Offshore Product Development Another breeze undulating outsourcing…

For a software company, selling its software undoubtedly is its bread & butter. Now, the faster the product is released the better it is for the company giving it a first mover advantage along with various other benefits. Having said this, there are various important components to be kept in mind like cost, flexibility, attitude, skills, knowledge & expertise & last but the not the least the quality of the product.

Here comes the need for an approach that can let a software company achieve its goals, i.e. Offshore Product Development. Makes sense if some company can provide its client with such benefits leading to a win – win situation. When it comes to offshore software development, countries like China and India represent the fastest growing markets.

In the 1980’s manufacturing companies were looking to reduce their labor costs and maximize their profits by moving some, or most, of their manufacturing capacity to low-cost labor markets like Mexico, South Korea, and Taiwan – Offshore Manufacturing though became a commonplace and the one full proof solution to this objective. This enabled the manufacturing companies to have:

 A cost-saving approach

Exploit low-wage regions

Minimize risk and preserve intellectual capital

Gain tax incentives around the globe.

Mid 1990’s – An era of Internet and Web-based software technology revolution, the concept of using low cost resources to develop software and maintain existing systems came into being. From here Offshore Development facilities in countries like India, China, Ireland and the Czech Republic started to flourish. Software companies began to

offshore low-intensity functions like documentation, quality assurance, and product maintenance for maturing products. Over time, as the talent gained domain expertise, whole business processes, like help desk support, claims processing, and other traditional call center functions, were moved offshore.

Today, we can witness more core activities coming down to India, China and such countries. Information technology (IT)-enabled product development, sophisticated data synchronization is some common offshore activities in existence and flourishing overtime showing a phenomenal growth. Well known companies like Ferrari, Boeing, GE have leveraged there technology, in conjunction with low-cost offshore engineering, to exploit the benefits of global product development. While balancing and mitigating risk, they have maximized productivity and minimized long term cost.

OPD – Definition

 The next wave in Information Technology (IT) industry…… According to NASSCOM-McKinsey report the market size of OPD in India is around US $3 billion and is expected to grow to US $11 billion by 2008.

The outsourcing of specific activities or all activities related to the development or maintenance of a product or building software products for vendors & taking up responsibility of all aspects of the product life cycle which includes R&D, Development Testing, Prototyping & maintenance support and enables product companies to tap the product-building expertise and global talent pools available with OPD providers.

OPD is divided into three parts

 

• The start-up market is the entry-level phase where the company plans and develops the product.
•  A mature market is one where a product is already in existence; Developers just need to add features or services to it.
•  A sunset market is where an older version needs to be upgraded and new versions need to be added.

Projections

According to Business World, Global Software Product market is about $180bn.India has been able to capture only a meager 0.2 per cent of this market

According to Nasscom estimates, Offshore Product Development is expected to grow to around $7bn business by 2008-10 from existing $1bn business. Export of software products, including development services, accounted for $710 million FY 2004, up from $560 million in FY 2003.

Product development in INDIA has grown 10-fold from $300 million in 2001 to over $3 billion in 2005. This growth is being fuelled by companies across a range of verticals from aerospace to medical equipment seeking to load more value-added software onto their products while cutting R&D costs.

 Unlike the traditional IT Services, OPD companies are looked at as partners who can contribute to the future business initiatives of product companies specifically by contributing to the product roadmap.

 There are a no. of big fishes that provides IT services such as TCS, Wipro Technologies, Infosys Technologies and HCL Technologies. Although they operate in this space but have restricted their exposure as part of their de-risking strategy. The credit goes to the smaller offshore product development companies that have been all time active in talking and creating awareness about the Offshore Development concept and no doubt this has gained momentum over the past three years.

Evaluating a vendor becomes crucial that too given the critical task of product development, which requires superior capabilities, and specific expertise.

Take steady steps…
In order to exploit or reap real benefits of outsourcing software development offshore, one should climb up the stairs one at a time – safe & steady.

Step I

Trial Project – If you want to know how a dish tastes you will need to have a bite of the same. Having said this, in order to really understand the advantages of Offshoring software development it becomes inevitable to try out an offshore software vendor. Almost every software vendor has a policy of pilot projects or trial projects of say 15 days to 1 month wherein the client can be sure of the quality and commitment of an unknown vendor.

There is not much to lose and after a convinced frame of mind along with proper mutual understanding it might prove to be a win-win situation at the end of the day.

 Step – II

Continuing on a project basis – Once both the parties are on the same page and have a clear understanding as well as convinced approach, the activity can be continued over a period of time by outsourcing small or big projects to the same vendor.

 Step – III

Dedicated Teams – Offshore Development Centre (ODC) again a very much known and heard about term in the field of Offshore Software Development. When the project seems to be of an incremental nature, it is no doubt practical to have a dedicated team with the offshore solutions provider. Having said this, ODC enables the vendor:

•  To have a better control over the team or the process of development
• Have an offshore team exclusively working on the particular project or for the particular vendor.
• To decide upon ramping up or ramping down the team size depending upon the size, scope and frequency of the projects
• And, further save costs.

 Step – IV

Joint Venture – Hope the economies keep up the boom in all the industries and the more the booming scenario the more the projects leading to a step further and establish a joint venture with the offshore vendor with whom the relationship continued till this phase. This undoubtedly is the easiest way of entry into offshore centers like India or China and further gain a competitive edge by further lowering the costs or we can say increase profit margins.

Level of importance – Various factors while choosing an offshore partner

Better domain expertise: more & more critical activities offshored

 

Various activities outsourced and the suitability….

1. Commonly Offshored
2.  High potential
3. Not suitable

An Example
Let us analyze an example of a trial project assuming a 5 man-month project (640 hours) in terms of costs deployed. Also assuming that there would not be a need for the vendor firm to have an onsite presence and most of the coordination required would be done through phone and emails.

Having analyzed the above scenario, let us have a look at a larger project. Assumption being a 120 man-month project (19,200 hours) executed over 8 months having a team of 15 people. Also assuming that there will be travel expenses included when the offshore team will be visiting the client’s site as well as the vendor firm has a constant onsite presence at the client’s site having one or more of its engineers there during the entire course of the project.

We can conclude that the larger projects could potentially mean more savings.

Let us have a sneak peek into a situation…
A Point-Of-Sale software provider for the pharmaceutical and Retail markets wanted to find ways to speed up their product development efforts. With this objective, they outsourced the creation of one module on a trial basis to an OPD provider.

When this assignment proved successful, the ISV rapidly ramped up the team with the OPD provider to 20 people, with most of them operating at an offshore location to take advantage of the cost differentials. The ISV’s team and the outsourced team worked in a “co-development” model, sharing the development work on the 10-12 modules that were required for every release.

• The long-term relationship with the OPD provider existed for over 3 years and helped the ISV: Release 3-4 versions of their product every year (on a hosted model)
• Crash the product roadmap and include features earlier than planned, leading to faster customer acquisition.
• Focus more on product management, as opposed to dealing with the overheads of managing a team.
• Achieve higher R&D productivity for every development dollar spent.

Product Development Services by OTS Solutions Include

Outsourced Software Product Development

Offshore Product Development

Product Analysis

Product Specification Design

QA & Testing

Product Maintenance

Product Porting & Migration