By guest author Tony Scott
The Phases of Outsourcing: The Future of Outsourced Product Development in the Software Industry
Tony: How long do you think it will be before software product companies move to the fourth level of outsourcing, where they will be doing the equivalent of original design manufacturing?
Anand: I think it takes about ten to twelve years for each phase to move from one to the other. That’s necessary because it’s important that there is a level of maturity on the part of both the buyer and the seller. You can’t just sell something just because you think it’s a good idea; the other side needs to understand enough and be open enough to be willing to buy. If I make components, unless the industry is mature enough to agree on what the right common components are, it doesn’t make sense to go make components. It requires a certain level of maturity in the industry to be at a point at which you can make a component that can be sold many times to multiple companies – then you get the benefit. If a component is sold to only two companies, then it’s hardly a component.
Tony: Is it also an issue that companies, especially product companies, have the belief that their full product definition is the core value they bring to the market, and to rely on someone else to create even part of that definition means that you are losing the definition of who you are as company? In effect, a very strong case of the “not invented here” syndrome? That would certainly cause companies to slow down as they travel on the path to outsourcing product definition. Have you seen that with some of the companies you work with?
Anand: Yes, I have run into that, but I will tell you that at the end of the day, it’s ultimately just a money issue. All this discussion and concern about what IP is mine, what is core versus what is context, all varies depending on the price point. Many decisions are forced to [be made] just because of price point changes. When I started in software in the late 1980s and early 1990s, people used to write their own compilers and scripting languages, and now nobody does that anymore. At the time, people thought that writing their own compilers and scripting languages was a competitive advantage. Now that belief is gone. Why is it gone? Because people are now able to get a standard component that they can embed into their product, and the cost of doing that is so low that you wouldn’t bother to create one more today. So people are starting to ask these questions about what is core to them and what is context based on the fact that components are available at a low cost. We find that when companies are making these decisions, initially they focus mostly on “what is my IP” – but realistically, it’s a financial decision more than anything else.
Tony: Are you finding that you are helping to lead your customers into the third and fourth phases, or are they pulling you in that direction?
Anand: It is mutual, but we are definitely forcing them in that direction. Let me step back and tell you the core areas in which we work. We do a lot of work in the telecom segment and in life sciences. Database infrastructure is another area that we have good experience in. In terms of creating themes around which we are focused, those would include cloud computing, analytics, collaboration, and mobility. These are the four areas in which we have themes where we have deliberately focused our efforts to create knowledge internally. At this point, we know the players in those spaces very well.
For example, if you are building a product and you want to do reporting, you have six, seven, or eight different choices, and each one of them is either my partner or customer – we know all about them. So if you are a startup and you need to connect to Business Objects’ software because some customer asks you to do so, you’ll have to try to hire some people who understand Business Objects to do that work. It may take six months just to get you to a point where you can do it – a lot time is required just to set things up. But the problem is that you don’t have six months – your customer is going to tell you that if you can get it done in 30 days, then fine, but if it is going to take six months, forget it. These are decisions that force companies to say, “How do I deal with all this?” When they come to me, I give them a whole set of answers and solutions to their problem to help them out. That’s how we are getting into this entire design for manufacturing scenario: We are creating all the components that you might need to hit in the supply chain, and basically checking off every single one of them. This means that if a company comes to me, I can give them certified people on whatever they might need to do in these areas.