Neubloc News
Words from the CEO, Armando Viteri:
The Evolution of Software Development Service Providers
Finding the Right Provider
Over the past 25 years I have been in the industry, I have found that global software development service offering has evolved in a very exciting way. There have been 3 key phases that mark this evolution driven first by the need and adoption of outsourcing, which we can now term "traditional" outsourcing, utilizing the first geographic selection of Indian based firms in theory serving as mere less expensive replacement resources to those of our US based counterparts, while maintaining the same project work approaches. In essence the early off-shoring model was simply labor arbitrage. As evolution moves along the shortcomings were quickly discovered and there was an attempt to simply reach out in a global search for other geographic locations that can serve the purpose. Locations such as Argentina and Europe became popular. Many problems were solved in the areas of competitive rates, improved productivity, and peace of mind with IP protection laws that are more aligned with the US. However, this did not address several fundamental challenges global software development teams face. There is a far greater understanding today of successful development needs driving changes in how we leverage a global workforce where the right resources are involved in an optimal fashion.
In phase I of the development of global software services the idea was primarily to work with an Indian headquartered firm providing development resources. As you know there are endless stories of accelerated attrition which has a new team on any particular client software project every few months, companies being held hostage by some outsource company CEO who now has control of their software, a new offshore competitor being born with software shockingly like your own, endless delays while developers wait for "specification clarification", and the delivered product being fraught with an abundance of usability problems, preventing it's marketability. On top of that most outsource firms try to implement a mixed business model where they try to support both product software development as well as IT project development work leaving a large gap in required skills. Finally the cost effectiveness to do development work in India has lost some of its appeal for all but the most junior developer positions - experienced staff are now commanding salaries pretty similar to the US.
This led to the development of phase II of global software services. An exodus has begun in the last few years toward alternatives to this "traditional" model. This initial (I believe wrongheaded) solution was to look at other geographies. Central Europe and Russia started rapidly accelerating in their offshore software development services. More recently Latin America has taken off as software development is the single fastest growing economic segment in Argentina.
Phase II improvements recognized in comparison with a "traditional" approach were;
Costs were lower - there still exists the opportunity for competition.
Attrition problems solved - properly managed teams tend to stay together for long periods of time. This is a very important requirement of successful product software development where a working knowledge can save countless resource hours.
Productivity increased with the reduction of a cultural gap and the avoidance of time differences. Software development is inherently collaborative versus hierarchical and therefore fits better in certain cultures than others.
IP protection improved leveraging EU countries such as Poland.
While there were numerous improvements, two important problem areas remained - the companies were foreign owned/controlled and the product design was being done far from the end customer. Just recently I was speaking to an investor in a software company which was experiencing the "mafia" effective. He felt his company was being extorted by an Eastern European software development firm. Perhaps a bigger problem is that the consumers of outsourcing services are plagued by nationalistic pitches of where the best fit for their company may be. It is very naive to think that the technology world is "flat" - it is the case that it is quite lumpy.
It is imperative that geographic selections are made based upon factors such as technical domain skills availability, stability reasons, cost or IP protection. Unfortunately the only way to make the appropriate selection is by having some actual experience within the various regions. If you're an organization selecting an outsourcing solution for the first time there is a tremendous challenge in understanding local talent as there is no past experience in which you can base your decision. Then of course add in the factor that every outsourcing firm will tell you that they are the best at whatever it is, making the selection even that more challenging - it is very easy to feign development expertise that doesn't really exist. Price alone is not always the best determining factor.
In the third phase of software global services a new type of company is emerging that takes into account the lessons learned from earlier years as well as the current challenges so many organizations are faced with today. The migration to full service offerings is quickly being recognized. No longer is the concept of simple labor arbitrage a viable solution. For a services provider to be of REAL value to its customers it needs to have the full range of development services. In the case of product development this means initial design (including usability) through development, QA and maintenance.
There are certain parts of the product development process that needs to be close to the customer. An obvious example is the product design. Human factors such as usability and functionality are best defined in an iterative process between the company, its target customers and the development company. The following press release covering Software Product Design Services is a prime example of how to take advantage of today's industry experts. There is now a much greater understanding that key resources are not always interchangeable and development methodologies need to account for today's challenges. Real world experience can be one of the most influential teachers, as with an iterative approach to software development the transformation of service solutions is one that continues to evolve.
For now there are relatively few companies that look like Neubloc ,which is San Diego headquartered and managed by US technology industry executives. Their approach to global development centers includes a hybrid of onshore and offshore locations such as Oklahoma City, 3 locations in Poland, and multiple strategic locations in Latin America. The scarcity of Neubloc model companies will change over time since this represents the right combination of productivity with lowered cost, while maintaining the essentials of the highest quality deliverables that also have increased product marketability as the output.
Useful Links
Industry Watch: It's worth it to track software spending
Offshoring by US companies surges: survey
