The growth of outsourcing services has been tremendous throughout the 20th century. It has gained strong footholds in private as well as government organizations. Despite the many successful outcomes in outsourcing there have been some instances where it did not proved to be beneficial as per the expectations. A company has two choices for software development, to conduct an In-house activity or go out to the market, which might be within the same country or offshore.
In the case of an In-house job for software or application development the direct costs includes developer’s time, software tools, recruitment etc. whereas indirect costs covers the charges related to internal team building of people with right knowledge, skill set and attitude. In case of outsourcing the costs are clubbed into vendor and transaction costs. The vendor charges cover the production and development costs whereas the transaction costs can be clubbed into:
- Searching & Selection cost: The cost for searching and selecting the right service provider
- Bargaining cost: Cost for agreeing on an acceptable price or quotation
- Enforcement cost: Cost for measuring the compliance and enforcing the contract
- Co-ordination cost: The cost for managing the vendors
However, we are living in a world where B2B portals or marketplace have emerged over the years and provide perfect platforms where the above costs can be slashed down to almost negligible. For example, pliXos runs a B2B Marketplace where the customers can search for prescreened service providers and select the fitting one for their purpose. To quote from an article in The Economist “All economic transactions are costly-even in competitive markets, there are costs associated with figuring out the right price. The most efficient institutional arrangement for carrying out a particular economic activity would be the one that minimized transaction costs.”
Picture 1: pliXos B2B Marketplace – minimal transaction costs in SW supplier selection
Software development is a complex process which requires expertise as well as experience. Change in technology plays a vital role and has become a trend setter in the outsourcing world. Service providers who choose to build on cloud based technologies tend to have better profits. A good service provider is always customer centric. So if they wish to improve their service models and delivery system on an innovative way, they should shift towards cloud technology thus improving customer’s satisfaction. As far as the security is concerned the outsourcing projects can usually be improved concerning data protection and governance by building on properly managed cloud based technologies. A good vendor will have to take into consideration a lot of factors for their customers. For example
- Actual cost factors such as labor arbitrage
- Legal and governmental concerns related to the Customers and the outsources locations
- Data security
- Infrastructure requirements
- Differences in time zones
- Cultural Gaps
- Tracking of progress and governance
- Effort and time management
Whenever a company outsources parts of its work, along with transfers some risks to the service providers. Hence the task of finding the right service provider is a challenge for the customer especially for offshoring software or app development projects in global market. Outsourcing not only involves the sharing of risks but also the rewards between the customer and the service provider, as the later needs to support the customer in achieving his goals and objectives, e.g. lowering the cost of project, ensuring its timely completion, quality etc. As we all are aware about the tremendous growth in global outsourcing transactions over the years, there is a need for a good vendor service or a marketplace that has a pool of experienced service providers.
Picture 2: Simple access to a global pool of SW Service providers, see YouTube
Getting the right service provider is not the only factor for the growth of B2B outsourcing marketplaces. A research by Stanford Global Supply Chain Management Forum reveals other several other factors like supply chain efficiency, centralized approach for vendor management, IT architectural development strategies, Co-ordination with the partner service providers, improving the technologies on a global foothold, reduction in hardware and software investments etc. These are among the many reasons for success of B2B outsourcing which has genuinely helped in increasing the overall return on investment for a company which has never outsourced.
Picture 3: Factors of increasing value for Business through B2B outsourcing as by Stanford Research
The process does not end at finding the right service provider. The distributed work in an outsourcing project is a challenge for companies of all sizes. Differences in culture, language barriers, separation by long distances and different system environments are the greatest difficulties. These are among the major reasons why three out of ten outsourcing projects are failing these days thereby hampering the outsourcing industry. Side by side it is also important for a customer to be in constant touch with their service providers to enable a swift workflow in the development process.
Also it is important on the part of the outsourcing companies to have a complete knowledge about the past records and goodwill of service providers with their previous customers. A project outsourced once the customers are always in the shadow of thoughts. They are unaware about the progress in the development phases of their project and the paths which service providers are following to build their software or application. If the providers happen to be dedicated one the customers will take a sigh of relief that their work is being done as per their desired standards. This is a big question for the It industry.
One of such solutions is provided by pliXos as its online tool Outsourcing Director which brings together the customer and the service provider so that the project is completed in desired timeframe and quality and allows full control over the outsourcing projects so that it will not be a failure.
Picture 4: Staying in control of ones outsourcing projects with the pliXos Outsourcing Director
Furthermore, pliXos is willing to support in case of issues or even take over full responsibility for a customer project in form of a prime contractor.
To sum up, Outsourcing is never a hurt only difference lies in its application. If outsourced right it can show results which are far better than traditional way of software development. Choice is up to customers.