Changing Dynamics of Software Outsourcing

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Introduction

Software outsourcing has gone under multiple iterations and matured enough to call it as a successful model. But the process of iteration is never ending and each iteration has exposed certain pitfalls that keeps challenging the SW Outsourcing ecosystem.Respected Azim Premji has mentioned below famous quote that states THE IDEAL case of outsourcing; especially applicable to the developing countries like INDIA.

The important thing about outsourcing or global sourcing is that it becomes a very powerful tool to leverage talent, improve productivity and reduce work cycles.

It won’t be exaggeration, if one calls “developing countries like India” as “Services” states of US in addition to its 50 states or “Solution Services Arm” of Europe. This blog post is not targeted for the debate of “SW Product Development” v/s “SW Engineering Services”. I do not even intend to participate in the hot debate of “Why there are not much enterprise product innovations from India”. Also I am not discussing whether outsourcing to China and India has created problems with-in the source countries – because despite all the fuss around this topic, everyone knows that the outsourcing has improved global economy, which has helped in turn to US and Europe.

But I certainly want to explore the answer to question “Does SW Outsourcing Ecosystem require a change after so many years?”.

I strongly think the answer is “BIG YES” !!! The change required is not because there is something wrong about the current outsourcing ecosystem, but mainly due to the high-demanding world of “Tech-Startups”.

Outsourcing Ecosystem – Horizontal Division

If we just limit our discussion for the outsourcing ecosystem in India then one can divide it into 3 different parts based on the targeted customers by Indian outsourcing ecosystem:

  • Big Turnkey Projects – This is typically ruled by giant services companies like TCS, Wipro, Infosys, Cognizant, Tech-Mahendra etc. These companies work for bulky and long running projects, which turn to be recurring customers. Billing per resource is at much lower end, but the resource quantity and time duration is really huge.
  • Product Engineering Outsourcing – This has grown a lot in the last 10+ years in India and provides compromising opportunity for the engineers having affinity towards product development. There are many example companies, who have established themselves as technology and infrastructure platform for enterprise and consumer product companies from US and Europe. Typically these companies are sizing between 100 to 1000 employees and most of them are eventually either merged into another giant services company or become India subsidiary of the growing product company. In other words, now a days, it is dare-devil attitude for the founders to keep operating such companies for long run (beyond 10-12 years). Main challenges for these services companies are:
    1. Handling growing size of the company.
    2. Good amount of un-billable resources.
    3. Business tactics (or a circus) to showcase dedicated team, but behind the scene, engineering resources are not dedicated at all; especially the senior technical resources are working for multiple clients. It can be termed as either unethical practice or imposed business compulsion due to not having good technical leaders in the market.
    4. It is myth that the US and Europe based product companies are not aware of this resource sharing between multiple clients. They all know it, but recently they have started to question and some are not even ready to pay for leadership cost.
  • Partnering with the Tech-Startups – This is growing area in recent times i.e. not more than 5 years, but conceptually it was there even earlier in a limited way. As now there are rapdily increasing number of tech-startups in US and it all starts with the fact that not all startups are in position to have their own teams in US and/or in India, but they are not much comfortable to go to the services companies, which fall in horizontal of “Product Engineering Outsourcing“.

The reasons are as follows:

  • Most of the outsourcing tactics – of “not-having dedicated resources” applied by “Product Engineering Outsourcing“ companies – are known to the tech-startup founders and they can not stand with such “Near to Fraud” situation. The “TRUST” is under radar.
  • Tech-startups need more transperency in following areas:
    1. Almost daily interaction with the lead and team.
    2. Direct access to individual engineering resources and their every-day’s progress.
    3. Cost involved in:
      1. Salary + Bonus
      2. Operational and Legal Cost
      3. Margin % by outsourcing company. You cannot work with the tech-startup people to operate in 100% to  150% margin per resource. They will initially pay less margin and but later can pay more if  good value is provided back to them.
  • Quick Turn-around time for almost everything.
    Example: Tech-startups want to achieve something in 3-4 months time, for which “Product Engineering Outsourcing“ companies may take 6 to 8 months.
  • Constantly changing requirements during the initial phase of tech-startups and not really compatible with the change request process of a typical outsourcing company.
  • Attitude of “Run an Engagement over phone or Skype”. In other words, constant interaction between tech-startup and team working from India.
  • Engineering resources are expected to act as smart QA , enthusiastic Dev-Ops person and a tech-support personality.

One can argue that above means tech-startups need their own India office and they are not the candidates for outsourcing unless they pay standard outsourcing charges. It is a very easy argument to make, but it is a big mistake if Indian Outsourcing Ecosystem is going to ignore tech-startups. They are growing fast in numbers and during their initial days, they are not financially and/or market-fit wise in position to commit for India office. It is neither easy for them from logistics point of view nor to get right startup mentality team in place. Hence I strongly think that Indian Outsourcing Ecosystem need to keep certain infrastructure (technology + resources) ready for such tech-startups and it will be a potentially big market by attracting more & more tech-startups to India.

Partnering With Tech-startups

Above we discussed how a typical outsourcing company is required to change its style to adapt working with Tech-Startups. Typically tech-startups look at the Indian company as their partner than just tech-services company. And as a good partner, tech-services company is expected to join hands with the tech-startup at different phases, provide strong advise whenever required and even sometimes challenge certain decisions in a healthy way.

Below mentioned bullet points are some of the required steps to be a strategic partner with the tech-startups:

  • Being a partner with tech-startups does not mean to run a charitable trust, so it is required to have balanced payment model for tech services.
    Have the deferred loading payment model i.e. define lesser loading payment initially and increase it gradually or a bulk payment after certain interval.
  • Provide at-most transparency for the resource availability and overall costing model including the loading payment.
    It is absolutely fine to put on the table that certain resources are not 100% dedicated. Instead of hiding it, expose to build stronger TRUST.
  • Identify a technology lead, who can think and behave like a startup.
  • In reality, we need to build a team of such leaders to be exposed to the multiple startups.
    Identify and Build a technical team, which has more affinity towards startups and can work on multiple technology domains for the fast paced development.Tech startup must not find the remote team as a foreign team.
  • Educate young college graduates and implement leadership by an example – that monetary gain is not the only thing to run behind, but to show persiverance and persistence.In the SW industry, it is safe to assume that monetary gains follow the bright and hard-working people.
  • Stress on the importance of working in startups as well as big companies for overall growth of individual.
    Few tech-startups might offer tech-services company business partnership and/or equity in the company instead of pure loading payment. Study such opportunities case by case and be open to take such risks.
  • Bring similar thinking tech-services companies together to provide collective services package to tech-startups.Tying – a design studio, enterprise product engineering services company, cloud expertise and Web-App & Mobile-App development capabilities – together is a lethal combination to approach tech-startups.

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