Series: Choosing The Right Outsourced Product Development Partner – Part 1

We are glad to publish a short series on ‘Choosing The Right Outsourced Product Development Partner‘ which will act as a guide in helping companies, entrepreneurs and individuals choose product dev partners wisely. It will also be published as a whitepaper shortly.

Part 1.

It may have started as a cost saving business proposition, but outsourcing today is a business decision that requires profound strategic thinking.  A research by Harvard Business Review estimates offshore centers can deliver an additional 4-6x value above labor arbitrage[i]. This means besides cost advantage due to lower wages, there are several other advantages for the companies opting for outsourcing. Obviously, the value multiplier for these advantages depends on how smartly the outsourcing related decisions are made and implemented. One of the most critical decisions in outsourcing related matters, especially for building software and mobile products / apps, would be that of choosing a right partner for outsourced product development.

Choice of partners for developing outsourced products has always been one of the most critical outsourcing related decisions for the companies. If the partner fails to deliver the product quite as per the expectations, the development of the product has to be reassigned to the in house unit or re-outsource to yet another product development partner, resulting in loss of time and opportunity, and increased costs. Therefore, choice of a partner becomes a critical decision for the companies.

Let’s consider a couple of scenarios to understand how the outsourcing over the years has changed and how it is impacting the role of outsourced product development partners.

Consider scenario 1. This is a typical traditional outsourcing arrangement, where objective is no more than to save time and cost.  For example, an IT company outsourcing one of its current function to another IT company with the objective of saving cost and time. In this arrangement the company outsourcing the product possesses good knowledge of outsourced function and hence it has,

• More clarity on time lines required for the project
• Clarity on processes and know-how the partner should possess
• A system to review the work in-process by partner and closer quality checks

In a nutshell in this arrangement companies have greater governance over the partners.

Now consider scenario 2. This is a modern outsourcing scenario where objective for outsourcing is business problem-solving. As a company, in this sort of outsourcing requirement, you will first segregate all the business functions, identify the function(s) in which you lack expertise or managerial bandwidth and outsource that function(s). You will rely on your partner to solve this functional business problem for you. In this arrangement,

• Outsource partner is provided with a business problem and not product specification. Product specification are developed in collaboration
• There is high reliance on partner to come up with innovative suggestions.
• Partner is expected to have flexibility to accommodate changed requirements.
• Partner must align itself to other business functions.

Though partner selection is critical in both the scenarios, clearly in scenario 2 partner selection is backbone of entire outsourcing arrangement and success of the business. Scenario 2 requires greater amount of trust in partner at lower level of governance.