Choosing a model and sourcing a partner 101: Tactical software outsourcing – part 2: going offshore on-demand
Tactical or on-demand software development outsourcing takes many forms/flavors; part 1 dealt with bringing skills in or increasing capacity by augmenting your in-house team with an outsourcing service provider’s resources. Part 2 is all about going offshore on-demand. The post on ‘Greed’ ought to have given you a lot to think about the objectives for using tactical on-demand outsourcing of your software development needs… it is all about objectives and having the right ones! increasing your margin falls in that category but should not be the only reason to go offshore tactical or strategic! any how enough on greed lets talk about the other objectives.
In the case of the events management and new media company (see previous post) the objective was driven by the promise of projects the company did not possess in-house skills to deliver, in most cases where tactical on-demand software off-shoring is concerned this is not the case… at least in my experience.
More often than not going offshore on-demand is a strategic decision and not a knee jerk reaction to ‘oh $h!t we can’t do this, lets find someone who can’.
With technology companies I have worked with in the past and those my company are engaged with, the decision to outsource software development offshore or on a hybrid model is based on a combination of factors; saving time and money on a short run activity, bringing in temporary skills they do not wish to add to their skill base on a permanent basis, in some cases introducing their in-house resources to new skill sets with augmented team members (it is more economical and productive than bringing in onshore contractors! and more productive than sending staff on training courses), to benchmark internal capabilities against an external service provider (we ourselves occasionally use third party service providers to do just that for selective internal functions), bringing in fresh minds to give your innovation team a boost and of course to relieve capacity issues. Clearly not an exhaustive list as some of you might be hoping to find here but the point is to make you think and not dump data on you! having said that lets waltz with a tad bit more detail.
Saving time and money on a short run activity
This is the classic reason, where the project outsourced is tight on timeline and budget and outsourcing companies by their nature (with considerable exceptions!) are tuned for fast turn around; that is the nature of a specialist. A fallacy is that for project outsourced offshore that has a tight timeline and a restricted budget the requirements have to be set in stone, they do not. As long as the end client or domain experts are accessible, the time line and budget reflective of the project needs any outsourcing software development provider can apply a number of methodologies to deliver on time and on budget regardless of the state of the requirements or specifications. Agile development is typical on such projects, short sprints ensure the iterations are used to keep the domain experts, client expectations and developer understanding in sync. But Agile alone is not the only way forward just as saving time and money are not the only factors at play on any project.
Bringing in temporary skills a company does not wish to add to their skill base on a permanent basis
The best example everyone is familiar with on this note is still Y2K! adding legacy platforms skills to the current skills mix was not on anyone’s priority list hence Y2K saw a boom in offshore software service demand. This holds true for not only legacy systems but for one off projects as well in today’s languages, frequently we are asked to undertake projects from PHP to Ruby on Rails by software houses in the UK and the US where these languages are not part of their core skill sets nor do they have the desire to add them to their skills matrix in any hurry. It is not only programming or coding that falls into this realm, online demonstrations, search engine optimization, technical and content writing outsourcing all fall under this category… and the list goes on and on!
Introducing new skill sets with augmented team members
Not only is this a more productive means of introducing new skills it turns out to be more economical as well in comparison to externally sourced training and development programs or running internal training programs. The best example I have to cite for this is a recent engagement where my company provided senior team members to augment an in-house team for a software development house in the Europe, the client’s objective was to add Ruby on Rails to their existing skill set and having already invested in a few externally run training courses with no significant result they were open to my suggestion of ‘learning by doing’, our combined teams worked on a project over a four week period and though the learning curve was steep for their in-house resources their competence levels, confidence and understanding of the frame work got a steroid boost no in class course or online training materials could have delivered. We continued to mentor their Rails team for s few weeks following the engagement and now their Rails team is as good as any around the third rock!… it ought to be no revelation to anyone that real learning takes place by observation and by getting your hands dirty!
Benchmarking internal capabilities against an external service provider
Everyone, every company needs to test itself frequently. Though every challenging project is a test of skills and attitude we all should benchmark ourselves against those who are niche specialists or those we consider better than ourselves at a given function. I know peers in the industry do not agree with me on this approach but hey it is not the next man (or woman’s) validation that should drive our desire to better ourselves! it should come from within. We occasionally use third party service providers to do just that for our selective internal functions, our favorites being usability analysis and software testing where there are a number of specialists available to approach to benchmark our own capabilities against a niche specialists and though the gap is not of any significance (which is great news for us and our clients) there are always a few new things we learn on every engagement. I would encourage every software house to indulge themselves in such an exercise every now and then if only for the gloating factor!
R&D and innovation: getting to a prototype at a fraction of the cost
The general perception is that innovation is not the realm of an offshore software service provider, this is simply untrue! not just my own company but quite a few amongst peers work at the bleeding edge of emerging technologies and product innovation. Now more so than ever client briefs assume the software service provider will deliver that elusive silver bullet not yet defined. Tactical outsourcing of innovation is much more objective and quantitative than that! The most common form this takes is the off-shoring of your prototype product, reengineering of an existing one or testing out a ‘back of a napkin’ concept on a shoe string… its all outsourcing of software R&D/innovation. This is an area where only the best of software development providers survive! and size does not matter!
joint onshore/offshore innovation is not as simple as suggesting alternatives as some have come to believe and expect in the industry! it is a managed positive conflict that creates value in the output of both the teams. It is a balance of relationships between very bright and talented individuals and teams… lets not mince words aingh! and where it works it delivers value beyond plans and expectations and leads to a more strategic view of the outsourced providers capabilities and value in the value chain.
Relieving capacity issues
Some may argue this the most common reason for software houses to outsource projects on an on-demand basis, be it special projects or unexpected demand outsourcing is the best method to bridge the gap. There is a preconception that such engagements are exclusive to software development; as if it is only the developers who may be maxed out in a tech company! such temporary relief can take the form of complete project/product builds to documentation of an upgrade being released over the winter break, testing, content writing… even deployment of applications have been outsourced to trusted partners on a tactical basis.
It is often the case that a tactical decision to outsource software development offshore leads to a strategic one following the success of the tactical option taken for any number of reasons.
And It is not necessary that your on-demand needs exist in isolation to any ongoing strategic outsourcing arrangements you may have in place already, it is often the case that on-demand services are utilized on top of existing longer term strategic outsourcing contracts. All this of course depends on successful delivery and realization of the benefits the success yields.
I hope this ‘wasn’t meant to be this long a’ post has given you enough food for thought to last you through the festive break! my next few posts will get closer to selecting an offshore software services partner (as a few of you have emailed for)… what to look for, what to avoid and how to assess which one of the shortlisted are best suited for your business.
And being the last post before 2011… have a fabulous Christmas eve, day and a new year break, good luck with your resolutions (peace on the third rock goes without saying!) and thank you for following the blog, I look forward to sharing more of my experiences with you in the new year!
In 2001 I came across an entry in the Times Fast Track 100 for a London based event management company that had started making inroads into web applications and software projects, was growing fast but struggling to keeps its development costs in control.
Having made contact and spent a good part of an afternoon with their MD their Achilles heel (well wounded and bleeding) was pretty evident and much to my surprise ought to have been to the company’s CFO and MD too.
The company had a great brand and reputation in the event management sector that enabled them to win significant projects though their background or forte was not software; delivery was bleeding them dry. There was little to non existent in-house technical know how apart from a CTO (more by designation than by skill set), a network administrator and every project was being delivered by contractors whose day rates were simply unsustainable, their internal project management capabilities for managing software projects were pretty thin and were supplemented by even more contractors.
My timing for getting in touch with them worked out to be quite fortunate for they had just won a new bunch of contracts and their capacity to house any more contractors was maxed out, in fact it was shocking to hear the company was thinking of leasing out more space to house a growing army of contractors.
The solution here was tactical software outsourcing on an on-demand basis, selecting the best outsourced software services supplier based on the requirements of each project to be delivered. The mix of domains was pretty interesting, the company had managed to get a foot hold in multiple verticals from automotive, industrial to healthcare; they had managed to do this through their core business of event management and their rolodex and strength of relationships was pretty impressive. They had successfully pitched cross sales in areas they did not have any expertise to deliver and were pulling at all and every string they could find to deliver on their promises, but this was no time to tell them to stick to the knitting!
The company was very eager to retain project management and it took some convincing to highlight the lack of the right kind of internal project management skills and that they were better of program managing the projects leaving the project management of software projects to people with relevant experience; like ourselves. Project managing event builds and conferences is very different to project managing software delivery, though some skills are interchangeable but the experience is not, and smooth operations require a mix of both; relevant skills and relevant experience.
Having pitched our solution to them I found my company to be in a fortunate and an unfortunate position with this client; they drowned us with projects old and new, some needing parachutes as of yesterday others needing scoping with only days to deliver quotes to the end clients. For them my company and I were not just any silver bullet we were the bullets and the gun itself, and we did not let them down. For us it became a test of scalability and we fared very well!
The challenge here was not so much delivery but maintaining boundaries, the client wanted to white label every supplier’s service as their own and present themselves as the one stop shop for their clientele. I put our vetted software service providers to good use, picked a number of suppliers with pure offshore facilities, transfer of knowledge was neither a desire or need, as far as their MD was concerned the only thing that mattered was economical delivery, the who does it and how does it get done was an after thought.
There was little need for any onshore technical presence for any of the suppliers since requirements gathering, solution design and project management was performed by my own company. Having resolved their delivery issues and having delivered a multitude of projects on budget, on time I was confident of not only providing an excellent ongoing service but building a long term relationship with this client… boy was I wrong!
Things took a surprising turn when we were informed of a cut to our project management budgets in favor of in-house project management, we were instructed to find the cheapest offshore service providers whilst guaranteeing both deadlines and quality, our role was being scaled down to brokering! No amount of convincing could get them to understand that they did not poses the relevant skills in-house to manage software projects and the fact that if you pay peanuts you get nothing other than monkeys! using non vetted ‘cheap and cheerful’ service providers was simply out of the question and their unwavering belief was paying peanuts would buy them diamonds.
The company sourced a ‘cheap and cheerful’ service provider and instructed us to manage them.
I put my foot down and refused to source or manage any non vetted service provider, we had worked for this client for just under two years and improved their margins significantly, however it was obvious that their management was willing to sacrifice quality for higher and in my opinion unsustainable margins. So we threw in the towel and walked; unwilling to compromise our principles.
They sourced and hopped from one ‘cheap and cheerful’ service provider to another and after a disastrous few months; delayed deliverables, significant overspend on budgets and clients up in arms we were called back and asked to take on the projects and put parachutes in place: it was a 999 call to rescue them. We stepped in to rescue a select few projects and having done so walked away for good. We had previously witnessed a complete breakdown of our shared values. Their management simply did not appreciate the difference between good value for money and dirt cheap services, for them offshore meant a distant and dirt cheap land where peanuts ought to buy diamonds… perhaps they ought to have hired the East India Company to source and manage software suppliers.
A mix of financial mismanagement, serious disregard for quality which lead to an implosion of their board eventually took them under. They should have stuck to the knitting.
We managed and delivered over a dozen projects ranging from intranets builds to data crunching web based applications to complete software products for their end clients, in automotive, manufacturing, healthcare and pharmaceutical verticals. On the delivery side we started with three separate suppliers on various projects and over time cut that back to two suppliers both of whom were based offshore with no onshore presence. Each supplier was aware of the nature of this client’s off shoring needs; tactical and on an on-demand basis which kept everyone’s expectations in check.
When the machinery was oiled and performing as desired their management had a brain wave! if they could squeeze the off shore suppliers, pay them peanuts, replace methodological project management with in-house resources they would make a killing on their margins. The only thing killed was their brand reputation and their business.
It is impossible to source, manage and pointless to approach any potential software services supplier worth their salt if the sole objective is increasing margins by squeezing the supplier’s rates. Software service providers onshore or offshore know their worth, their capability and the demand for their services and those who do allow clients to squeeze their rates and pay them peanuts will deliver nothing but monkeys!
There is plenty of opportunity to earn healthy margins but the way to go about it is not to squeeze your suppliers to the point where the only ones willing to work with you are those who follow no standards, have no desire to maintain quality outputs and are in for the season…. in other words cowboys.
The way to go about it is to convince the client to pay for the value you add to the engagement; it is as simple as that. If the value you bring to the table is significant, is unique enough then your clients can be convinced to pay you higher rates for your time and effort than the next Co, Inc or Ltd.
For example my own offshore development center which (as at Nov 2010) has over six years of domain experience for talent management, learning management, workforce planning, asset management and knowledge management applications within the healthcare vertical can command higher rates than any offshore development center that does not posses the same depth of domain expertise in this vertical. The value this specific offshore development team adds to any project in this space is a deep understanding of the domain, enabling them to take apart and add to the clients ideas and concepts and deliver a more robust and stable product in record time… the point is you can maximize your experience, skill and your ability to apply it for clients; to negotiate higher rates. From a client’s perspective it is acceptable if it improves their return on investment by enabling them to take new quality driven products to market faster, it is as simple as that.
The other critical error this company made was inappropriate allocation of their in-house resources, they got project managers without the relevant expertise or experience to work with their cheap and cheerful suppliers, this created a loose-loose situation; not only were their selected outsourcing suppliers not quality conscious the internal project managers lacked the skills and experience to get the supplier to focus. I have seen some pretty amazing project managers squeezing quality out of cowboy service providers… it takes a colossal effort which negates any costs savings but it is possible! but no such luck here!
These guys believed in a win-loose situation, their belief was for them to make money someone has to loose it! the only party that lost in the end was them, they went out of business!
As I have said in an earlier post for any outsourcing relationship to work it has to be a win-win situation. Greed can not be an objective to outsource offshore, on shore, near shore or to any shore. Ever.
Recognize your internal ‘forte’; theirs was was event management. They would be a very successful company had they stuck to that instead of trying to grab every budget their clients had! it was bizarre for they swung from one end of the spectrum (hiring contractors to do everything) to the other (bringing almost everything in-house without the relevant skill set) without keeping their strengths in focus.
You can not emulate someone else’s competences just because you think it would make you money!… a software engineer can not become a doctor overnight just because he/she has access to a prescription pad and webmd.com!
Allocate your resources as per their strengths; match the talent to the role, skills to the task asked of your resources. Commitment to innovation, quality, timely and within budget delivery comes first, success follows. The moment quality becomes an after thought, it is game over.
Transparency is another lesson here, white labeling another’s services is a double edged sword… I have never quite got my head around why would you want to white label a service your clients know you have no expertise in or track record of delivering!
For suppliers and external contract managers the lesson is know your walk away position: when shared values break down walkaway, revenues from such clients are not worth the angst they will cause, never compromise on your values and principles.
I will get to part 2 of tactical software outsourcing next.
Though this post was meant to address a different flavor of tactical software outsourcing a recent encounter with a peer convinced me to address the issue of peanuts and monkeys… it baffles me how many entrepreneurs are blind to a simple fact… if you pay peanuts you get monkeys!
At the end of one quarter (many years ago), while one of my project managers was presenting performance metrics for one of the supplier he manages I queried a blip..it was déjà vu! Dan explained some of the developers had been reported to be under performing or so the supplier had explained to Dan and that corrective action had been taken. Two words came to mind.. bull s&%t…
I asked Dan to pull out the performance metrics for the last two quarters (we had been managing this supplier for the last ten months) and overlay them, A few minutes later with a somewhat embarrassed look Dan said ‘boss there is a pattern here..’, the next step was to break up the metrics by each project being managed by us with the supplier and and soon it was clear that the dedicated team supposed to be tied down to one of their long running projects was not very dedicated at all and the supplier was clearly poaching resources off the dedicated pool to fulfill other smaller projects laid on them by the same client whilst charging them for additional resources that were clearly not part of the picture. This supplier was pulling wool over our eyes!
The upside was this supplier had not been selected by ourselves instead our clients had engaged us to manage their selected suppliers on their behalf. When I had pitched to the client; a new media agency based in Soho, London to shift their off shored software services to one of our vetted suppliers, not only was the suggestion met with stiff resistance but I was asked if we had a ‘deal’ with our vetted suppliers to bring them new business! Offended I was but I knew time would prove me right… and ten months into the contract I had the evidence to reassert why we ask clients to work with offshore suppliers we have painstakingly vetted!
Having identified the pattern I went back to the client and submitted my project manager’s findings to them,Mark the CEO was up in arms but could not believe it could be true, He had been assured by their supplier that they had a dedicated team of 8 technical staff for which they were paying a little short of £7,500- per month. For me the numbers simply did not add up… they never had! This supplier was based in the Middle East and South Asia, the team my client was paying for was allegedly sitting in the Middle Eastern office (in Dubai). Knowing the rates in the UAE in those days it was simply not possible to offer those day rates out of UAE let alone anywhere in South Asia for the caliber of resources we knew were working at this suppliers end.
It was not that the resources were inefficient, they were competent technical staff and that was it… you do not expect competent technical staff to turn incompetent every few months for a number of weeks and then get back to their usual competent self!… unless they are distracted. And we knew that caliber of staff simply did not come at those rates.
I suspected that there were probably 8 technical staff as a minimum who were not very dedicated to my client alone, neither were they dedicated to a single project for my client (as they were contractually bound to be), in fact the same team was being used to service all the projects from this particular client whilst being double billed and very likely being utilised and billed elsewhere too. Given the rates my client had negotiated it was logically not possible for the supplier to provide a dedicated team at that price unless the supplier was a registered charity!
My client who had been using this particular supplier for over two years was in denial, there was also the issue of I told you to use a vetted supplier! Mark suggested that there must be another explanation… and concocted a number of possible explanations for the blips… ego is a strange thing! Here I was trying to explain to this guy that his supplier was shafting him and he was suggesting I had it wrong!
I pulled out some unrelated stats.. namely the rental rates for offices at the DIC (Dubai Internet City), average wage rates for IT staff in Dubai for the past two years and made my case that the rates he was receiving for resources sitting in Dubai was simply not possible unless they were slaves or were paid in kind by their company! or more realistically he was paying for 8 but getting far less, or paying a dedicated rate but getting a not so dedicated resource pool. The conversation was going only one way… down hill!
Mark did not want to accept that he had been wrong all along and worse that he had been wrong over the past 24 months. We agreed to disagree and I was politely told that our services were no longer required and that they would be managing the supplier internally. Though miffed at loosing a client who was blind to being screwed and was unwilling to let us help him not get screwed I too politely agreed it was for the best and probably better for our brand that we were no longer involved and parted ways… somewhat acrimoniously.
A month later I got a call from Mark who wanted to meet up for a coffee and a catch up! and we met up the same afternoon, Mark was accompanied by one of his project manager, Linda; who had reached a similar conclusion as ourselves, though Linda did have the benefit of all the performance data we had compiled while we managed the supplier and had handed over whilst parting ways. It was an awkward meeting for Mark wanted to say ‘you were right all along’ but could not quite bring him self to do so, this was why Linda was there who eloquently worded the conversation so as to not make out that Mark was wrong or I right.
I inquired if they wanted us involved in any capacity and the answer was a yes, ‘..we want you guys to manage the knowledge transfer from these guys to a new supplier..’, and I was asked to present the suppliers on our list that would be a good fit for the agency to work with.
Any how a few months later with water under the bridge, a new supplier in place (with a smaller dedicated team and a slightly higher monthly retainer), all things running smoothly and our relationship at a different level, I asked Mark how he had arrived at the same conclusion as me? Mark went about telling me one of the funniest stories I have heard of how he turned up unannounced at his supplier’s offices in Dubai only to find a handful of people working of whom only a third were working on his projects and how a very annoyed account manager had him escorted off his premises for coming over unannounced!
I could relate to that for I too had once pulled a similar stunt with a supplier I had suspected of being a lying cowboy! and had been dished similar hospitality in a strange city in Eastern Europe.
Unfortunately this practice is pretty prevalent and we as buyers are partly to blame for its existence. Let me explain:
Though vast majority of SME’s desire tier 1 quality but they can not afford tier 1 prices (some tier 2 suppliers price the S&M segment of the SME sector out too), what most SME’s like to pay is tier 3 prices and many work hard to drive their supplier even lower… they end up paying peanuts and they get monkeys and deservedly so.
There is a misconception that sending software development services offshore has to be cheap! the word is not ‘cheap’ it is ‘comparatively good value’ that is if you want quality outputs. There is another misconception that in developing economies people can survive on little to nothing! we keep hearing in the press how the average salary of an average person/household in South Asia/Eastern Europe/China/Africa is less than XXX dollars per year and we categorize every kind of labor in the same segment without any thought to to how skewed income distribution is in any part of the world!
Software developers or knowledge economy workers do not fall into this ‘average household’ category. To my clients I say… do your own research got to Yahoo (back in the days) and/or Google, find a local job portal for your target off-shoring country and run a search for the job roles you are looking for in a team offshore and see what turns up! in the least it gives you an informed position to negotiate from.
SME’s confuse good value with dirt cheap and in the majority of cases end up paying in quality which ends up them paying three times the number of peanuts they budgeted for and it becomes an expensive exercise in evolution where you start with a monkey and end up with something close to what you required many iterations later! one which with hindsight they realize would not have been so painful had they gone with a more quality conscious albeit slightly more expensive supplier. The message is paying peanuts guarantees monkeys.
Lets face it there is a dearth of good reliable offshore software service providers and an abundance of what I call cowboy organizations touting cheaper and cheaper day rates and promising the heavens to the small to medium sized enterprises in developed economies. And sadly there is also a dearth of common sense on the buying side where many organizations believe they can pay peanuts but do not expect to get monkeys! it is this sort of irresponsible behavior on the buying side that keeps the cowboy operators in business who keep moving from one SME to the other in a continuous cycle of building and dashing expectations. These short term contracts/projects do keep the cowboys in business but do considerable damage to the overall reputation of the offshore software outsourcing industry.
I have four words for you: common sense & due diligence! (ok.. that’s technically five!)
There are many ways of conducting due diligence without having to fly out to the suppliers offices, and these are pretty much common sense approaches… Google your supplier and see what the web throws out at you on them, ask for and contact multiple references, ask for previous and current clients, ask for sample contracts that would be in place between you and them should you select them (the quality of a contract speaks a lot for a company’s processes). If any of the references turn out to be in the same time zone as you, meet up with them. Look up the CEO and any team leads pitched to you on Linkedin and other social networking sites, you may be surprised by what turns up or equally so by what does not. And lastly check to see if your supplier has a blog… you can learn a lot about a company’s culture and attitude from their blog… unless it happens to be technical gibberish which unfortunately is the norm for some offshore software service providers… which too tells you a lot about the company and it’s leadership.
There are also common sense approaches to ensuring you do not get screwed like Mark did from the Agency in Soho! demand transparency and visibility of the team that is going to be dedicated to your project/product and get to know them over Skype or ooVoo or whatever you use (and use the video mode it makes the interaction more personal), develop a relationship with your dedicated team as you would with one sitting in your offices or a local supplier… remember it is about relationships… it is all about people and people are more likely to be honest and open with those with whom they have a relationship than complete strangers. Just as any quality and relationship conscious offshore software service provider would try and embed themselves in your organization, you ought to reciprocate and do the same. Over time you will find that not only will this breed a true partnership approach it will lead to many intangible benefits too.
Another lesson common sense teaches us is that it is easier for a product based company (say a widget manufacturer) to maintain lower rates over time than for a service based company. A service provider can not horde its labor or go against market determined rates for too long. So if you see rates that make the market look silly… its not the market being fooled it is you. And face it there will be tier 2, tier 3 offshore software service providers who do command a premium rate and with good reason, so if you feel the rate is high inquire about their processes and the value they are going to add to your project and your business; because they will bring more to the table than just a bunch of technicians.
And lastly if the rates seem too good to be true… they probably are. Discuss it with the supplier… ask them how can they afford to provide such rates? what are their margins? and don’t be shy to ask if they are making any money on the project? show some concern and do not try and fleece the supplier! for if it is not a win-win situation no one will win… specially you…guaranteed.
Now my two pence worth of what you can take away from the above if you are an offshore software service provider:
If you are indulging in any cowboy practices some of which I have touched upon above… stop it. Not only are you giving the industry a bad name you are slowly chopping your own limbs off!
Some suppliers quote peanuts to capture a prospective client, then they bleed them dry! if you are one of them… shame on you! start with a true overall cost and negotiate a payment plan with your prospective client if they are bootstrapping their venture – remember your growth and prosperity as a supplier is linked to the growth and prosperity of your clients.
Be transparent with your clients and when they drive your costs down to a point where it isn’t worth it anymore; let them know and walk away from it instead of delivering a half baked cake! you will be respected for it. Take pride in your output and your brand. There are many many SME’s out there who will give you business… you gotta keep knocking on them doors and maintaining your quality and building on your reputation which will help open many more.
I have come across some suppliers who would take on any work for any amount of money to keep their cash flow going and revenues from shrinking… in my opinion this is a fools paradise; take time out to win projects that add value to your bottom line and give you the opportunity to add value to the client’s business. This fools paradise will neither add value or margins to your business. Do not hesitate to scale your resource pool down if times are lean, you can always build back your team but building back damaged reputation is much harder.
Do not hesitate to be transparent with your clients specially those who are looking to develop a long term relationship with you, if your client requires you to be transparent on costs then ask them for the aims and objectives of requiring such detailed transparency and if their objectives align with yours then do not hesitate in being open. But remember openness can be a double edged sword be wary of ‘cowboy clients’ who will lead you up the garden path (yes cowboy clients exist just as cowboy suppliers do!) and do your own due diligence on the prospective client just as they would on you.
And lastly don’t accept peanuts and never deliver monkeys!
You need not be an old hand to know there are several flavors of software development outsourcing, Ok its not exactly Ben & Jerry’s but it isn’t plain Vanilla either. The key is as common sense dictates to know which flavor to use when and to keep an open mind to change the mix as and when required.
Instead of listing models or a bunch of do’s and don’ts of sourcing a software outsourcing partner let me take you through some of the scenarios I have faced with my clients and for my own company over the past decade.
In part 1 I will tell you of a situation when choosing the right flavor was at the very heart of saving a start up…from…not starting up.
Many years ago an acquaintance from Sweden called me out of the blue; Tor, usually a jovial fella never one for short conversations or getting to the point within the first 10 minutes of any conversation surprised me with ‘Hi Kubair, I am screwed man, need your help, have you got time to talk now?’. Tor ran (he has since exited and relocated to the states) a product based software start up in Stockholm, had investment to launch a new web based product and had decided on an in-house development and support model. He had a pretty slick operation in Stockholm and was as far as I was aware was doing pretty well..up until that phone call.
Half an hour into the call I found out Tor’s product was months late, way over budget and he had just been told by his investors there was no new money coming and he needed to complete his product in the next eight weeks with the little amount of financing left or else… Tor stood to loose everything. In Tor’s own words ‘I have burnt through most of my cash, I have an incomplete product, I have lost some of my key guys, and I need help to finish off the product, and with the amount of money I have left going offshore seems to be the only option..’
The positives I took out were, he has time (a lot can happen in eight weeks), he has some funding left and I do not need to convince him to go offshore he has come to that conclusion himself, (but I was not convinced myself if his silver bullet was in a distant land). The negative was I had no idea what kind of knowledge his ‘key’ guys had walked away with and how many were left, I knew little about his incomplete product, the technology it was based on or which domain it belonged in; Tor had refused to answer any of these questions over the phone yet was happy to email everything over (in an encrypted files of course. Stress does strange things to people!).
The call ended with Tor agreeing to fly out to London for the weekend to discuss his options and what the ‘parachute’ was going to look like. I had a day to study the documents, code and project plans sent over and to do my homework on putting together a ‘parachute plan’ for Tor and his venture.
I met Tor at my flat and the first thing I noticed was the stack of brochures of offshore software promotion associations from Ukraine to India he stacked up on my coffee table. I looked at the stack and asked, ‘selected a host country already?’ we exchanged smiles and his expression said ‘no’ followed by ‘I don’t know where to go, is that not why I am here Kubair? you are supposed to be good at this offshore stuff! where should I go?’
The question is not which host economy should Tor have gone to! but which model were we to use and since the best flavor to suit the need was tactical outsourcing the question was which off shore companies had local (onshore) operations.
I responded with a question of my own; ‘Tor which offshore operators sit in Stockholm?’ Tor’s response was an amusing ‘I’ave no ideaah?’ I pulled out a page of A4 with a list of offshore software service providers with local offices in Stockholm, the list was not very long but there was a fair mix of companies from Eastern Europe and a few from South Asia. I had already eliminated the tier 1 providers whom Tor could not afford and unbeknown to him at that time had picked three I had spoken to already to confirm they had the skill sets, availability and the hunger for providing a ‘parachute’ service. There were two who had domain specific knowledge Tor was after and one that stood above the other in terms of capacity (they too it turned out were a start-up).
I joined Tor on his way back to Stockholm and spent the next couple of days with the shortlisted suppliers before selecting one (and it was the start-up I had my eyes on from the beginning of this exercise), it was not just Tor’s venture on line but my head too, for Tor had by now pitched me as the silver bullet solution to his investors and left me to face their daily inquisition. I explained to Tor (and it took some convincing) and his investors (who were very hands on now) that the solution was not to make their problem someone else’s but to work with a supplier who could provide Tor’s team with the missing links here and now in Stockholm, and augment their team with outsourced resources (both onshore and offshore if need be). Their aim was not to go offshore in the medium to long term, so the knowledge had to be retained and transferred in-house, our timelines were so tight we needed a hands on approach where proximity was going to be key and the project manager was going to remain their in-house resource who could not be supplanted offshore. Having your own in-house project manager to manage the augmented team has its benefits though there are specific challenges that both you and your service provider need to be aware of and have processes in place to mitigate associated risks. With the chosen supplier we took the decision to augment the in-house team with three of their senior resources onshore and testing was sent to their offshore development centre, the time difference worked in our favor too.
The next few weeks were a blur with early mornings and late nights, shuttling between Stockholm and London juggling a number of projects I had on the go, time whizzed past, there were ups and downs, times when the it seemed all would come undone only to be followed by a rainbow the next hour! in week 7 a full week ahead of the deadline the product was delivered on spec and below budget: Tor’s investors were ecstatic! I had delivered what I had been hired to deliver, Tor was back on top, the investors were breathing a sigh of relief and everything was back on track, and I was back in London.
I got to send Tor a fat invoice, learned tons while being paid for it and got to see a bit of Stockholm. I was retained for the next few weeks post launch while we transferred the knowledge in-house, built up the in-house team to replace the missing links we had filled in with an outsourcing partner’s resources and eventually ended up negotiating and putting in place an outsourced testing contract with the outsourcing partner.
Now for lessons learned from this mini adventure and what we all can take away from it…
The question I see most tech entrepreneurs rushing towards is ‘which location or host economy should I be looking at.. Eastern Europe? surely I must go to india!?’ In my opinion this is the wrong question to begin with and at best can lead to a protracted and expensive trial and error process of finding your perfect partner to outsource your software development, maintenance and support to, and at worst can put you off outsourcing completely!
The correct question is what model or flavor of outsourcing best suits your existing and immediate needs? the answer is in your objectives for outsourcing. So why is it that you are thinking about outsourcing? is it to cut costs, is it to bring in a skill set your in-house team does not have, is it to address a short term capacity issue? is it to deliver a project without disrupting your existing schedules? a product? why why why!?
Only when you have a list of your objectives can you start thinking about the models or flavors, and only once you have the models or flavors short listed can you start thinking about location and partners.
Taking Tor’s case the objectives were to complete an incomplete product and do so rapidly, to augment the in-house team where some skills had just walked out of the door, to bring those skills back in house once a safe landing had been achieved and to do it all economically. It was all short term and focused on getting a deliverable (their product) out of the door; and the only flavor in my opinion was tactical onshore outsourcing.
Once we had a model selected we had to start looking at partners and given that we were looking for an onshore and offshore mix the best place to start is at home seeking out outsourcing providers who have an onshore technical base backed up with an offshore HQ. This narrowed down the hunt to a few providers. In such a scenario you have to really engage in your due diligence, you do not want to find out at the 11th hour that your selected provider has only got project managers and analysts onshore (which is perfect for other models but for the tactical model we had chosen this could spell disaster). When it comes to tactical outsourcing proximity matters. Then there are common sense issues you need to address when looking for a software outsourcing partner such as domain expertise and a cultural fit. Of the two domain expertise is easier to understand and identify whilst cultural fit is often misunderstood! I like to think of it as the chemistry between the teams/personnel, it isn’t about possessing the same cultural capital but being able to relate to each other, having shared values and objectives.
Then there is transparency, you need to make your outsourcing partner aware of your objectives, your chosen model so they are not lead on, in our case the selected partner knew this was a short engagement with clearly stated deliverables and performance indicators, we made it clear that post delivery all the knowledge will be coming back in-house and their hand over plan must cater for a smooth transfer of knowledge to the new recruits who would only be brought in post delivery. This ensured the expectations were clear on both side, outsourcing providers look for long term relationships and if you plan to dump them after a specific project, let them know in advance, it is better that way for both parties. But do not make it sound like it is set in stone, allow for some flexibility… if you are willing to bend a little your provider will match and exceed your demonstrated flexibility by many folds, remember it is about relationships, it is about people… be a little giving and you will get a lot back in return. If you do not intend to outsource support post delivery of your project’s completion make it clear to your service provider.
I am not going to go into the common sense details here like ensure your objectives, performance indicators, length of resourcing, transfer of knowledge, hand over etc is captured in your service agreement with your software service provider, am assuming we all have the common sense to know that!
Once we had made our objectives and model clear to the selected supplier we threw them a carrot of a performance related bonus on before time completion and once they took the bait we negotiated hard on rates (bear in mind we were using onshore resources so the rates weren’t going to be the same as their offshore resource rates but we cam pretty close), but do not drive the provider down too hard for you want to motivate them whilst keeping your purse strings tight. Getting this mix right works both ways, getting it wrong ends up with everyone eating a dog’s dinner. In our case it worked out very well for the provider for they delivered before the deadline and our bluff blew up in our face in the nicest possible way!
The last lesson from Tor’s case is hunger, a hungry service partner will find the capacity and determination to deliver to tight schedules or in this case ahead of schedule, it is also critical that they feel your hunger… passion feeds off passion! As we found our chosen partner did! and getting all of the above right ensured our tactical software outsourcing decision was right, it delivered what was required.
Tactical software outsourcing is pretty popular for software houses, and I have managed numerous such contracts myself and overseen many more via ikonami; within tactical software outsourcing there are a few different models as well. For instance in Tor’s case we went for onshore team augmentation and offshore remained somewhat light touch. In my next example I will site a case where onshore team augmentation was not only not possible but could have been disastrous! but that is an other blog post on tactical software outsourcing.
Over the years I have seen tactical onshore software outsourcing to follow a pretty basic pattern, here is a neat little chart to wrap your head around it…
In part 2, I will site another situation where we followed a tactical software outsourcing model but onshore was out of the question… see you in a couple of weeks time. Happy deliveries.