How to Choose The Right Technology Outsourcing Vendor

In our previous post, we highlighted some possible scenarios that may indicate that your business needs an outsourced strategic partner for software development. Now that you have made the decision, here are some of the key criteria that you need to consider during the selection process.

Define the agenda for outsourcing

Outsourcing is no longer about lifting and shifting low value-add processes or addressing specific in-house resource limitations, operational bottlenecks or cost concerns. It is entirely possible that your tactical objectives for outsourcing may be centered around similar issues. However, it is important to have a more strategic agenda where the focus partnership is not just about short-term incremental value. According to a Deloitte study, 43% of companies who outsource include innovation as a key component of the contract.

So, how you define the strategic agenda will influence almost every aspect of the eventual partnership including vendor qualifications & experience, outsourcing model, team composition, and scope, tenure and cost of the program. Transforming your company’s approach to software development will require a degree of sophistication that may not be required if you just want the partnership to address gaps in your existing software development value chain. Define an overarching strategic agenda and then break that down into objectives, activities, metrics, and milestones.

Evaluate technological competence, infrastructure and domain experience

Once you have a consideration set of potential partners with the business profile to deliver your agenda, you need to take a closer look at their technological sophistication. Progressive vendors are investing significantly in digital-era technologies such as cloud, automation, ML and AI in order to meet clients’ increasingly strategic outsourcing expectations. Look for the technological competencies and technical skills that will best serve your outsourcing agenda. If domain knowledge is a key lever for success in software development, then look for partners who have experience in that industry. Assess your potential partner’s track record in delivering complex software development projects. It is also imperative to get an insight into the methodologies and best practices that the vendor utilizes for the core task of software development as well in their broader approach to project management. The ideal partner must be well-versed in Agile development models and should also have the capabilities to conform to your requirements for protecting your data and IP rights.

Getting the right team

The quality of the outsourcing team will eventually determine the success or failure of a partnership. A team comprising mostly of highly skilled senior developers may cost more but could also post faster turnarounds. On the other hand, a junior team may be inexpensive but require extensive hand-holding and do-overs. Look for a team that is the right blend of enthusiasm, experience and skill.

Check for fit in terms of culture, communication and values

These elements are often underestimated when it comes to the selection process for outsourcing partners. But they can prove to be make-or-break factors especially in complex long-term partnerships. There has to be a considerable overlap between both organizations in terms of organizations hierarchies, corporate values, work ethics, culture and soft-skills. For instance, a client organization operating on a highly codified work ethic may have issues interacting with an outsourcing company where the culture is relatively more laid back.

Prompt and effective communication is also absolutely important for a successful outsourcing partnership. These are engagements that are executed across geographies and time zones.An outsourced team that scores high on technical expertise can still jeopardize a project for want of the requisite communication or soft skills. Try to gauge the service provider’s market reputation using client reviews and social media analysis to get more insights into your partner’s professionalism, culture and work ethic.

Make sure the service provider is operationally and financially stable

Take a closer look at the vendors operating and financial history. Ensure that the company is financially sound and is capable of delivering on its long-term commitments. You also need to make sure the organization has a robust acquisition and retention strategy and that there is not too much churn.

Start small and scale

In order to be absolutely certain that the partnership is just the right fit, start with a limited engagement with a small team. This should give you enough exposure to assess your partner’s approach to software development and project management. Interacting with a small team will give both organizations an idea about the cultural and operational adjustments that will have to be made in order to streamline the engagement. Gradually move more project components as and when the vendor delivers and scale until you are at full production.

Evaluating the cost

Typically, a fixed price model does not work very well in a software development context because of the challenges involved in estimating a fixed bid. That is one reason why most outsourced software development projects tend to follow the dedicated staffing model. Whatever the pricing model, always look at the Total Cost of Engagement to understand the true cost of the partnership. During pricing negotiations, never focus so much on cost as to relegate quality and innovation to the background. Create performance incentives that will encourage your partner to deliver long-term performance improvements that go above and beyond SLAs.

The Deloitte study mentioned previously asked respondents how their past experience would influence their approach to future outsourcing projects. The top two responses were about the outsourcing partner selection process with respondents indicating that they would spend more time on the selection process and use a competitive bidding process. Apart from that insight from the experienced, outsourcing clients also need to ensure that the focus of any negotiation is on business value over transactions and on business outcomes over tactical goals. The emphasis has to be on building a partnership that is designed for co-creation and fosters innovation.