The document discusses outsourcing software product development. It defines key terms like outsourcing, offshoring, and offshoring. It also discusses reasons for outsourcing like increasing speed and reducing costs. The document provides frameworks for assessing an organization's readiness for outsourcing and determining what product development activities can be outsourced. It identifies common issues with outsourced projects like taking a "big bang" approach without proper preparation.

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2. 2007, Zanec Soft Tech 2cc
Outsourcing is not an uncommon practice in traditional product engineering com-
panies; however this trend wasn’t seen in software product development until
recently. Protection of intellectual property, fear of loss of control and a sense of
pride/emotion in doing it in-house are amongst the top most concerns preventing
this trend.
Introduction
With increasing pressure to upgrade and widen product offerings, augment internal skills and
capabilities, invest in R&D, accelerate product development, reduce product costs, meet
market demands and with an imperative to gain a good return on investment (ROI), organisa-
tions are overcoming these concerns and looking towards outsourcing part or whole of their
product development activities.
What is the difference between outsourcing, off-shoring, offsourcing?
If you read any of the blogs and internet articles that talk about outsourcing and/or off-
shoring; most often than not, the authors use these terms interchangeably. In reality these
concepts are very different.
‘Outsourcing’ is when a company hires another vendor to perform an activity which they do
not want to do in-house. This can happen for a variety of reasons, example: lack of appro-
priate skills, cost savings, higher productivity, or to gain focus on other activities such as
R&D.
Off-shoring’ is when a company decides to perform the activities in another country; the
offshore center can still be owned by the same company (aka captive center or fully owned
subsidiary).
Usually when companies decide to do outsourcing combining it with off-shoring, what re-
sults is ‘Offsourcing’.
It is common knowledge that there are benefits all around in outsourcing
and this white paper helps you in understanding the concept, the steps
to be taken within the organisation to prepare for outsourcing, and how
to avoid common pitfalls and ensure success in your outsourcing
initiatives.

3. 2007, Zanec Soft Tech 3cc
According to a research by Ziff Davis on outsourcing, the top most reasons cited by organisa-
tions for outsourcing (in decreasing order of rank):
 To free up people to focus on other activities
 To do work we cannot do in-house
 To increase speed, flexibility or innovation
 To reduce costs
It is very essential that all stakeholders understand the benefits that you expect
to receive out of your outsourcing initiatives. Having a well defined set of
“Measures of success” ensures that you and your chosen outsourcing partner are
always on the same page.
Benefits
What is the main reason your company uses IT outsourcers? N=302
Source: Ziff Davis Research on Outsourcing
– March 2007

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It is imperative that all stakeholders have clear answers to these questions
and compare notes to gain insight into each other’s perspectives:
1. Are you clear about short, medium and
long term objectives in this outsourcing
initiative?
 Do you want to convert this into your own
captive center eventually? If so, in what
time frame?
 Do you want to outsource the next re-
lease of your product?
2.What are you looking for?
 Are you looking for a partner to outsource
your product maintenance so that you can
focus on your new strategic product line?
 Are you looking for a specific technology
talent that is becoming increasingly diffi-
cult to source and retain?
 Do you want to re-engineer your product
on to a new technology platform to
breathe more life into your product line?
 Whether you can expect your outsourcing
partner to be innovative and help in our
product design/architecture or just in-
crease your code churning productivity
(i.e KLoCs) dramatically?
3.What product development lifecycle
activities do you want to outsource?
 Proof of concept and prototype devel-
opment
 Product usability engineering
 Product design
> Functional design
> Technical design
 Product development
> Internationalization/location
> Porting to another platform
 Product testing
> Product functional testing
> Product regression testing
> Product performance testing
> Product certification testing
 Product release engineering
> Product packaging
> Product documentation
 Product development
> Defect fixing and service pack
releases
> Data migration and data cleansing

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It is equally crucial to assess your organisation’s readiness for outsourcing;
Forrester suggests an interesting and useful framework for measuring this:
Are you ready for outsourcing?
The process readiness dimension looks for exis-
tence and effectiveness of:
 Centralised programme management office
 Standardised process for requirements manage-
ment, analysis, design, development and test-
ing of your product
 Real-time communications, workflow and con-
tent sharing tools
 Process frameworks like CMMi
 Product P&L
 Service Level Agreements [SLAs] with custom-
ers
 Standardised change management process
Whereas the cultural readiness dimension looks
for existence and effectiveness of:
 Your organisation’s cost competitiveness
compared to your competitors
 Having offices in any of the developing
countries
 Willingness of senior management
 Organisation’s tolerance to change
 Clarity on Total R&D spend as a % of your
total revenues
 Frequency of new product releases

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What product development lifecycle activities can be outsourced and
when?

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Most common issues that plague outsourced product development projects
What maturity and experience is needed before you are ready to outsource a specific ac-
tivity?
In our experience we learnt that specific activities require a level of maturity and readiness
within the organisations to outsource. This maturity is measured as a combination of reliabil-
ity, trust, and competencies of the Independent Software Vendor [ISV] and the Outsourcing
vendor. In the matrix below, 1 represents the lowest level of maturity and 5 the top most, the
flag marks the level of maturity. required to outsource each function
Big bang approach
One of the most common mistakes in out-
sourcing deals is to take a big bang ap-
proach without assessing the maturity and
readiness of the organisations (yours as well
as your outsourcing partner’s). It is recom-
mended that you execute a pilot pro-
gramme that gives you opportunity to
streamline all aspects of outsourcing before
you expand your scope.
Ineffective or absence of programme
management
Absence of a programme management is a
disaster in any software product develop-
ment project; it is all the more crucial in an
outsourced product development project.
Ineffective programme management is
more dangerous than no programme man-
agement because it leaves you with a sense
of false security that your project is running
perfectly.
One of the common mistakes that organisa-
tions make is assigning their ace program-
mer as the programme manager for their
outsourced development project, which
defeats the very purpose, as programming
and programme management are two very
different competencies. It is advisable to
use your top programmer to focus on
critical activities such as code architec-
ture, code quality assurance and code opti-
mization and hire an experienced pro-
gramme manager to oversee the project.
Inadequate requirements management
process
Irrespective of your development method-
ology, requirements management and clear
traceability matrix of each requirement to
an associated design, code and test cases is
essential to the success of an outsourced
development project. In addition to the
requirements management process, well
written and clear product specifications
are fundamental for remote execution of
software development.

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Where appropriate, use industry standard
requirements management tools like
Telelogic DOORS, Rational Requisite Pro,
or Borland Caliber. It is a proven good
practice to use members of your
outsourced team as part of the product
design phase; it benefits in knowledge
transfer as well as accelerates your design
phase.
Imperfect estimation model and an im-
mature development methodology
Often in outsourced development pro-
jects, the cost to completion calculation
of the project depends on the maturity
and reliability of the estimation model.
Deficiencies in this estimation model can
cause unreasonable expectations in sched-
ules, costs and can put the relationship
between you and your outsourcing partner
at risk.
Where applicable, use a well known esti-
mation methodology like Function Point
Analysis (FPA) or Constructive Cost Model –
II (COCOMO – II) as a foundation for your
estimation models.
No well defined product architecture
In practice, products that do not have well
defined and modular product architecture
and reusable class libraries (and an associ-
ated API Reference Manual) make out-
sourced development difficult (of course
not impossible!).
In the event that your product is not archi-
tected this way, it is worthwhile to spend
a bit of effort in optimizing your product
architecture before you decide to out-
source the development or alternatively
find a vendor with expertise in modular
architectures to implement minor optimi-
zations to your architecture.
Not having an appropriate acceptance test
pack
An adequate acceptance test criteria and
associated test script pack essentially serves
both as a measure of success as well as for
clarity and accountability; absence of this
places strain places strain on the relationship
and leads to fault finding missions, which
are a drain on both the costs and time to
market.
While on the subject of acceptance test
packs it doesn’t hurt to establish an
effective defect tracking system and clear
guidelines for non-functional testing of the
product, an often ignored part of a product
test strategy.
Ignoring cultural differences
Across the world product development may
be founded on the same core principle of
innovation but culture as well plays a signifi-
cant role in ensuring the project success in
the event that your outsourced development
team has people of different culture.
It is wise to invest in some cultural aware-
ness and team building programs to all team
members.
Absence of a change control board
Change is the only constant factor of a soft-
ware development project; absence of a
change control board with well defined
terms of reference and participation from all
stakeholders causes uncontrolled explosion
of schedules and quality.
Implement a change control board with par-
ticipation from all stakeholders along with a
mandate to track changes in requirements,
designs, architecture, test scripts and their
impact on schedules, quality and cost. This
forces the discipline of ‘informed decision
making’ in the project.

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Best practices you should follow in your outsourcing initiatives
Unambiguous strategic intent
It is very essential that you have absolute
clarity on your outsourcing strategy, reasons
and outcomes expected as a result of out-
sourcing. It is highly recommended that
your outsourcing strategy is understood by
all stakeholders of the business. Support
from your in-house teams is critical for the
success of your initiatives.
Choose the right partner
Outsourcing deals are comparable to a mar-
riage, choosing the right partner is vital for
success in your business strategy. Look for a
partner with a credible management team,
deep domain expertise coupled with strong
technology expertise and a product
innovation mindset. Agility is more im-
portant than just process certifications.
Appropriate engagement model
Select the right engagement model that
is inline with your strategic objectives,
look for options that enable you and your
partner to share risk and align your stra-
tegic objectives to the partner’s profit-
ability. Do you have intentions of con-
verting the relationship into your own
subsidiary eventually? ensure you have a
Build-Operate-Transfer (BOT) option.

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Programme management
Establish a programme management office
with the right mandate early on in the pro-
gramme to continuously monitor scope,
schedules, cost and quality using industry
standard metric-driven dashboards.
Quality communication
Ensure that the teams at all levels are hav-
ing quality and effective communication,
instead of just a number of calls with no
measurable progress or outcomes. Adopt
cost-effective collaboration tools and en-
courage teams to actively use these.
One team
To the extent possible create a culture that
reflects a single unified team across differ-
ent geographies. Ensure regular visits be-
tween the teams, particularly with your
chief architect and key product designers
and invest on cross cultural awareness and
team building programs at appropriate
intervals in the programme.
Joint attrition management
Longevity of team members’ tenure is criti-
cal in a product company, participate in
joint brand building programs to attract
and retain talent in your outsourced teams.
Engage in incentive programs (e.g. GO-LIVE
Bonus) to encourage the teams with added
motivation.
Development methodology
Choosing the right development methodol-
ogy is important particularly in an out-
sourced development project. With increas-
ing pressure from the market, your product
management team will expect an agile engi-
neering team that adopts an iterative devel-
opment methodology.
Governance model
Implement a multi-level relationship gov-
ernance model (see figure below), with
participation from Senior Executives to
drive the relationship inline with business
goals.
Governance Model
Executive
Steering Committee
Programme
Management Office
Product Teams
Provide executive sponsorship and oversight to the
relationship
Ensure business goals and engagement goals are
aligned
Meet monthly initially and quarter eventually
Define, Establish and Prioritise programs
Review and continuously monitor programme
scope, schedules, cost communication, status
reporting & escalation to Executive Steering com-
mittee
Change management, Communication & Reporting
Methods tools & Standards management
Monitoring and tracking feature progress
Meet bi-weekly initially and weekly eventually

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Summary
Use of outsourced software development has grown significantly over the
last decade and the trend continues to accelerate. Advances in
communication technology and ubiquitous availability of bandwidth,
empowered organisations with access to expertise hitherto inaccessible at
significantly lower costs. Outsourcing in itself is an innovation, albeit a
business model innovation enabling you to make effective use of it in your
product development.
For more information on outsourced product development visit us at:
Zanec Soft Tech
36 Kamaraj Avenue, 2nd Street, Adyar
Chennai, India—600020
Phone : +91 44 6459 7074
Fax : +91 44.2240 4811
www.zanec.com
Or alternatively, write to us at
info@zanec.com