Most organizations will cite one or more of the following reasons when asked, “Why do you outsource your software development?”

Reasons:

• Lower costs on specific projects or across the board.
• Need technical expertise not available in-house.
• Want to create a scalable workforce that can flex with workloads and business needs.
• Increase speed to market with more professionals on the project.

This is your starting point: knowing your reason(s) for considering outsourcing as a business option. This will make it much easier to evaluate your options as you work through the process of finding and vetting a potential outsourcing partner.

Considerations

Industry – Some outsourcers specialize in certain industries, like healthcare or finance. Others do it all, and a great many have expertise in several areas. If your product or project depends upon developers with a lot of industry knowledge, you certainly want to find an outfit that has some experience in your realm. If your need is for a general application that would be found in most organizations, industry knowledge may not be as important to you.

Organization size – Consider the size of your organization and the supplier(s) you are considering. Typically you’ll want to match up with your supplier. Large organizations on either side of the equation tend to be more rigid in their policies and procedures. They follow hierarchies and do not respond quickly to change. On the other end of the spectrum, small to medium size companies tend to be nimbler and more inclined to insert new thinking along the way. You want a partner who understands and can respond to your culture.

Technology and skills – Technology familiarity and skill levels vary widely between suppliers, as do the needs of organizations. Be sure to consider – and only pay for – the level of skill you need. Whether you need mundane, repetitive tasks performed error-free, or highly specialized skills in DevOps, UX or other areas, there is an outsourcing partner out there for you.

Lead/turnaround times – Be realistic about your own structure, including bottlenecks and areas of weakness, and discuss these with potential providers. Make sure your structure and culture will mesh with theirs.

Process/methodologies – Organizations can be anywhere on the continuum from flexible to rigid with their processes. Know your own culture and restrictions, and discuss these openly with potential providers. Ask probing questions about their style and preferences, and be sure you can work within the structure of each others’ organizations.

REALITY CHECK: THE REAL COST OF OUTSOURCING

Even if it is not your first consideration (and it often is), rate is always a factor when looking offshore for software outsourcing help. As with most things, you get what you pay for and you have to know what you are looking for in order to make the best buying decision. But keep in mind that hourly rates are just part of the equation when calculating outsourcing costs. Here are some other considerations:

Administration and vendor management

It will take someone’s time – an administrator, project manager, scrum master or other person – to manage the relationship with an outsourced supplier. You will need to consider everything from billing to performance reviews to project management. Research from the Aberdeen Group has found that 76% of offshore outsourcing customers underestimate these costs.

Vendor selection

This process can take several months to a year or more, and it can consume a good amount of key decision makers’ time. Among the steps you need to plan are:

• Requirements documentation
• RFP creation
• RFP distribution
• Response evaluation
• Travel and associated expenses for on-site evaluations
• Contract creation/negotiation

Transition and ramp-up

It often surprises organizations that costs go up during this time. But consider the following issues that must be addressed as you begin a relationship with a new partner: on-boarding; knowledge transfer; implementation of new processes and systems for communicating and sharing information. Add to these the time for your teams on both sides of the ocean to get used to these new relationships and systems. Note: Be wary of firms with high personnel turnover. This causes transition and ramp-up to be on-going.

Communication and coordination

Reaching a new norm with a software partner takes time. Teams in all locations need to be patient and committed to the relationship. There will be learning on all sides – which often leads to better long-term results. But these benefits are accrued after years, not months. Look for a partner that offers onshore delivery management too. This key role can make the difference between success and failure, as issues and events receive the kind of in-depth communication needed to keep projects and teams on-track.

REAL COST = RATE X PRODUCTIVITY

Just getting started in offshore outsourcing may seem overwhelming at this point. Yet the long-term benefits can make it worthwhile. The key to understanding actual outsourcing costs is in being able to gauge your long-term productivity – and then multiplying that times a vendor’s rate.Let’s look at some sample hourly rates vis-à-vis productivity. See the chart below.

In illustration A, the outsourcing company B charges an average of $25/hour for software development work. But its productivity rate is low too, requiring 10,000 hours to complete your project, which ultimately costs you $250,000. Outsourcer A looks 30% more expensive at $35/hour, but if their productivity rate is also 30% greater, they will only need 7,000 hours to complete the project. Total cost for outsourcer B now comes to $245,000.

Going even further, Outsourcer C charges a premium rate of $40/hour which is a 14% increase over $35/hour. But if this supplier can also increase productivity by 14%, you are looking at 6,020 hours for a total cost of $240,800. Not only have you saved $9,000 over the low-cost supplier, you’ve also saved nearly 4,000 hours getting to the end result!

Of course, measuring productivity is difficult. You need baselines and metrics that could take years to collect. And you want this information before you commit to a provider. Higher rates suggest more competent professionals, but how can you be sure? Besides gathering the best data you can about your own development processes and costs, you need to rely on the soft skills and approaches of suppliers you are considering. Look for a partner who understands and responds to your priorities, as well as one who can fill in your areas of weakness. In the end, communication and collaboration are as important as any metric.

CHOOSE A PARTNER, NOT JUST A VENDOR

I gather you have weighed the plusses and minuses, done your due diligence and put out an RFP. So how do you make an educated, sensible decision on the best supplier for your organization?

Look for cultural fit

Large companies share attributes with large suppliers, and small ones with similarly-sized suppliers. Experience in your industry is another delineator, but you need more. How can you measure culture, or “fit?”

Start by looking for attributes you want in your own employees. For instance, do you value a detail orientation or big picture thinking? Are you looking for a supplier who will guide you on processes, or do you want them to learn yours? What about communication? Is it comfortable? Do you feel understood? Has the supplier responded in a timely, succinct manner throughout the vetting process?

Look for a supplier who chooses you too

Good software development firms are in demand. They may want new business, but they want the right kind of business. It should fall into their sweet spot – where they can promise the best possibility for success. These suppliers do not go after new business with a shotgun. They are more targeted in their approach, and they will show you how you fit into their model. They have “chosen” you as much as you are choosing them.

Look for soft skills: communication and transparency

Hard skills are table stakes when evaluating a new business partner. You can cull the herd based on these attributes. But once you are down to two or three suppliers that fit your metrics, look for the one who demonstrates the clearest communication with you. For example, you should insist on strong English language skills, and not just with appointed communicators but throughout the team that will be servicing your account. On that point, will you have access to all team members? Or will communication be funneled through one or two contacts? Access to all team members will not only strengthen your teams from top to bottom, but it will also lead to improved collaboration.

MANAGING THE RELATIONSHIP

Managing relationships is never easy, but managing them across oceans, time zones and with language and cultural barriers . . . Well, let’s just admit that it is challenging. Yet managing a supplier/partner relationship is as important to success as any technical skill. More projects are derailed due to communication failures than any other single reason.

So what is the secret to good supplier partnerships? Excellent teamwork. This means that all members of the team, wherever they work, are engaged and responsible for building a strong team environment. No one person can do it all, but smart managers learn how to create a culture for growing vigorous teams.

Team building in the 21st century

Most work today, and especially software development, takes place in a constantly changing environment. New and disruptive technologies make last year’s products and processes obsolete. Work teams are organized with people who offer various skill sets and then disbanded as projects are completed or team members are needed elsewhere. This dynamic environment calls for people who are good at “teaming.” That is, establishing relationships quickly, and learning while executing.

I can hear you saying, “Not everyone is good at those things! In fact, many people are not.” But these are learnable things. The holy grail of good teamwork is trust and there are ways to build it from the ground up.

Building blocks for teamwork and trust

Most people have experienced work in a toxic environment, and the reasons often come down to the opposite of teamwork. In these scenarios, cultures tend to be hierarchical with workflow directed from the top and filtering down to the workers. Because workers have little or no input they do not take a personal stake in the work and shirk responsibility versus embracing it. Rather than accountability, you get a culture of covering up mistakes and then finger-pointing and blame. Dysfunction is the obvious result. It is easy to see how this can occur across oceans and cultural differences.

But it is avoidable if you go into an outsourcing relationship with awareness and a plan. The building blocks of teamwork reverse dysfunction to generate accountability and ultimately, trust.

• Eliminate hierarchical thinking that discourages disagreement with “the boss.”
• Encourage constructive criticism and input from all team members.
• Stimulate thoughtful risk-taking by accepting mistakes as part of the process to find solutions.
• Reward accountability that includes corrective action.
• Rally team to support all members.
• Celebrate individual accomplishments in the context of contributions to the team.
• Engender trust and teamwork.

Successful relationships that maximize teamwork do not happen overnight. Be patient at the start of an outsourcing relationship and communicate, communicate, communicate. Be hyper aware of the culture you are creating in the first six months, and take corrective action if you see something going awry. With time, your partner should come to trust and communicate with you equally well.