What Outsourcing Engagement Model is Right for you?

Outsourcing should be a strategic partnership, not simply handing over tasks to third parties. To do this correctly, wise preparation is required.

When implemented correctly, strategic partnerships are a happy collaboration in which expectations for delivery and results are clear from the start. By involving external minds, you can innovate and take your product to a level that goes beyond what your internal team may have accomplished. New ideas can come from anywhere.

A proper planning phase is important. It's not just about thinking about the future, it's also about being on the same page with your outsourcing provider every day and benefiting from their expertise, rather than just looking at outsourcing as an easy way to outsource real estate work. . You must choose the appropriate Managed Services Engagement Model that is transparent to both parties and provides sound governance for all aspects of the relationship.

To accomplish this, it is helpful to understand the various outsourcing contracting models and best apply them to your situation: software development in the case described here.

A commitment model is a framework that defines collaboration between a client and an outsourcing provider. It determines a level of control and responsibility and provides a basis for further development of relationships. There is no "best" universal model that meets the requirements of every business.

How do you choose a commitment model that is right for your business? Here is a brief overview of the most popular models, divided into tactical and strategic engagements.

Tactical engagement models:

* Staffing is the simplest model This approach enables companies to expand existing internal employees with outsourced employees. The typical customer business driver for such a model is cost reduction. It may work well in the short term, but requires a high level of customer engagement to monitor extended staff. This means that project management and technical leadership remain on the client side, while development or routine testing can be complemented, for example, with offshore or nearshore resources provided by an outsourcing provider.

It is not necessary to argue that the degree of innovation of suppliers subcontracted with this model will be quite low in most cases. The smaller the area of ​​responsibility, the fewer drivers there are for innovations.

With the staff augmentation model, the range of responsibility is often quite limited. It may include technical implementation tasks as well as prototyping, but the product vision and decision-making freedom of extended team members are so limited that it is no easier to think outside the box.

It is important to set reasonable expectations and build a relationship between a customer and an outsourcing provider where the party is responsible for the steps in the product development cycle. This helps to avoid solving unpleasant problems in the future.

* Project-based is a time-based participation model that is effective for projects where requirements are unlikely to change during the development process. It reduces costs and time to market by using an external provider with the necessary technical and specialized knowledge. However, if requirements change frequently or the planned order size spans more than one transaction project, it is best to consider strategic inclusion models such as the Offshore / Nearshore Development Center (ODC / NDC) or Product 2.0 (PDS 2.0) [3].

* Tactical Consulting is a generic term for a range of value-added services. The customer's business driver here is access to expertise not available internally, such as user experience design, architecture and technology consulting, security assessment, etc. It is usually provided by an outsourcing provider as a fixed-price, time-limited activity, although due to the insecure nature of R&D work, the T&M basis can also be considered.

Strategic engagement models

The following three models belong to the strategic group because they are based on long-term and more innovative relationships between a client and an outsourcing provider organization.

* The Offshore / Nearshore Development Center is a flexible engagement model that significantly increases clients' product development capabilities. If the product requirements are controlled by a customer, the employees of the Offshore Development Center / Nearshore (ODC / NDC) are managed by an outsourcing provider. This model can support a variety of projects and activities, such as new product development, modernization and maintenance of older products, testing services, and other long-term activities. However, customers looking for disruptive innovations and increased vendor responsibility should consider the PDS 2.0 model, which is next on our list.

* Product Development Services 2.0 is the most innovative strategic engagement model that maximizes the results of an outsourcing relationship. The term PDS 2.0 comes from Forrester's comparison of traditional PDSs, which were carried out through project-based or ODC models, with a new innovative approach, in which the outsourced provider has a wide range of responsibilities to the design and create a product together with a customer. Once the product has been launched, the supplier, motivated by a results-oriented contract, continues with the optimization and sustainability of the product. In this way, the entire product life cycle can be outsourced to a strategic partner.

* Strategic consulting is values-based advice that aims to improve the efficiency of the process and the product quality of a client's organization. It generally encompasses all aspects of the people / processes / technology triangle that have a major impact on a client's transformation and strategic decision making.

The key to success is choosing an appropriate engagement model. By ensuring that your tactical and strategic plans are shared with your partner, you can create a solid foundation for further innovation. There's no need to stop at one level or another: evolve over time through participation models to gain more value from long-lasting and fruitful partnerships.