The decision to outsource technology services (software development), is a tough one. Organizations need to have a clear understanding as to what drives this decision – why are we doing this? How will such a decision support the business strategy and what will change for the internal processes, costs and most importantly the customers. What are the critical aspects that we need to watch out for – so that our efforts to outsource are sustainable and successful.

Many times, organizations tend towards technology outsourcing in a hurry or with a myopic view of just cost optimization or what they think is ‘fashionable’ to do – in our experience, these have been the biggest reasons for failure than any other! But many would argue that the fundamental need to outsource (typically to low-cost economies) is driven by a desire to optimize costs. The more sustainably successful outsourcing efforts have considered other drivers than just costs.

In this article, based on our experience in both running development centers for customers as also advising on outsourcing strategies, including turnkey projects for some of our clients, we try to elaborate some of the critical elements that one should thoroughly consider when deciding to outsource and the pitfalls to watch out for.

Purpose: Understanding the fundamental need to consider outsourcing is the most critical question that one needs to have a clear answer to. The organization needs to know how this adds value to meeting their stated purpose & strategy; and should not be done only for cost optimization or as though it is the flavor of the month! Any transformational initiative that is aligned to the purpose or the strategy is more likely to be well accepted and therefore sustainable. We have come across a few companies that have taken the outsourcing route just because they saw it as low hanging fruit or they had someone (friend / relative) in a low-cost country, who they wanted to help and most of them have either not been successful (in meeting the objectives) or sustainable.

Other factors to be considered amongst the reasons (purposes) for looking to outsourcing should include– where is requirement coming from? – customers, market (geographical), business model (on-shore / off-shore balance), governmental (security, work authorization, etc).

Cost Savings: This is probably the most common driver for organizations to consider outsourcing – these can be driven by market pressures or the need to be competitive or to push non-value-added work to lower cost economies.

credibility and quality may have suffered a great deal and could have resulted in an additional layer of supervision. Sometimes, these value erosions are realized a bit too late, that decisions become ‘irreversible’ or cost more to revert to an earlier state.

While working with some of our customers, we have come across situations where the decisions to outsources technology development services to third countries have been taken by a few (or one) senior internal resources, for reasons that are not entirely above board or for personal benefits. These are not just unethical but also have long term negative implications for the organization. We encourage all our client organizations to have a panel of senior leadership teams (and external experts) actively involved in deciding on the choice of outsourcing partners.

Access to talent & scalability: This is a key aspect to be considered when outsourcing – not just for technology development services but also for manufacturing services. If the purpose of outsourcing is strongly linked to the organization’s strategy, this becomes a key driver to consider. A strong outsourcing strategy should explore and include a vision to scale these efforts, and to scale, we need access to the right kind of talent in the right numbers and in the right mix (geographical, technology breadth, off-site / on-site business models, etc).

When making the choice for an outsourcing location or partner, we should apply significant importance to determine whether the choice will enable us to scale rapidly as determined by the business (and our customers) and this scale should be possible at short notice both in terms of quantity and quality of the resources that we need. Typically, as the scale of operations grows, the outsourcing partner will tend to quickly deploy resources, compromising on the quality of the resources. The outsourcing partner, therefore, should not be approaching & responding to the situation / requirement as a supplier (only focused on meeting cost and profitability objectives), but truly act as a partner in ensuring that any kind of scaling of operations is sustainable and with minimum or no risk to organization or its customers.

Here again, when we make the decision on who we choose as our outsourcing partners, we need to keep in mind their ability to respond positively to scaling needs – many a time, outsourcing partners (in low-cost economies or those who have not been selected through due process), tend to look at their short-term gains, compromising on other aspects of the relationship & business.

Reliability & Reputation: Who you select as your outsourcing partner could say a lot about your process of choice. Organizations and decision makers need to remember that your partners and vendors often determine your reputation with your customers – be it the quality of delivery, timeliness, or costs. Our choice of outsourcing partners should therefore lay a lot of emphasis on reputation and reliability – the leadership values & culture of such outsourcing partners will typically indicate what you can expect from their organizations and relationships.

While organizations have the ominous task of protecting their reputation with their customers, we need to ensure that this vision and value is translated across all our suppliers and partners – this is what will make our own organization reliable! We should ensure that our outsourcing partners are not just in it for profits or to provide cost optimization at the cost of reliability. We need to ensure that our partners can stay firm with us, particularly during start up and scaling up stages of the relationship. By no means should we underestimate the need to keep the partners adequately motivated both from a work perspective (volume) as also revenue perspectives (value) – organizations should ensure that they are fully committed to making the relationship and engagement work, by being reliable and demonstrating our reputation that is anchored on our organizational values.

Delivery commitment: This is probably one of the drivers of a successful outsourcing partnership that gets the least attention and is often taken for granted. While in most situations delivery related expectations (KPIs) are clearly laid out in the scope document and form part of the periodic project reviews, organizations may need to keep a close watch at all time to see signs of stress and if we are having to deploy additional layers of supervision to ensure delivery times & quality are always met – this will make the outsourcing effort redundant, cost prohibitive and cause significant damage to the organizations reputation.

Additionally, depending on the organization’s outsourcing strategy, and if that involves a multi country strategy, organizations need to understand cultural differences across the different locations, alignment of values across these entities and lastly quality of skills (including language). All of these play a critical role in an organization’s ability to meet its commitment and protect its reputation with its customers.

If the choice of outsourcing partners is flawed (for any of the reasons stated above), we have seen and helped organizations to identify these issues, value erosion arising out of inconsistent delivery, short term vision and purely focused on costs & profits – these have typically required organizations to add a further layer of control over these outsourcing entities – adding to costs, delays and generally strained relationships all around.

To sum up, keep these in mind:

  • Don’t take the decision to outsource just to save costs – look broader for scalability, value creation and sustainable growth.
  • Ensure that who you choose as your outsourcing partner and who in your team is the most capable of making that choice, is done through an open & transparent process with the best interests of the organization & end customers.
  • Keep a watch to make sure that the outsourcing partner is not steadily increasing costs after securing the contract – this is where choosing the right partner with the right values becomes so critical.
  • Focus on building a long-term partnership (if you have found the right partner) and don’t get swayed by lower cost solutions that others may offer (don’t get into price wars), just to make an entry into your business.
  • Leaderships teams from both sides need to engage periodically at a strategic level to objectively evaluate the relationship and mutual value addition.
  • If needed, find a local project manager (even external) of sorts who will act in the organization’s best interest and can manage the outsourcing relationship on the ground.

Good luck with your outsourcing efforts!