Ten points for ISVs to consider when outsourcing R&D ISVs and Outsourcing

Much has been written about what an ISV needs to look at while considering an outsourcing partnership with a vendor. This paper will not focus on what has been discussed at length in the last couple of decades. Rather, it will present practical considerations in establishing an outsourcing partnership. Software product development was once considered a core competency of ISVs. However, ISVs have shifted expertise towards product management, product innovation and product marketing. Primarily, ISVs are now only retaining what allows them to differentiate themselves in the marketplace and are outsourcing everything else. For an ISV, an outsourcing partnership enables it to acquire 3rd party technology and process expertise, as well as around the clock support resources. This allows it to lower costs and crash product roadmaps while reaching the market faster and keeping the innovation ecosystem alive. Having reviewed the benefits of an outsourcing relationship, we will now take a look at some of the important points an ISV should consider while entering an outsourcing partnership.

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1. Good practices in outsourcing critical IPR

Outsourcing product development means outsourcing IPR despite the fact that only coding gets outsourced). This carries with it many risks. Therefore, it is essential for an ISV to ensure that its IPR doesn't get compromised. The best way to address this concern is to follow these three steps:
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Ask for customer references from the vendor. Speak to them and see how their IPR is protected; Look at the vendor's business model and see if they own IP on anything; Ask the vendor if it is okay for the company to not partner with your competitors.

2. Is your vendor the right size for your interests?

Large outsourcing organizations will not prioritize your relationship if you are a small to medium sized company. It is important to have the outsourcing organization's executives interested in your relationships as they typically provide you the mind share, which is directly related to the revenue generated from your relationship.

3. People are just too important

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Participate in the selection of employees at the outsourcing company who will be driving your relationship Ensure that you have direct contact points to the development team. It makes project status updates easier Eliminate differences in communication, approaches, and procedures between your own team and the vendor's team. Align the teams' work as close as possible to eliminate risks of failure Ensure the right policies are in place to allow continuance of resources and reduction in staff turnover

4. Avoid using fixed-bid projects

As much as possible, avoid going for fixed-bid engagements unless it is a short-term engagement or an evaluation engagement. Often, fixed bid projects are inaccurately estimated by 2 to 3 factors, which substantially increases the risk of project failure.

5. Software development process

In most software product development endeavors, the process between requirements gathering and software delivery is too fluid and not fully mature. Common excuses include, We're reacting to the market and Staying close to the customer.', which makes it risky to outsource. Though the benefits of outsourcing are plenty, jumping into it without carefully assessing the development process would result in failure. Essentially, reacting to customer needs and staying close to customer activities should be handled by the product management function and only clear-cut specifications should be rolled out to the outsourcing partner. ISVs should try to stick to those specifications for the product development activity to be successful.

6. Multi-source capabilities
It makes most business sense to look at expertise from multiple vendors. For instance, development and quality assurance can be independently handled by different vendors. This will allow unbiased assessments of quality. In addition, the best teams will be tasked to do the work that they have expertise in conducting.

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7. Pricing model
Look at various pricing models that are appropriate for your budget while engaging with an outsourcing partner. Explore the option of a risk-reward model where there is investment from the partner as well in terms of efforts and cost. However, to be fairly warned, this is a complex model to achieve as everything has to be quantified upfront including the expectations.

8. Understand your costs

Typically, most outsourcing partners look at providing an ISV with an all-inclusive project that will last for several months with a regular revenue stream. Though the costs might be lower than what ISVs would pay internally, you ought to figure out if the overall costs are right or is it way beyond for what you are trying to achieve.

9. Proof of capability
Do not sample your relationship with only a few small projects. The overhead associated with knowledge transfer and communication does not make it worthwhile. This kind of partnership works optimally if you hand over a whole piece of business for a fairly long duration. Also, it is better to have one or two of your resources travel to the partner site to roll out the scope of work. This always results in better delivery.

10. Keep quality at the core of everything you do

Have a process by which you confirm quality at all stages of the development. ISVs have to be careful not to cut corners and ensure that all aspects of the product is tested with every iteration.

Conclusion
Outsourcing for ISVs has become more a necessity than a choice as it allows them to continuously innovate. And outsourcing development and maintenance has gained a fair level of acceptance among the ISV community. It presents a low-risk and high growth business opportunity for ISVs. Most importantly, outsourcing for ISVs cannot be a short-term cost-cutting opportunity. Rather, it should be strategically woven into the development strategy in order for the ISV to experience total business benefits.

About Ivesia
Ivesia Solutions is a global leader in providing information technology solutions. Ivesia offers software development, software QA and project staffing services through a global delivery model. Ivesia's solutions have helped corporations in reducing their timeto-market while ensuring reliability, performance and quality of the IT infrastructure. Being a pioneer in information technology solutions, Ivesia has helped customers from various verticals that include healthcare, media, ISVs, pharmaceuticals & biotech, financial services, education, and energy. Ivesia has a strong customer base and innovative service offerings. Ivesia is looking at exponential growth in the coming years.

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