‘Outsourcing Outsourcing’

The Changing Scene
Software industry, as we knew it, has changed. Need for a predictable yield from software vendors is getting more primary as technology finds more and more applications in products and systems. Few years back such a disruption took place in the software industry when the OS became ‘open’. As software became ‘open’ and easily buildable, the value that established software houses provided, with one time deliveries, decreased. Thenceforth, it did not remain as simple as develop & sell. Clients wanted vendors to see a broader picture spanning from concept to after-sales service.

Vendor’s 'involvement' was sought in the whole product lifecycle & not just delivery of a part of the whole. This required software houses to gear up to the concept of co-development where vendors were no longer in a compartment, they were asked to share the client’s vision.

By inviting vendors on board, Clients (OEMs) see a recurring cost benefit due to a particular portion of their recurring task being outsourced. However, how exactly this would be executed may not be known in all detail - at least not to all involved stake holders. The money dispensers from OEM teams urge vendors to inculcate a sense of ownership and learn to come along as their products were being developed. They ask vendors to claim and pull work, rather than pieces of work, being pushed to vendors - in other words they are seriously thinking of outsourcing the very process of outsourcing.

Challenges
When a new team is asked to hop on board towards product creation many unknowns arise. At the onset, typical unknowns such as below may arise:
1. Motivation of each stake holders to outsource. Stake holders could be - OEM’s purchase team, the Client’s Technical team, Client’s existing vendors (could be the competitors), Client’s Quality team & Client’s Customer. All may not have a direct say in the off-shoring decision, nevertheless could act as a hindrance to relay of work to offshore. Motivation could map on to these objectives
a. Commercial Interest of Manager who decides to outsource
b. Symbiosis i.e. mutual support in exclusive area of excellence
c. De-risking an existing vendor
d. Help in globalizing products and services for a new geography
Unless it is clear as to what every Client Manager is looking for in this relation it could be chaotic to venture to work with him
2. Criteria and Timing of what should be outsourced & at what stage of the relationship. It should be clear whether the proposition is for the new vendor to acquire ‘extra’ work or to stake claim for a piece of work currently existing with other entities.
a. In a case where the client’s pie is growing and amount of total work has increased, there is a higher chance of the teams working constructively towards enabling the vendor to deliver.
b. In case, a piece of existing work is to be transferred from an existing vendor to offshore, a third entity – an ‘arbiter’ to control & monitor the relay of work and measure the effectiveness of transferred work is necessary.
Without an intermediate arbiter there is a risk of two vendor parties working with conflicting business interests.
3. Processes and Transparency. Clients would naturally want to monitor closely what & how the new vendor is delivering and how he is dealing with other parties involved. This needs a mutual definition of transparent project management and execution standards. Other vendors too, to whom reporting is done, may have a set of processes that are set forth.
If common processes and proper hierarchy are not defined, measurement of performance would be incomplete and could act to the loss of the performing vendor party.

The above quoted challenges are broad in nature and need higher or lower seriousness depending who the client is and what the nature of work is.

The bottom-line is to ask is Why is the Client doing business with you? Here the 'Why' & 'why with you' are both important. Unless it is known exactly what the objective of various clients’ stake holders in outsourcing is, it could be difficult to sustain the venture. In order to win in such a premise transparency from both sides, is the key.

Only after clarity on above issues and identification of area of mutual benifit will vendors be able to graduate up to stake claim of work to be outsourced to offshore.