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Using Outsourcing as a Tool

by: Ronald Escanlar

Wednesday, April 20, 2011 |

Outsourcing as a Tool for Products and Services

Many companies have the mistaken notion that outsourcing is a solution - a panacea that will be able to shore up their savings, minimize inefficiencies, and maximize profits. If the outsourcing deal does not deliver its “magic”, they blame the whole outsourcing idea, conveniently forgetting that they form half of the outsourcing partnership.
 
Software entrepreneur Martin Zwilling says outsourcing is “a tool, not the problem or the solution.” He then goes on to draw up criteria for outsourcing - useful not only for software entrepreneurs like himself, but also for anyone who plans to rely on outsourcing for their products and services.
 
Keep your core services in-house.
Restaurants do not give away their secret recipes - you should do the same for your company. Outsource services or processes that you don’t consider as essential.
 
Secure your intellectual assets. Software piracy is rampant among developing nations. Zwilling says that 90% of computer users in China and Vietnam rely on pirated software. Secure your outsourcing contracts and have your outsourcing service provider sign off non-disclosure agreements.

Match technology with capacity. Zwilling says that outsourcing cannot deal with the “absolute latest in software technologies”, scalability to millions of users, and multi-system failover and recovery. He suggests relying on outsourcing for non-core software testing and maintenance.

Compute costs. Indeed, remote work reduces costs, explains Zwilling, but you also have to factor in indirect expenses such as increased costs in project management, travelling, and communications.

Products are easier to deliver than services. Software as a product is much easier to deliver compared to software as a service (SaaS). Zwilling says within the context of SaaS, software is customized for specific situations, making it more difficult to manage and deliver.

Creativity versus mundane tasks. According to Zwilling, mundane tasks, such as process automation or reservation systems, is easier to outsource compared to creative tasks such as chip design or consumer games. However, he points out that every outsourcing deal must have detailed specifications.

According to Zwilling, the best way to develop an outsourcing partnership is to initially build a strong relationship, carefully managing the project along the way. He warns potential outsourcing clients about staff training, turnover rates, production processes, and project management. Clients are also being chided for vague specifications, lack of an acceptance criteria, and “scope creep”.

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