlighting one pitfall you should avoid when considering whether to outsource or not. When looking for opportunities to outsource, it is tempting to scan your list of projects and pick the one or two lower priority projects that no one is making progress on. The problem with this approach is that if the projects are lower priority, they are also probably lower value. Do not try to outsource low value projects. The reason is simple you will never be able to make the business case. To make the business case work, you will be faced with selecting a low cost development partner. Instead, you should look for high value opportunities that are not being pushed forward it is these types of projects where you will be able to build a strong business case to outsource development activities to a high value development partner.

4 Question#2 - Do you have the right resources to achieve your goals? This is the most straightforward reason to outsource development you do not have the expertise needed for the project. Of course, you could hire someone to fill the expertise void; however, there are many cases where this does not make sense. If the specific expertise is not going to be a part of your core business, then outsourcing is a better solution. We have had several clients come to us with a desire to incorporate wireless technologies into their products. The wireless technologies are providing supporting features and are not a part of their core technologies. This makes them good candidates for outsourcing support. In one case, our client wanted to build in a remote, Bluetooth-enabled display of information associated with their product. They had no expertise in Bluetooth, touch-screen displays, and related software development skills. To develop this skill set in-house would have been very costly; and would not have provided much long-term benefit. By hiring MPR to support this development effort, they could focus on their core capabilities and using them to drive new product development. In another case, our client wanted to develop an infrastructure for remotely gathering diagnostic and usage data on their devices. This required a wireless communications capability in the devices, and also a full set of services and infrastructure needed to connect the devices to a central server, collect usage and diagnostic data, and provide an interface for querying and reviewing the data. Our client ultimately wanted to maintain the system, but did not have the expertise or desire to architect, design, and implement it. We brought all of the necessary skills and experience to plan and execute this part of their development project on an outsourced basis. When you are outsourcing because you need a certain expertise, you should look for partners that bring other benefits to the table. You could just hire a contractor with expertise in the area needed; however, that person will be limited by their own skills and experience and their own time. Instead, if you find a development organization with the skills and expertise needed, you can leverage their entire organization both from a resource and skills/experience perspective. Four Things to Consider When You Choose a Development Partner Find a development partner you want an organization that is passionate about its work, willing to share some of the risk and truly be engaged. Make sure your partner has the resources to make a difference if they are sub-contracting the work to others, then it is no better than what you could do yourself. Look for value added capabilities or services do they offer a comprehensive ISO quality program? Do they use a systems engineering approach and consider all aspects of the product lifecycle? Are they trained and have adequate processes for risk management? Understand how they manage projects do they have a strong project management culture and processes to adequately manage the cost, schedule and risks?

5 Question#3 - Are you making the progress you expected or are things not going as planned? This is probably the hardest situation to consider when outsourcing development, yet it can also offer the greatest rewards. Everyone has been in this situation before. Maybe your internal team is struggling to make a break-through on a challenging problem. Perhaps you have already outsourced a part of the development effort, but the outcome has not been to anyone s satisfaction. In these situations, the choice is between re-assessing the approach and creating a new plan or canceling the project entirely. There is a third option which is to bring in an outside organization with a fresh perspective to help identify paths forward that may not have been considered. This can be a very hard decision to make, since there has already been a lot of investment made. But it is at this precise moment that an independent assessment can really help you to make a clear decision. We had one client who had completed their development in collaboration with their contract manufacturing partner. The end product was functional, but had a number of usability issues and, more importantly, cost 75% more to manufacture than originally anticipated. This left our client in a tough place their business model did not work at the final manufacturing cost achieved, yet they had already made significant investments with their contract manufacturing partner. MPR brought a fresh, un-biased view to the project. We were able to develop a new design to maintain the clinical functionality, improve the usability of the product, while also reducing the total cost of goods to 50% of the original cost target a dramatic savings that more than justified the development costs and moving to a new manufacturing partner. There is another type of scenario, where MPR has helped a number of our clients. A company has a high level of core strength in a particular technical area that is critical to their business. For years this company had built an internal story around a holy grail that would help them further differentiate from the competition opening up new markets and driving new growth. Although they could visualize elements of this holy grail, it always seemed to be just beyond their reach. The reality is that this organization is on the right track they could sense a potential break-through that would make a big impact to their business. The issue is that the core strengths of the organization do not provide everything necessary to make this holy grail a tangible, real product. Here is a case where an outside perspective, experienced in the right technical areas, can enable the company to reach outside their comfort zone and expertly develop a unique and powerful technology solution achieving their holy grail. The questions is, what are you going to do? Are you going to make your own development or buy some assistance? There is no one answer to this question you need to weigh many factors, such as your organizational strengths, current resource loading, the expertise needed, the value of the end result, and the cost of not making progress. The best organizations recognize there is high value to being able to outsource development activities when the circumstances are right so remember these three questions when you are evaluating your development plans.

6 Product Development Partner Checklist Question Yes No Do they apply a systems engineering approach to product development? Do they have a documented development process that implements a systems engineering approach? Do they assign a systems engineer to every development project? Do they perform and document design trade-off evaluations to ensure that optimal design solutions are selected? Do they value project management and have clear success managing complex projects? Have they assigned an experienced PM who is fully accountable for the success of the project? Are project management processes and guidelines documented and rigorously followed? Are processes and tools in place to rigorously manage risks and are they effective? Does the organization practice continuous improvement for project management? Does that include appropriate training and sharing of best practices and lessons learned? Do they have the infrastructure and resources needed for high quality product development? Do they offer a strong, multi-disciplined team of designers and engineers whose primary focus is development? Do they have a collaborative design and innovation space? Do they have and use appropriate design and analysis tools such as rendering software, finite element analysis software, printed circuit board design and analysis software, etc? Do they have a prototyping facility that can handle everything from non-functional form studies and early rapid-prototypes for evaluations to fully functional pre-production prototypes? Do they have a test laboratory to support functional, performance, and reliability testing? Do they have the technical capabilities and expertise needed to develop the product in-house? Do they have a proven track record of developing novel or first-of-a-kind products? Do they apply rigorous technical analysis and evaluation as part of the design process? Do they have an dedicated and multi-faceted team assigned to each development project? Is their business model aligned with producing the best design for your needs? Do they provide services as work-for-hire such that all intellectual property generated during development is owned by you? Do they provide up-front transparency concerning any proprietary technology or intellectual property to be used as part of development? Do they operate their product development services business as a profit center (and not as a lead generator for another business)?

7 About MPR we excel when others say "it can't be done" we have experts in design, development and testing under one roof our costs are scope-driven so the basis is clear we don't just design the device, we design the product ecosystem MPR Associates 320 King Street, Alexandria VA

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