Software Outsourcing – When, Where and How

Outsourcing has its strengths but is not a panacea. Organizations should ask themselves some questions: which processes could be outsourced-and what is the magnitude of the opportunity? Are these processes stable? Is the company ready for the disruption? Can important risks be identified and managed?

Whether an organization is exploring to outsource a pilot program or re structure its’ established software outsourcing portfolio, it is essential to work deliberately through these questions.

If the organizations decide on software outsourcing, they should check for the following factors in the software-outsourcing vendor. Are they reliable? Do they have expert skills required? Is there a sufficient scale? Do they have the experience in customizing and integrating an ASP solution? If the answer to all is yes, then go ahead.

However, one has to remember that outsourcing is no antidote for underperformance. Indeed, what troubles performance onshore is exactly what will compromise-and be magnified by-offshoring. A solid grasp of the function/project being outsourced, including business and technical expectations, planning & deployment requirements and methodologies. If people on site can manage these themselves, they can manage outsourcing service provider.

Thus, a second filter-is the organization ready? Are the processes stable and well defined? Is the requirement analysis done? If the answers are yes, then it’s time to think about outsourcing location.

The criteria for location are the quality and cost of labor; language skills; telecom bandwidth, cost and reliability; political stability and the enforceability of contracts; the general maturity of the business environment; and senior management’s comfort in operating in different locations.

If the need is for English speakers, two standouts are India and Philippines. India is cheaper and has more English-speaking graduates, but Philippines excel in the call center space due to its close cultural connection to the United States. China offers low labor costs but a less mature outsourcing environment and weaker English-language skills. Ireland, South Africa, and New Zealand have skilled workers in a mature business environment, as well as greater cultural similarities with the United States, but at somewhat higher cost. Finally, the Caribbean and Mexico offer moderate skill levels in the same time zone as the United States.

After what and where comes how: The software outsourcing service provider has been dependent on numerous delivery models that have evolved over a period of time. A few of the popular models are: Onsite, offshore, onsite/offshore, offsite/onshore and global delivery model.

Transitions are difficult. Technical problems crop up. Natural disasters, political intervention and cultural differences can all compromise the effort. What can be done to mitigate these risks? It’s challenge, but with the right commitment from management focus, it can be done.

Transition stress can be minimized by investing senior management time; by outsourcing well less than 100% of any activity, at least to start; and by maintaining some backup capacity onsite. Technological redundancy in hardware and telecom lines can cover for technical failures, a and backup capacity in a second operation elsewhere can ensure against political risk.

Cultural differences can be managed through exchange programs and training the initial work force at domestic facilities. Most important is ensuring that all processes- from the work itself to process changes, all onshore – offshore interactions, and problem solving – are clearly and fully documented. The pressures are lighter when outsourcing, but they are still substantial. Companies must mange vendors closely for quality and cost – the newness of the field has led to wide variability in terms, and some vendors have negotiated to give themselves very attractive margins. The time difference, and some vendors’ lack of experience. Can be managed by putting small management teams on the ground.