Outsourcing Creeps Down Into Systems

Offshoring started out as a less-expensive way of developing enterprise applications, but outsourced software development is beginning to move much deeper into the system-level design world.

So far, development has evolved from just productivity applications to embedded software. Even large-scale system design is being outsourced. The next step is to outsource pieces of system-level designs, something that could have a dramatic impact on the roles of engineers in the United States, Europe and Japan.

System-Level Design caught up with Gordon Brooks, CEO of Symphony Services, a 5-1/2 year old company based in Palo Alto, Calif., to talk about what’s changing in this world.

Gordon Brooks

SLD: What’s your focus at the moment?

Gordon Brooks: We started working with independent software vendors building commercial software products. That was our core. We also do commercial-grade software development for non-ISVs. The third piece is embedded software engineering. It’s the software for automobiles or consumer electronics or telecom or storage devices.

The embedded focus is particularly interesting for system-level design engineers, because they’re being asked by their customers to provide more than just the hardware.

Our clients range from Motorola to Hitachi and small and midsize companies. We create robust applications for these devices, from the chip up into the application. These devices now have to run navigation, video and all the video systems. There are companies that outsource embedded software, but most go the other way—from the chip down into the hardware and out to manufacturing. We focus on going from the chip up into robust applications.

This isn’t a place where most chip developers have expertise, right?

No, and they don’t think it’s core, either. It’s not that it isn’t core to their business, but they don’t feel like they have to own it in-house.

What’s the reaction inside the chip companies?

These decisions are made pretty high up by the CEO, CFO or business president—it depends on the size of the deal and what you’re doing. The reaction is mixed. There’s the obvious threat of companies outsourcing. But it is a big trend. We just signed a contract to do wingspan structures for Airbus. We’re working with the subcontractors, who do the manufacturing, and they’re outsourcing the designs to us.

What can go wrong in these projects?

First of all, there has to be labor arbitrage. But beyond that, there often are quality or scheduling problems or access to talent. It isn’t just about cost anymore. The biggest failure is when people outsource at the task level instead of a subset or goal level. If someone defines task and whoever they outsource to doesn’t have the big picture and the context, then you have a lot of people asking questions. The people who have been successful is when you take a define-able component and outsource it end-to-end. That’s where you get innovation.

Is it more difficult when pieces are being outsourced than doing pieces internally?

It’s no different than if you do something in San Antonio, Texas, and another piece in Helsinki, Finland, even if you do it all yourself. It’s how you break the work up. If you break it into too many pieces, or if you don’t provide the ability to deliver a component of some kind, then it makes it hard to do.

Where are you finding the best talent for this kind of development?

India is 10x above everyone else from a capability and background standpoint. China is coming up, and it has some advantages because of the manufacturing. But there’s a lot of manufacturing going to India, too. There are niche areas in other places, but at scale the only two places are China and India.

What are the savings from a cost standpoint?

When you consider everything, including communications, it’s still less than half the cost of developing it in the United States.

Is that changing?

Yes, but it takes a long time for equalization to happen. The wage increases that are being reported are also due to promotions and additional skills. Less than half of the reported increases are really due to wage inflation. Quite frankly, in India this year the average increase will be less than 5 percent.

How about design outsourcing?

We’re beginning to get into that. Coupling that with what’s happening at the chip level and the architectural level is the next step.

Is that skill level available in India and China?

Yes. These countries are designing military planes and weapons. There’s a very strong capability there.

How about designing chips?

We haven’t started on that yet. It’s a little early, but it will happen. People are getting used to getting everything around the chip outsourced first.