“Well…that’s just how we’ve always done it.”

 

That often expressed statement, and the myopic, lazy mindset it represents, is one of the biggest hindrances to a business’ ability to grow and become vastly more competitive.

 

You have surely heard the old saying: “Innovate or perish.”

 

In many industries, especially in technology, it’s a hard fact of life.  If your products and services aren’t constantly getting “better, cheaper, faster” with the knowledge that your competitors are constantly doing just that, you can soon get left in the dust and see your revenues and market share dwindling, quarter after quarter.

 

But product/service innovation in and of itself isn’t the only driver of change and strategic advantage for a company’s development.  Innovation can also be applied to the improvement of internal systems and processes to achieve greater efficiencies and optimization.  Although, it’s not enough to just seek to “spend less.”  Merely lowering operating expenditures for the sake of cutting costs can also translate into producing less.  It takes money to make money – assuming you are smart with your money.

 

No, optimizing your business in the context of producing more while spending less translates into higher gross margins, which means greater flexibility to be competitive in pricing and availability to your customers.

 

So how do you become more competitive when you’re already doing all you can do in the “better, cheaper, faster” department regarding what it is your business offers its customers?

 

One of the best answers to that question is the abolition of the “Not invented here” mentality.

 

That is, unless what you do in your business is so specialized and unique that only internal employees are qualified to do it, then more often than not, paying external 3^rd-party organizations to provide common/commoditized services is far less expensive and more efficient.

 

You don’t generate your own electricity do you?  No, you pay the public utility company for that.  Unless you are a telecommunications network provider, then chances are you pay one or more networking companies for internet access, cellular service, PBX connectivity, etc.

 

You also probably figured out a long time ago that you didn’t need a dedicated payroll department any longer; rather, just an administrative person to provide payroll data to a 3^rd-party payroll service, like ADP or Paychecks, or even your bank, who takes care of all the direct deposits, taxes for the IRS and state and local tax authorities, etc.  And now all of it is far easier and cheaper than doing it yourself.

 

Do you use an outside marketing firm or Ad agency?  Do you engage the services of a research firm for market data, such as Gartner, Forrester, IDC, et al, rather than having dedicated personnel employed to do that for you in-house?

 

But what about your core business?  Do you have to physically do all of it yourself?  Or are there elements of your business that can rightfully be considered more of a standard 3^rd-party type of service that you could entrust to others to do more efficiently and at a much lower cost than doing it yourself?

 

Specifically, let’s talk about software development.

 

If your company develops software, either to sell as a discrete software product or enterprise system, or is part of a SaaS service – or if you develop software to run your internal business infrastructure – in either case, if you are doing it all 100% with internal employees, then you are very likely wasting money. 

 

A lot of money.

 

But don’t feel too bad.  It’s not uncommon.  It happens all the time.

 

The simple fact of the matter is that labor rates for software developers in the United States and Europe are the highest in the world.  The exact same work can be performed elsewhere in the world for substantially less cost – in many instances from 30% to 50% less.  That’s just a fact.

 

Although, admittedly, taking advantage of this reality is much easier said than done.  That’s also true.

 

The reason behind this reality, i.e. of the very real challenge of successfully taking advantage of 3^rd-party software development is because the 3^rd-party software development industry isn’t ubiquitous when it comes to the quality of service rendered.  That’s also very true.

 

Just like the fact that there are good home builders and bad ones, good plumbers and electricians and bad ones, etc., there are good software development companies and bad ones.  That just stands to reason.  Right?

 

And then there is the reality of history.

 

There is no denying that the 3^rd-party software development industry bears the stigma of the word “outsourcing.”  It’s no great surprise to hear the head of a software development shop at a company adamantly declare with disdain, “We don’t outsource here!”

 

When asked, “Why not?” the answer typically points to an anecdote of a bad experience in the past.  For several decades now the sheer promise of 30% to 50% costs savings drove many an organization to at least “try it” and see if such economic advantages had any merit.  And what happened next was the company hitting one or more of the very predictable potholes on their outsourcing journey:

 

• Non-existent or poor Onboarding experience, resulting in bad or poor communications processes, incorrectly-set expectations, overpromising and under-delivering
• Vast time zone differences causing frustrations resulting in no regular real-time communication, collaboration, and coordination
• Cultural disconnects & language barriers – resulting in more misunderstandings than needed to exist
• “Bait and Switch” bidding for projects. That is, a vendor intentionally underbids a project to get awarded the business, then gets well into the development lifecycle of the project before telling the client that they need to pay a lot more than was originally estimated to get the project completed.
• Basic quality of deliverable code. As noted above, not all vendors are the same.  And the poor ones made the entire industry look bad.

 

Please note that quality isn’t just measured in terms of the number of defects/bugs discovered.  It also has to do with productivity rates, commonly known as “velocity.”  If outsourced vendor XYZ charges 50% less than onshore, internal resources, but takes twice as long to get the job done, then you haven’t really saved anything at all.  Right?  Actually, you’ve just wasted a lot of time to market.

 

So, it’s not that far-fetched to imagine a lot of software development managers taking the position of: “If you want to ensure the job gets done right, then we’ll do it all ourselves.  If the software that needs to be built is what we put our name on, or is used to run our business, then it’s too important to entrust to anyone else.  End of story!”

 

However, that mindset is only true and makes good business sense if it is also true that there exists no trustworthy 3^rd-party vendor available who could do the same work at high velocity, delivering very high quality, for a significantly lower cost.  And believing such vendors are a myth simply isn’t true.  Such companies do exist, even if it takes some prudent due diligence to find the good ones and pass on the bad ones.

 

Truth be known, it really isn’t that difficult to qualify a vendor in terms of validating the following areas:

 

• Staffing period (should be days or a few weeks, not months)
• Onboarding process
• Communications and project management process
• Management infrastructure
• Whether they are using development frameworks such as Agile, DevOps, or a hybrid of both
• Data Security capabilities
• Code management practices
• Project history and references

 

This isn’t to say that a software company has to outsource every aspect of their software development operations.  Any software company’s Chief Technology Officer (CTO), Chief Scientist, or Architect, or whoever the visionary mind is who is directly responsible for the Product Development Road Map, is likely not going to be an outsourced role.  That is probably also be true for Product Owners (i.e. in the Agile-Scrum model), or even Team Leads necessarily.  But it can certainly be true for individual contributor team members of full-stack developers, programming specialists, Quality Control (QC) testers, User Interface / User Experience (UI/UX) designers, Database developers, Front-end developers, etc.

 

For the most part, good developers need their projects and tasks assigned to them, supported by a good flow of communication from their project managers, and then they can get busy.  It really doesn’t matter so much if those teams of developers are sitting down the hall from their managers or on the other side of the world.  Online group collaboration and communication tools that make distances irrelevant have become an industry best practice and market segment unto themselves.  As long as the work gets done professionally on time and within budget, everybody wins.

 

So all of these realities come back to the original question of: “If you could lower your development costs by 30% to 50%, what’s keeping you from doing so?”  Your CFO really wants to know.

 

The real answer, uncomfortably, often comes down more to emotion more than rationality.  And that emotion is often one of: FEAR.

 

Indeed, it may not have worked out that other time you tried it at the other company you used to work for.  The 3^rd-party outsourced vendor you picked let you down, maybe even flat out lied to you.  It may have been an ugly disaster, and perhaps it even precipitated a career change that negatively affected you.  Such stories are unfortunately not rare.  Consequently, these days you may be of the mindset that you don’t care if building software 100%  in-house may be costing your company twice what you could be paying.  You feel more comfortable and safer that if it’s all done within arm’s length, so you can then ensure it gets done right, and that means you get to sleep better at night.  All of that can be true.

 

What also can be true is that your closest business competitors in your market don’t agree with you.  They are happy to cut their costs by a quarter or even by a half.  And that means their solutions can be sold for less than what you have to charge to cover all those higher development costs.  It also means that in time, your competitors will continue to gain market share, convince your own customers to adopt their solutions, and then suddenly those in your C-Level suite with all the “fiduciary responsibility” to the company’s owners or stockholders get very concerned about flat or declining revenues, a diminishing sales pipeline, and perhaps even a negative EDITDA (i.e. actually losing money).

 

How well would you sleep in that situation?

 

You know, the word “phobia” literally means “an irrational fear of something.”  However, not all fear is irrational.  If you happen to come face to face with a wild grizzly bear while hiking in the woods, experiencing an instantaneous sensation of fear in that situation is not irrational – and fleeing as fast as you can would be absolutely understandable.  You could literally be facing the very real possibility of loss of life and limb.  Likewise, having tried something in the past and experiencing significant setbacks or even failure may indeed make you wary of ever making that same mistake again in the future.  That’s called learning from mistakes, a perspective that is not irrational and quite understandable.

 

Nevertheless, artificially refusing to optimize your production costs by a substantial amount when it is demonstrably true that you can now do so successfully and avoid prior mistakes, but you persist in your refusal just because of fear of a repeat failure ceases to be rational, and therefore is more of a phobia than any exercise of wisdom based on experience.  Sorry, but that scenario more falls into the “Sometimes you just have to dust yourself off and get back up on the horse” category.

 

Companies that have elected to embrace the economic advantages of 3^rd-party outsourced software development have most often enjoyed the greatest success, found in the realization that it is not an All-or-Nothing proposition.  That is, they waded into it gradually, as opposed to just diving head-first into the deep end of the pool.  Specifically, they started off with perhaps a single, small project to effectively give a new vendor an opportunity to show them what they could do, the quality of their work, and how actual collaboration and communication really happens.  And that small “starter project” served as a kind or probationary test.

 

So there was no major risk to the company of turning over the keys to the kingdom to some unproven outsiders.  And for those 3^rd-party software development vendors who passed those early tests, they typically were given more and more work.  In time, as they proved themselves and demonstrated themselves trustworthy, even more work came their way.

 

If you talk to software companies who use software development outsourcing in a big way, with multiple teams, and dozens and dozens of developers, spanning many years if not over a decade, you’ll observe the common lifecycle of them having started with a couple of developers on a small project and then adding a couple more for some other need, then a few more for a different project, and over time actually becoming the core of that clients development capabilities.  This is what defines the concept of outsourced “Dedicated Teams.”

 

The companies that use Dedicated Teams from 3^rd-party vendors also soon discover some hidden benefits they didn’t enjoy with all in-house employees, above and beyond the financial savings benefits.  They discover that their software development vendor most likely has more than one client.  In many cased scores of them.  And that directly translates to a much greater breadth of expertise and experience.

 

If a vendor has developed over 100 a SaaS systems for other clients that are currently in production, then chances are they know quite a bit about how the best ones work, the most common issues that typically arise, and what the best solutions are to those issues.  This may be knowledge that none of your in-house employees possess, especially if your software is all they’ve ever worked on in their careers.

 

The potentially multi-million dollar question remains: Is reducing your hard-dollar production costs substantially worth taking a fresh look at working with a high-quality 3^rd-party development partner?  Smart money would bet that your CEO & CFO would think so.  Do you have a small project you could use to evaluate the capabilities and quality of a potential vendor, i.e. a project that presents no strategic risk to your current operation?

 

Then, to quote Franklin D. Roosevelt, then “The only thing you have to fear is fear itself.”  On the other side of that fear is greater financial advantage plus a wealth of practical knowledge you wouldn’t otherwise have access to that you can have for free.