Why are some outsourcing relationships successful, while others struggle or fail? We take a look at ways to shorten the odds on the outsourcing gamble
Ever since business began developing its own software, functionality and schedule have always trumped quality. That is why, reinforced by some hard and bitter experience, few firms will agree to deploy the first release of any software product.
As Aberdeen Group points out, "Let the other guy test the software first, and we'll wait for a stable release" is a very common and pragmatic posture. The trouble is, when an organization outsources its application development, there is no other guy to test the results: the responsibility, and the hassles are yours alone. "Most outsourced application development is first release and often the only release," Aberdeen points out in a paper called Outsourcing Application Development? What You Should Know To Avoid Its Bite!
"In addition, few software contract and outsourcing firms have the necessary experience, background and processes to conduct rigorous quality tests. A general lack of cross component, data integrity and security testing means that buyers often find themselves managing post-deployment clean-up programs. And in unusual circumstances, backdoor systems maintenance accounts tend to leave the enterprise further exposed to unseen and unaudited risk."
Aberdeen lists a number of other risks posed by software development outsourcing and contracting, including an increase in untested technology vulnerabilities, additional costs for break/fix and patching, increased risk due to unauthorized access to critical business data, and operational instabilities that could increase tangible and intangible business risk. Then there is the inevitable erosion of corporate memory and intellectual capital. Outsourcing typically involves the customer transferring to the supplier people, contracts and sometimes assets. The net effect is that the customer is transferring to the supplier the institutional knowledge and skills that the customer has with regard to the applications development and support activities that the supplier will be performing for the customer.
Over time, says Paul Roy, a partner in the outsourcing practice of international law firm Mayer, Brown, Rowe & Maw LLP in Chicago, it will be the supplier that acquires knowledge of new advancements in the field and develops the relationships with the key third-party suppliers who provide related support. "In little time, the customer may find itself dependent on the supplier for support of mission-critical or strategic operations of the customer."
Worst, as hard as outsourcing deals are to do, they can be even harder to undo, Roy says. The practical ability of the customer to undo an outsourcing deal may depend in large measure on the ability to obtain from the supplier the critical resources that the customer will need to continue providing the applications development and support services for itself. In the case of applications development, the most critical resources will typically be people, but may also include tools, methodologies and processes used by the supplier. "The customer will be asking the supplier it is terminating to reconstitute the capability for the customer or with a direct competitor of the supplier to replace the supplier," Roy says.
Internal resistance can be a further major - and difficult to counter - bugbear. Executive decisions on outsourcing at the CIO level are often rejected at the ground levels where constant attempts can be made to defeat the outcome. This semi-organized resistance may carry on for months or years, says Sumit Chowdhury, managing director Communications, Content and Utilities at Bearing Point.
Creating the right atmosphere for outsourcing within the company is an important part of the CIO's job, Chowdhury says. Convincing people the decision is the right one starts with a full disclosure of the pitfalls and benefits. "Training needs to be provided to internal people to deal with such situations and the total time and cost of the transition needs to factor in these issues," Chowdhury says.
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