When it comes to Outsourcing Business / IT applications, there are 2-3 models that CIOs and IT leaders are most accustomed to. These models are so well entrenched, that stakeholders seldom look for a better model. It is not just IT leaders who are pushing these models, the entire IT Services industry continues to push these older models as they are profitable for their own businesses. Given the rapid pace of change in the Software / Tech industry, it is now time to rethink established Outsourcing models that Enterprises have relied on for years (decades really).
First, the basic definition of Outsourcing. By this, we clearly mean Outsourcing the development of business applications (could also be legacy migrations, data management, and many more projects). Once stakeholders have determined that a project needs to be outsourced, it then becomes a question of finding the right vendor, timelines, and budgets to get them executed. Here I will not go into the details of coming up with Business Requirements, Requests for Proposals,s and sourcing vendors, but focus more on Outsourcing as it relates to methodology, technology, timelines, and budgets.
The most dominant models today are a) Fixed-cost model b) Time and Material model and c) Staff Augmentation model. The Fixed-cost model is easiest to grasp by business sponsors. They allocate budgets for different projects and assign project managers to execute on those. While this model is tried and tested, there are many downsides. Many of the details around project execution including architecture, technology stack, development methodology, and deployment practices are left to the vendors. The further downside to this model is you have to work with vendors' change management processes. Not paying attention to these downsides, would result in increased TCO over the long term.
The Time and Material model of Outsourcing is also very well tested. While difficult to get upfront estimates around total costs for their projects, it would at least give flexibility around change management. However, all other downsides from the Fixed-cost model still apply here. The third model is simply Staff augmentation. You would bring in technology consultants and put them under existing teams to speed up project execution. This is Outsourcing to the extent you don’t have to bring in people on a full-time basis and is closer to the Time and Material model and it also comes with the same set of downsides.
To address shortcomings with the above models, there is a better model that I refer to as “Agility Outsourcing”. This model is in part based on the best practices seen in Software companies to build their own products coupled with solutions to meet budgetary and time constraints of Enterprise Outsourcing.
Here are the key underpinnings of Agility Outsourcing:
Business benefits of Agility Outsourcing:
The way to structure the Agility Outsourcing project is to have a Statement of Work for the entire project with a plan for monthly Sprint deliverables and payments. Vendors who offer Agility Outsourcing should be able to give an estimate for the total cost of the project if they have reviewed the project requirements. With this model, sponsors not only have an overall estimate for the project but also get flexibility if business needs change. The real gain here is all the best practices and technologies used by Software Industry, benefitting outsourced projects.