Software Development Outsourcing – Higher Than the Clouds

In this century of continuous technological development and integration into the business environment, many companies are facing more complex tasks than they used to.

Primarily, we discuss here situations in which a company needs to create a new product or component or a solution for an area in which the company lacks expertise. Providing product support after creation is another challenge directly related to that mentioned above.

The other option involves transferring the responsibility of providing support for the already-existing product to an engineering team, allowing you to take advantage of the experience and knowledge of engineers who have worked on similar advanced development projects.

Another challenge concerns the support and development of third-party software (for example, SAP). The fact is that all complex products have to be customized based on the customer’s needs and integrated with existing solutions and systems. But as more enhancements are applied according to the requirements of the particular company, more specific knowledge about the nature of the required changes is needed as a pre-requisite for product maintenance. Software vendors are not always able to meet the demands of their clients within the required scope or devote their support department’s time to particular customers.

So what options are available nowadays for companies facing these or similar challenges? Basically, there are two options: Solve the task independently, or involve third-party experts. The market offers a variety of approaches.

Expanding the In-House Engineering Team

This approach involves recruiting new specialists to the company offices. In this regard, companies usually stick to one of two possible hiring strategies: Either they hire experienced specialists to work on a new project and leave the existing product and its support to current employees or they hire less experienced engineers to support the product while assigning current developers to new challenges.

Obviously, such an approach has more drawbacks than benefits. The only established benefit is the absence of the necessity for revolutionary changes in the company’s organizational structure. At the same time, one of the main purposes of any company, cost reduction, is not achieved, because new employees are hired at standard rates of the region where the company carries out its activity. It should also be kept in mind that the labor market is not perfect, and the search for new employees can take a significant amount of time. Moreover, there are no guarantees that the company will be able to find the exact types of specialists it requires. In some cases, expansion of the existing IT infrastructure may be required, increasing the cost of the whole project.

Building an In-House Offshore Development Center

Such an approach allows the company to achieve a number of goals simultaneously. Firstly, a personnel search for an offshore center in a different region—as a rule, a cheaper one—turns out to be more productive, considering the level of salary and selection options. A huge benefit here is that with your in-house dedicated development center (DDC), the expertise remains within the company. At the same time, you achieve management flexibility and transparency as well as ultimate control. However, it should be kept in mind that the building of such an offshore center means establishing a new legal entity and a new infrastructure from scratch and requires understanding regional specifics (e.g., knowledge of wages, local laws, nuances of interaction with government authorities, etc.).

An efficient solution would be outsourcing the offshore center project to a local provider who understands every detail of the business. The provider builds the center turnkey ready and passes it over to the client.

Development Project Outsourcing

Software development outsourcing is gaining in popularity globally. According to Gartner, analysts estimate the software development outsourcing market will be up 13.3% by 2015 compared to 2012 and will reach $51 billion USD. These are impressive and clearly justified numbers: Outsourcing provides effective solutions to clients’ IT challenges, allowing cost optimization and guaranteeing use of the provider’s resources, including cutting-edge technologies and high levels of expertise.

The benefits of project outsourcing are obvious. The client does not have to search for engineers or deal with infrastructure development. He simply invests in the project and enjoys the outcome. Seemingly, it is a perfect interaction pattern: Everyone goes about their business, and everyone is happy. However, even here, there are certain drawbacks and risks.

For one thing, using this approach means that all knowledge and all expertise will stay with the provider. In the long run, it can disturb the launch and development of new projects. Difficulties will also arise when the project scope, requirements, and priorities change. Sometimes, there is a need to stop activities on one project and launch a new one. In such cases, contract terms should be reviewed, as the contract can be terminated or extended or a new contract can be created. This means that all project stages will need to be repeated, meaning more time and money spent.

The other issue is the support and maintenance of the new product. Again, there are risks. In some cases, clients face termination of the agreement with the provider, initiated either by mutual consent (e.g., the client was not happy with the quality, while the provider was not happy with the price) or by one party. In this case, again, you have to find a new provider, train its specialists, go through the knowledge-transfer process—and this is once again “all about time and money.” This is not to mention the expertise and unique product knowledge you just can’t elicit from the engineers working for the previous provider. In some cases, a provider may change the project team, thinking that experienced developers can and should be used for other advanced development projects and that a young new team (less experienced, as a rule) could be appropriate for “just supporting the existing project.” One more possible drawback is the fact that engineering processes adopted in the client’s company are not necessarily similar to those of the provider’s company. And then, the client’s employees involved in the project will need to learn new processes and systems, which will certainly not contribute to the improvement of efficiency and effectiveness.

Upon comparing development project outsourcing with building an offshore center, it can be said that outsourcing a project to a provider will be more expensive than using in-house engineers in a cheap region and entails some specific risks. It shouldn’t be forgotten that the provider’s final price includes the provider’s own interest.

Dedicated Team

But as we all know, nature abhors a vacuum, and the market does not acknowledge ineffective solutions. Business processes logic assumes that there should be a solution that meets the interests of both parties that will be more advantageous economically than traditional options. One option here is a dedicated development team of the outsourcing company.

Well, what exactly is a dedicated team? This is a variation of an offshore development center on the books of the outsourcing company. This collaboration model with a third-party provider involves a whole new level of partnership. The outsourcing company dedicates a team that works exclusively on the client’s projects and all resources, including IT infrastructure, required for the team’s proper operation. Security policy, legal, and intellectual property protection issues run into the provider’s area of responsibility.

The engineering team adopts the client’s unique product knowledge, standards, methods, and development technologies. The client determines the scope of work, range of projects, and task priorities for the dedicated development team that brings the skills and experience necessary to solve the client’s challenges. All this puts the development process on the right track, reducing the chance of failure.

As a result, you obtain a standalone dedicated center to support your clients’ business needs; to some extent, it is a company IT department operating out of your company and without any headaches regarding solving organizational issues on-site.

Standard DDC from the Client’s Standpoint Includes:

  • More options to cut IT costs
  • Transparent management system, more controlling options
  • Extended risk-management options
  • Better utilization of own resources
  • Gained expertise, knowledge, and skills without the risk of losses
  • No issues with intellectual property security
  • Increased team motivation due to the technical sophistication of the project
  • Training and knowledge-transfer management tailored to the needs of a particular team

Numerous studies reveal that in the long run, the use of this scheme allows costs to be cut 30–60% compared to project-based models.

Additionally, including the Build-Operate-Transfer (BOT) option in the contract allows the client to change the status of a dedicated team to the in-house offshore center easily. But it should be kept in mind that there is really no point in imposing the additional burden of managing a remote office offshore without reasonable grounds.

Obviously, hiring a dedicated team seems to be the most preferable option of those mentioned above. However, choosing a provider in this area doesn’t differ much from choosing one in other business areas, so you have to take the selection process seriously. If you are mistaken or negligent at the sourcing stage, then no collaboration scheme, not even a perfect one, can ensure strong performance. Software development and maintenance requires not only the experience and professionalism of the provider’s engineers but also the recognition of the importance of so-called soft skills, including primarily quality communication. The provider’s ability to set up a transparent, manageable process of provider–client communication is often a key factor in the further success of the entire project.

What does Auriga Offer?

Auriga has been on the market for over 20 years and is very much aware what a perfect interacting process between a client and a provider should look like.

The company established an effective provider–client communication model without missing links, and the information-exchange process goes as quickly and as smoothly as possible.

#1 Engineering Services Outsourcing (ESO) provider of the Black Book of Outsourcing by Datamonitor annual Black Book of Outsourcing (BBO) ESO Ranking.  Thanks to that, in the last few years, our company has been enjoying consistent recognition in top lists of service providers in the category of customer satisfaction according to the world’s leading information-analysis agencies. For example, in 2011, Auriga was recognized as the No.1 Engineering Services Provider by Datamonitor based on the results of a customer-satisfaction survey. Nine criteria that influence customer-satisfaction levels were used in the survey, including such soft skills as requirements awareness, problem resolution, and partnership approach.

Based on our many years of experience, we provide our clients with a variety of options including project-based engagement models (fixed price, T&M) and the employment of dedicated teams. At the same time, we use the most up-to-date market approaches to handling client–Auriga intercommunications.

We strive for maximum flexibility both in payment options and in DDC elaboration. DDC payment options are based on the pay-as-you-go model used in cloud computing. It means that the customer pays for work done only and determines the scope of tasks for the project based on the business needs of his/her company.

Additionally, our clients enjoy the options of resources scalability, regular transparent communication with the team, scope of work modifications, and fast changes of development priorities or product requirements in order to ensure an effective and quick project implementation or quick product market launch. This flexibility of the DDC’s arrangements provides for lean project management, increasing IT investment efficiency in the long-term perspective.

Conclusions

What do we have as a bottom line? If we use IT terms, then the concept of a dedicated team can be equated to the popular concept of cloud computing with all of its advantages, such as flexibility, scalability, service orientation and a transparent payment scheme. Then, the building of an offshore center is like developing an in-house product from scratch, project development is similar to a packaged software purchase, and expanding the current team is more like a tweaking of the COBOL legacy-system created back in the 1980s.

Today, it is essential that we get rid of rigidity in the software development services industry. Present-day cloud trends affect not only IT infrastructure, but also the services industry as a whole. Clients and providers should be ready for the transformation of this market, because in the coming years, we can expect many changes in the business processes of all companies, both ISVs and end users. And as always, those who will have won will be those who stand first in mastering and implementing new technologies.

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