An opinion about externalizing software development in the context of Digital Transformation and AI strategy

postet by:
Dr. Said Oualibouch
August 12, 2020

utsourcing or working with external vendors so that they handle part or entire function(s) or process(es) within a business is not new and is becoming more and more widespread. When approached and thought properly, it allows companies of all sizes to do and grow their business, gain flexibility, optimize their costsand mainly leverage, and combine suppliers’ and own capabilities,expertise and added value, to keep delivering the best experience and value to their customers.

According to a research performed by Deloitte, 59% of companies outsource to reduce costs, 57% to focus on their core business, 47% to solve their capacity issues, 31% to enhance their service quality, 28% to access intellectual capital through talented professionals, 17% to drive abroader transformational change. In 2018, the percentage of companies making innovation a key component of outsourcing grew to 43% (2016:21%) and this percentage is continuously growing.

IT Outsourcing may cover one or more functions, such as software development, maintenance & support, database administration, IT security and other functions.

For Software Development, one of the drivers is that companies need to have access to specialists with the experience and the expertise they need. The most demanded skills in the last years are front end, backend developers and mobile specialists. We however notice an exponentially growing demand for Machine Learning specialists, Big Data specialists and Data Scientists. This is an effect of the digital transformation which became a strategic must for most businesses. COVID-19 crisis convinced the ones who were hesitating to accelerate the pace of their digital transformation.

Riding this wave requires more specialized Software Development capabilities with expertise and experience in modern technological trends such AIand Big Data. It also requires experience delivering high performance and measurable value and benefits. Agile delivery model is a must in such a context.

When a company decides to get external support for its Digital Transformation journey, it is important to focus on suppliers or partners that bring more than commodity software development capabilities. Such a journey requires more than that.

More agile and less waterfall

During the past decades, while many large companies preferred waterfall as their delivery model, it was less risky to partner with large suppliers. They could mobilize the necessary resources in multiple countries. 95% of the requirements were clear beforehand and the main aim is to deliver within the pre-defined scope, quality and cost.

Nowadays,mainly when engaged in a digital transformation programs, waterfall may be a valid delivery model for some legacy building blocks, but itis definitely losing terrain. At many companies, Waterfall is history. At many startups, Waterfall is stone age, they grew up with agile. The agile delivery models are taking over as per definition,digital transformation is bringing companies to be continuously reinventing themselves, as the market dynamics are changing much faster than before. The chosen delivery model needs to enable more flexibility and deliver value while executing the roadmap. What we might think as important today may become obsolete in two years.Software Development supplier need to be more than simple body shopping providers, they need to think with their Clients and anticipate where the client might need support. What current and future technologies have the potential to generate substantial economic value for the Client. The supplier needs to understand their Client’s vision, strategy and their market dynamics so that they can align their support in order to provide the Client with the highest added value. They need to act as partners and consider the Client value rather than only short-term sales income and profitability realized with the client. These are qualities that are much easier to find at smaller independent suppliers that cover software development as well as advisory services.

Open Culture:

They need to have an open culture that does not put their employees working for a client into conflict of interests. A culture that allows their employees to identify to their Client. This cannot be possible if the employee is working on more than 2 clients’ projects in parallel. Ideally the employees need to be assigned to one client. They need to think what is best for the Client, they need to be capable to seamlessly team up with their Client’s teams and work together as one team. The suppliers or even better, the partners, need to be capable to actively participate and support the Client, starting at the idea or vision up to running software.Smaller suppliers spontaneously develop an open culture and integrate and identify very quickly to their clients. The reason is that they usually have few clients and delivering value is the only criteria for them to keep the client. In addition, the time they spend with the client’s employees brings them sooner or later to feel as part of their client’s team.

When we think it this way, the natural question is: Is it better to have alimited number of large suppliers or rather choose suppliers based on their expertise and capabilities regardless their size.

Start small, think big and walk one step after another

When selecting your suppliers for your digital transformation execution,your AI strategy execution, or your innovation development project,never go for a big project with a new supplier. Start with a small one, such as developing a prototype or a POC for a fixed price (±15% flexibility). Provide a very high-level requirements document. The details are be defined iteratively during the project delivery. You have your objective criteria to measure success. Pay attention to the soft factors. They can be decisive for the success of your program.

- How relevant are the questions of the supplier’s teams in order to get into more details? Did they try to understand your vision, your roadmap, the environment of the deliverables, in terms of Tecnology architecture, business processes and end users?

- How did the supplier’s teams work with your teams? Could both teams feel like one team, supporting each other and showing flexibility to each other? Your teams need to feel as teaming up with your supplier’s and recognize their added value individually and as a team.

- How engaged and actively participating are the supplier’s team members during the project execution? Did they contribute with ideas improving the initial ideas? Could they quickly understand your business and build knowledge bridges with your teams?

- How flexible are the supplier’s teams during the project execution? Was there resistance to key changes requested by your team during the execution? Did they find smart ways to integrate them with minimum extra cost and time?  

- How good is the level of expertise of the supplier’s team members? Are they recognized by your team members are decisive for the project or as simple resources?

- How good are the supplier’s team members in finding solutions to all technical challenges during the execution of the project?

- How performant is the solution your supplier’s team delivered? For example, in the case of AI based software, how accurate are the results and how fast is the solution delivering results.

- How satisfied both teams are while working with each other?

Most of these are soft factors that can be decisive for long term collaboration where nothing can be considered as set. As a company engaged on the Digital Transformation journey, you need more than supplier or body shoppers, you need true partners. You need people that are able to create and find solutions to each challenge, people that work agile and are committed. You need people that are with you with their brain and their hart. You suppliers’ employees engaged on your projects need to be loyal to you. They cannot if they do not feel loyal to their employer, your supplier.


Avoid low cost suppliers: When you calculate the total cost of your program, you will find it rather expensive with less value contribution from your low-cost supplier. You may be able to negotiate for cheaper day rates; you will notice that the percentage of experts in your supplier’s teams is very low. In addition, such suppliers have a high churn rate as their employees have very low wages and leave to the next employer for a small salary increase. What if key members of your supplier leave at critical phases of your program?

Size of your supplier: choosing one or two large suppliers for your program, is big risk for your program and the value you are expecting it to generate. You may have chosen large suppliers in order to transfer the risk, but the real risk for your business is rather non successful delivery of the solution you needed and not realizing the expected benefits. At Waterfall times, this approach was the best to transfer the risk. Nowadays, it is irrelevant. Even if you decide to go for your digital transformation,the decisions are rather spread over time. You approve smaller investments and observe the value generated which encourages for the next small investments, and so on. That is agile.

Most small suppliers have stable teams, they have great expertise and they do all that is needed to keep you satisfied and loyal. It is better to work with several small suppliers and may be a mix with large suppliers rather than with one or two large one. If one small supplier does not deliver the value you expect, you can replace by another one. This may delay one module or an element of your roadmap,but the whole roadmap is not at risk. The risk is lower as the other ones are still there for you. Small suppliers do not have many customers. You are one of the few. Their teams are usually dedicated to one customer or two at most. At the same time, you need to show them your support and offer them fair prices that they see you care about their survival. You will have their and their employees’ loyalty, their brains and hearts. They see their success through yours.

Consider you teams’ opinion: Your teams are the ones working with your suppliers’: Your people are the ones working your supplier’s people. They know how good, how experienced, flexible and team players they are. They know how hightheir value contribution is. Keep the suppliers that manage to provide you with the best.

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