Select a Sourcing Partner for Your Application Development Team

Choose the right partner to enable your firm to maximize the value realized from your sourcing strategy.

Analyst Perspective

Selecting the right partner for your sourcing needs is no longer a cost-based exercise. Driving long-term value comes from selecting the partner who best matches your firm on a wide swath of factors and fits your needs like a glove.

Sourcing in the past dealt with a different kind of conversation involving two key questions: Where will the work be done? How much will it cost? How people think about sourcing has changed significantly. People are focused on gaining a partner, and not just a vendor to execute a single transaction. They will add skills your team lacks, and an ability to adapt to your changing needs, all while ensuring you operate within any constraints based on your business. Selecting a sourcing partner is a matching exercise that requires you to look deep into yourself, understand key factors about your firm, and then seek the partner who best meets your profile.

Dr. Suneel Ghei Principal Research Director, Application Development Info-Tech Research Group

Executive Summary

Info-Tech Insight

Successfully selecting a sourcing partner is not a simple RFP exercise to choose the lowest cost. It is a complex process of introspection, detailed examination of partners and locations, and matching the fit. It requires you to seek a partner that is the Yin to your Yang, and failure is not an option.

You need a new source for development resources

You are facing immediate challenges that require a new approach to development resourcing.

• Your firm is under fire; you are facing pressures financially from clients and your competitors.
• Your pace of innovation and talent sourcing is too slow and too limiting.
• Your competition is moving faster and your clients are considering their options.
• Revenues and costs of development are trending in the wrong direction.
• You need to act now to avoid spiraling further.

Given how critical our applications are to the business and our clients, there is no room for error in choosing our partner.

A study of 121 firms outsourcing various processes found that 50% of those surveyed saw no gains from the outsourcing arrangement, so it is critical to make the right choice the first time.

Source: Zhang et al

Big challenges await you on the journey

The road to improving sourcing has many potholes.

• In a study of 121 firms who moved development offshore, almost 50% of all outsourcing and offshoring initiatives do not achieve the desired results.
• In another study focused on large corporations, it was shown that 70% of respondents saw negative outcomes from offshoring development.
• Globalization of IT Services and the ability to work from anywhere have contributed to a significant increase in the number of development firms to choose from.
• Choosing and implementing a new partner is costly, and the cost of choosing the wrong partner and then trying to correct your course is significant in dollars and reputation:
  • Costs to find a new partner and transition
  • Lost revenue due to product issues
  • Loss of brand and reputation due to poor choice
• The wrong choice can also cost you in terms of your own resources, increasing the risk of losing more knowledge and skills.

A survey of 25 large corporate firms that outsourced development offshore found that 70% of them had negative outcomes.

(Source: University of Oregon Applied Information Management, 2019)

Info-Tech’s approach

Selecting the right partner is a matching exercise.

Selecting the right partner is a complex exercise with many factors

1. Look inward. Assess your culture, your skills, and your needs.
• Market
• People
• Culture
• Technical aspects
2. Create a profile for the perfect partner to fit your firm.
• Sourcing Strategy
• Priorities
• Profile
3. Find the partner that best fits your needs
• Define RFx
• Target Partners
• Evaluate
4. Implement the partner and put in metrics and process to manage.
• Contract Partner
• Develop Goals
• Create Process and Metrics

The Info-Tech difference:

1. Assess your own organization’s characteristics and capabilities in four key areas.
2. Based on these characteristics and the sourcing strategy you are seeking to implement, build a profile for your perfect partner.
3. Define an RFx and assessment matrix to survey the market and select the best partner.
4. Implement the partner with process and controls to manage the relationship, built collaboratively and in place day 1.

Insight summary

Addressing the myth – Single country offshoring or outsourcing

Research shows that a multi-country approach has a higher chance of success.

• Research shows that firms trying their own captive development centers fail 20% of the time. ( Journal of Information Technology, 2008)
• Further, the overall cost of ownership for an offshore center has shown to be significantly higher than the cost of outsourcing, as the offshore center requires more internal management and leadership.
• Research shows that offshoring requires the offshore location to also house business team members to allow key relationships to be built and ensure more access to expertise. (Arxiv, 2021)
• Given the specificity of employment laws, cultural differences, and leadership needs, it is very beneficial to have a Corporate HR presence in countries where an offshore center is being set up. (Arxiv, 2021)
• Lastly, given the changing climate on security, geopolitical changes, and economic factors, our research with service providers and corporate clients shows a need to have more diversity in provider location than a single center can provide.

Info-Tech Insight

Long-term success of sourcing requires more than a development center. It requires a location that houses business and HR staff to enable the new development team to learn and succeed.

Addressing the myth – Outsourcing is a simple RFP for skills and lowest cost

Success in outsourcing is an exercise in finding a match based on complex factors.

• In the past, outsourcing was a simple RFP exercise to find the cheapest country with the skills.
• Our research shows this is no longer true; the decision is now more complex.
• Competition has driven costs higher, while time business integration and security constraints have served to limit the markets available.
• Company culture fit is key to the ability to work as one team, which research shows is a key element in delivery of long-term value. (University of Oregon, 2019).
• These are some of the many factors that need to be considered as you choose your outsourcing partner.
• The right decision is to find the vendor that best matches the current state of your culture, meets your market constraints, and will allow for best integration to your team – it's not about cheapest or pure skills. (IEEE Access, 2020)

Info-Tech Insight

Finding the right outsourcing vendor is an exercise in knowing yourself and then finding the best match to align with your key traits. It's not just costs and skills, but the partner who best matches with your ability to mitigate the risks of outsourcing.