Insights > White Paper on Outsourced Product Development
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◊ Introduction
◊ Challenges Faced by ISVs
◊ Outsourced Product Development Methodologies
◊ Next-Generation Product Development
◊ Summary
Introduction
Tapping the global talent pool has become a pre-requisite for survival in today’s competitive world. The economic and intellectual benefits of this strategy are so overwhelming that it is often referred to as the first and next generation of “global resourcing.”
Outsourcing “non-core” activities to gain such economic and intellectual advantage has become an essential component of any successful business strategy. However, as an industry matures, what constitutes its “core activity” undergoes change. The global competitive market is gradually changing the core expertise of Independent Software Vendors (ISVs) from product development to product management. Independent Software Vendors (ISVs) have begun to realize the advantages in engaging global talent to augment development capabilities, right from high-end architecture designing to development and version support – all at a lower cost and within a short span of time.
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Challenges Faced by ISVs
Global independent software vendors (ISVs) are under pressure. Market growth is constrained by decreasing profitability, with simultaneous pressure to upgrade and widen product offerings while using fewer resources. Moreover, most software products must upgrade from aging technologies (e.g., AS/400) or architectural (e.g., client/server). ISV resources are optimized by a continuous flow of development efforts to the most appropriate players – whether internal or external.
More specifically, ISVs face the following challenges:
- Impeded acceleration of product development
- Limited reduction of product costs
- Slowed recognition and resolution of product defects
In each case, using global resources – internal or external – augments internal skills and capabilities:
Global expansion: Addressing a wider market through internationalization and multiple-platform support. Global resources understand local markets and have existing relationships in target regions.
Time to Market: Realizing new products faster through global development and testing cycles by working round the clock with multiple facilities.
Customer Support: Providing high-quality, 24X7 support across the globe with multi-lingual support and regional expertise
Skill augmentation: Understanding that, as platforms and technologies proliferate, it is not always viable to expand in-house teams or possible to constantly retrain development personnel. Outsourcing vendors are increasingly developing deeper, cross-company expertise (e.g., supply chains).
Product Development: Enhancing product development processes that were not designed for an extended enterprise. Outsourcing vendors can implement and realize benefits from world-class best practices within months.
Localization: Understanding language and terminology differences that are unique to various regions of the world and that can be implemented during initial project creation.
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Outsourced Product Development Methodologies
The emerging best practice for software development is to decouple product design and development elements in the value chain. Separating the development process enables organizations to understand the value proposition of each stage – and potentially the return on investment (ROI).
The life cycle of product development is increasingly being divided into phases that require internal expertise (and value-adding) as well as steps that are highly commoditized:
Value Functions
- User Specifications
- Technical Requirements
- Product design
Commodity Services
- Development
- Testing
- Support
The project management skills developed during the maturation of offshore outsourcing have been a critical ingredient in the advancement of this methodology. The division of responsibilities between IT personnel and outsourcing staff is a critical factor in the success of the project specifically and the outsourcing relationship generally. Moreover, outsourcing vendors have made tremendous advancements in the metrics for quality and investment that drive greater efficiency into the overall process.
It is common practice to leverage outsourcing (especially offshore) for commodity development work. Although offshore is usually regarded as a tool for labor arbitrage, its “hidden” benefits include higher quality and development discipline. Indeed, we believe that outsourcing vendor investments in software engineering, product development, testing, and support have resulted in efficiency and productivity levels that are sometimes superior to the in-house engineering organizations of ISVs.
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Next-Generation Product Development
Whether through globalization or outsourcing, global resourcing will no longer be an optional strategy. The production cycle for technology-centered products will require global resources. Leading vendors currently offer services that include architecture, development, and deployment of products. Moreover, outsourcing vendors continue to expand further into the value chain of product development. Additional expertise will emerge as vendors attempt to dominate emerging technologies (e.g., RFID) and develop deep vertical expertise (e.g., retail industry supply chains).
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Summary
The next generation of software products will evolve with a distinct global flavor. Next-generation products will be developed with the globalization model already deployed by large companies, but will extend down to regional and specialty players – enabled by offshore outsourcing. Offshore vendors will increasingly be involved in architecture, development, and deployment ranging from embedded products to software and hardware design. Indeed, products developed without global resourcing will be late to market at uncompetitive costs.
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