Hiring Internally vs. Using Outside Product Development Resources

Hire vs. Outsource
Does it seem like every time you start a new development project the engineers, designers and other staff you have on board is almost never a match for the skills and effort needed? Either you have too many people with the wrong skills or not enough with the right ones. Sometimes you have to build a product development team from scratch. Other times, key people moving to other opportunities create holes you need to fill. There are all sorts of causes, but the net result is that you almost always have to find people to help get the job done. I think the technical term for this is “hiring.”

OK, so now you know what you need, but what’s the best way to go about bringing those people on board? Sounds like a simple question, but it never is. The obvious solution is to just go out and hire new employees. But what if the skills required are only needed for a specific project, and it’s unlikely there will be similar work for them later? You don’t want to commit to employing someone knowing that you’ll probably have to terminate them six months later. Not good for you, the employee or your company’s reputation.

“So, fine,” you say. “I’ll just hire some contractors.” But once you go down that path, the options can be dizzying, ranging from temp agencies to “gig-worker” independents to product development firms. Some will work on site while some are remote, perhaps even on a different continent. Sooner or later you’re going to have to figure out how to deal with this mess.

With that in mind, here are some criteria you can use to first determine if you need to hire internally or use external resources. Then, if you choose to “go outside,” how to make the best possible decision about what type of resources to use.

To Hire Internal Resources or not to Hire Internal Resources. That is the Question.

There are essentially three scenarios you will face when making your “hiring” decisions:

  • Dealing with long term growth
    In other words, you are either expanding your team, rebuilding your team or creating a new team.
  • Dealing with short-term capacity limitations
    You have a project (or projects) that your existing team can’t handle in the timeframe your project needs because of other commitments.
  • Needing specific, difficult-to-find skill sets for a specific set of tasks
    There might be a specific technical skill that only a handful of specialists have.

 

Should I Hire an Employee?

The first thing you need to do is to decide whether or not the position(s) will be needed long term. This is key because if the answer is no, you should take hiring an employee off the table. If you don’t believe that the position will exist long-term within your organization, the effort you’re going to go through to identify, recruit, train and manage a new employee is a huge waste. You need a different approach.

However, if the answer is yes, the next question you need to ask is, regardless of long-term need, “Will there be enough work to keep an employee occupied with worthwhile work?” For example, if you design a new handheld surgical tool once a year, is that enough to keep a full-time industrial designer busy? Probably not. You’d probably be better off with a contingent resource of some type, even if the need is long term.

Assuming that the position can be kept busy enough to justify the hire, the next question is, “Is this skill something we want to invest in and keep for the long term?” The “invest” part is key. Remember that when you hire, you’re not just committing yourself to a salary and benefits. You’re also committing to providing the tools, support and work environment the employee is going to need to do their job effectively. Advanced engineering design tools, for example, can cost hundreds of thousands of dollars in software and hardware and require additional people to support and maintain them. You’re not just hiring an individual, you’re investing in a support structure to make that person productive. If the skill isn’t critical to your business, you probably want to outsource it instead.

Finally, my mind-warping experience designing fault-tolerant systems over the years always makes me ask the question “What if this person becomes unavailable for some reason?” If you decide to hire a single PCB designer, for example, what happens when that person gets sick or takes a vacation or uses FMLA for a month or two? You’re out of luck, unless you have some backup. Even if you have backup, who will your lone PCB designer bounce questions off of when they have a problem?

It’s generally a bad thing to hire only one of any given skill set.

OK, I Need Contingent Engineers and Industrial Designers. Now What?

If you decide that hiring an employee doesn’t make sense, the next step is to figure out what kind of contingent help you need. Unfortunately, it’s not a simple question, given the variety of options you will face:

  • Independent Contractors
  • Temp Agencies
  • Contract Manufacturers
  • Product Development Firms

To name a few.

Fear not. Here are some considerations you can use to decide what’s best for you.

Independent Contractors

These types of people generally work alone, can locate on site or remotely and bring their own tools. They usually work best when given specific, short-term, independent tasks and deadlines. The most frequent times I’ve used them in the past were when I needed a specific analysis, like a thermal simulation or a failure analysis.

Temp Agencies

If you need to augment skill sets you already have on your team for a relatively short amount of time, these guys can be a godsend. The agencies do the hard work of evaluating and hiring and give you a set of people to choose from. They handle payroll and benefits. If one person doesn’t work out for some reason, they can find you a substitute. They generally provide people who will work with your existing team using your tools and facilities.

Contract Manufacturers

If you’re creating a physical product and outsource your manufacturing, chances are your contract manufacturer can help with your product design needs. Many contract manufacturers have in-house engineering teams that they could use to perform many of the product development tasks you might need. And the price can appear quite attractive, since they are able to amortize at least part of the cost of those resources in the price they charge you to build your product. If you’re a startup with few resources and less cash, this can be extremely appealing. However, there is one big downside: If the contract manufacturer performs the development work for your product, they will likely own the design. And if you’re unhappy with their quality or capacity, it will be hugely difficult to transfer your product elsewhere. If you go down this path, make sure you have your eyes wide open and be careful.

Product Development Firms

Product Development firms are in business to design things, not manufacture them. They will have an experienced team of skilled designers and engineers with tools and support staff they need and can operate as a virtual part of your team and independently at the same time. The good ones will not just help you design your product; they’ll contribute to its overall strategy, ideate the best solution for it and help you get it through the supply chain process to your customers. Unlike temp agencies or independent contractors, you would hire a product development firm to help you, not individuals. This is important because much of product development is dealing with the unexpected, and product development firms are uniquely set up to deal with it in ways that specific individuals can’t. And unlike a contract manufacturers, you always own the designs and IP they create for you.

Contingent Help Cost Considerations

In general, the relative price of these four options will look something like this:

  • Temp Agencies: $
  • Contract Manufacturers: $$
  • Contractors: $$$
  • Product Development Firms: $$$$

When you take into account the long-term impact of these options, things change in a hurry. temp agencies appear inexpensive, but probably not as much as you expect when you take into account the facilities, management and support you’ll need to provide to host them. Contract manufacturers look attractive until you take into account the margin hit you’re going to take on every product you sell. independent contractors look more expensive than temp agencies, but remember you won’t have to provide facilities, tools or other overhead for them. Finally, while product development firms look to be the most expensive of all, you wind up owning a design created by a group of experienced people that have likely worked together as a team for a long time. Doing so will probably reduce your time-to-market significantly and improve your profit.

There can be Other Considerations When Making Hiring Decisions

Beyond these logical considerations, I’d be remiss if I didn’t at least mention the other reasons that are sometimes used to hire or not. Frankly, most of these are “political” in nature, and it’s impossible to address each individually as every company is different. But know that they do exist and that even if the decision to hire or contract is made by apparently arbitrary reasons, at least you should have a decent understanding of the potential results of those choices. With that said, here are some of the most interesting non-logical decision criteria I’ve seen:

  • It’s a “gig” world and we never hire actual employees.
  • We will do everything in house for secrecy and control.
  • We just had a reduction and can’t hire back those positions for a year.
  • I have budget for contractors, but nothing for employees.

Any of these ring a bell? I bet you’ve seen others that are even more interesting.

Putting the best team together for your business is one of the toughest challenges any product development leader faces. Knowing what needs to be done to design the product is probably the easy part. Working within the constraints you have to live with is the hard part. Your challenge is to make the best choices you can given your circumstances.

Remember:

  • Only hire employees strategically for the long term.
  • Use Temp Agencies for short-term capacity augmentation.
  • Use Independent Contractors for specific short-term tasks.
  • Use contract manufacturers for product development only if you have to.
  • Use Product Development firms when you need an experienced team NOW.

 

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About M3 Design
Founded in 1996, M3 Design is a product development company located in Austin, Texas. M3 is a team of world-class designers and engineers that challenge convention to help their clients maximize business opportunities by creating exceptional products and experiences with them.

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