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New Strategies Reflect Outsourcing Maturity


By Frederic Boulanger
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September 1, 2006 —  (Page 1 of 3)
Under increasing market pressures, organizations continue to focus on fostering core competencies while offloading non-core activities. Discussions about which software development activities fit into “core” and “non-core” buckets are commonplace today, and nearly every company with a software R&D function has an outsourcing strategy.

In 2003, according to a study published in Software Development magazine, 23 percent of software companies in North America said they were outsourcing some portion of research and development. By 2005, that had grown to 29 percent—it is estimated that the trend is growing at an annual rate of 30 percent. In industries like automotive, pharmaceutical and electronics, 90 percent of firms outsource some portion of R&D.

The conversation today has shifted from a question of outsourcing to how it can be made to work. The most sophisticated organizations use a variety of software talent in their outsourcing mixes. While the optimal outsourcing composition will vary between organizations, managers of successful R&D outsourcing models respect four important truths.

FOUR TRUTHS OF OUTSOURCING
First, they know that outsourcing does not equal offshoring. They recognize a range of third parties that may fit into the overall outsourcing mix. Sophisticated outsourcing models typically include at least four different types of labor options: in-house teams, sub-contractors within the same city (or even the same office), specialized firms on the same continent, and development houses overseas. Today’s R&D managers are experts at evaluating a particular project’s unique profile and matching the right mix of outsourcing vendors to the project.

Second, organizations with optimized outsourcing strategies know that outsourcing does not mean “over the wall.” They respect that an outsourced project requires at least as much management as an internally hosted project, and they evaluate what management style will be required. This can range from fully hands-on oversight to nearly total automation—and a range of scenarios in between.

Third, they know that sending work offshore is not necessarily cheaper. In fact, many may have been burned by projects that were blindly offshored during the tech downturn—not because the offshore vendor was incompetent, but because the project was unsuitable for a foreign vendor. Today’s more experienced R&D managers look at more than hourly labor costs—they also evaluate a project’s overall profile and map that to an appropriate outsourcing mix.




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