Outsourcing to multiple software providers has become common practice for IT and development companies across the globe. There are a number of reasons behind this business practice, but the main driver is the pursuit of delivering the best possible software products and services.
Working with multiple vendors enables companies to focus on their main business capabilities, while, at the same time, integrating a larger skills set and expertise, expanding on the know-how and improving execution times, all coming together to ensure client satisfaction.
According to Deloitte's 2016 Global Outsourcing Survey, finance is the industry with the highest future opportunities for outsourcing growth at 36%, followed by HR and IT. For TJIP, this was the next logical step in our business model, as we started partnering up with other software development partners that we can rely on to help us deliver exceptional products.
Using multiple outsourcing organizations can bring a number of benefits, as well as some risks, and companies have to be prepared to manage to ensure a successful outcome for all stakeholders. The management of multiple parties in itself becomes a skill set, and an advantage at the same time.
The main benefits of using multiple outsourcing partners
1. Fostering innovation and flexibility
When it comes to operations and projects that have a seasonal or cyclical demands, companies can rely on their partners to devote additional resources when they need them and release them when the project has ended. Outsourcing has enabled us to be much more flexible than we used to be.
Innovation-wise, the total brain capacity of our own company has grown exponentially since we are not only using the expertise and ideas of our employees, but also of the teams we hire, and even those of their colleagues, who are consulted internally when it comes to delivering the best results.
2. Enables capacity
Strongly connected to the ability to innovate and generate ideas, outsourcing enables a much larger capacity in terms of product development. Different features and development directions benefit from the expertise of each dedicated partner, ensuring that specifications are followed and improved upon, to deliver quality results.
This approach also removes the overhead associated with recruiting, training and managing in a newly specialized in-house team for each technology. Different vendors you’re working with can provide experienced, specialized talent to provide the best software design and implementation regardless of the technology required.
We believe working with experts in their fields can provide clients with better value than trying to develop all skills internally. We are, in the end, living in a hyper-connected, sharing economy which influences even the way that we develop software.
3. Enhances service quality
Your outsourcing partners can function on different time zones, making it possible to provide a 24h dedicated customer service and round-the-clock development, testing and release cycles.
Complete critical tasks are resolved as soon as they arise and it’s much easier to plan ahead, knowing that you can rely on partners from across the world. The same applies for off-season or holiday months.
Possible risks of outsourcing and how to mitigate them
Working with multiple vendors implies a bigger time investment initially, during the first stages of the relationship, as everyone gets to know their new partners and how the businesses intertwine. It also takes time to settle the working relationship details and define the essential aspects of project management.
This investment, however, sets the basis for efficient collaboration and enables long-term success, ensuring that value is achieved throughout the process
Defining the specifics of the collaboration is key in the first stages of the vendor management process. It’s important to use the same terminology and to set common benchmarks, so that everyone speaks the same language.
Don’t assume things and don’t rely on common practices. It’s better to cover every aspect of how communication will be handled, what channels you’re using and how to handle deliverables, to ensure a smooth collaboration.
Most communication mishaps occur when there hasn't been an initial discussion or an agreement to set a working mode for all the parties involved.
Outsourcing viewed as a threat
This is another risk strongly linked to communication, one that we ourselves have had to mitigate. In the early adoption phases of outsourcing, people within your own company might feel like their position is threatened in some way. This can lead to a high stress level and a low tolerance for conflict, so that whenever something goes wrong, it’s surely the new outsourcing partners. It could be that they are less knowledgeable, that the product is too complex or any number of similar reasons that lead to a poor collaboration.
To handle this issue, we put in place a number of solutions. The first thing we did was to turn to our internal marketing strategy. We made clear how this new collaboration could benefit everybody and that it should not be seen as a threat. Secondly, we tried to change people’s mindsets in situations where something was going wrong, to focus on what we could have done better. We set out to prove that there is no difference between working with people abroad and working with colleagues from across the hall. Thirdly, we invited our outsourcing colleagues to come to our office for a week, which enabled us to work closely together, and we also visited their offices. Our commitment was so strong that we incorporated this way of working in our contracts; both parties are obligated to visit the other party.
In terms of liability, it’s important to be clear about who’s responsible for what. Every vendor will be held accountable for their deadlines and deliverables but there needs to be an understanding and communication between all vendors, or have one of them lead the management of the project. They need to work together as a team as there will always be a dependency between their work.
Get everyone on-board and draft clear agreements that can minimize a crisis scenario where a product or a feature is not functional, for example. Make sure someone has the responsibility as well as the power to act.
Define clear security protocols and review them regularly. Clients need to trust your company that it will protect the information managed by the products and services it delivers. It’s your responsibility to manage vendor collaborations in such a way that everything is secure.
Our advice for successful outsourcing to multiple vendors
Based on our experience with multiple outsourcing partners, we’ve compiled an essential checklist for you to consider before launching in such an endeavour:
1. Invest time in vendor selection
Make sure that you’re compatible with the companies you’re going to partner up with. This is a long-term investment that will define your brand and the level of quality of your products and services.
If you can find companies with previous experience in multi-vendor outsourcing, even better. They probably already did the groundwork in terms of how collaborations work, and have defined clear responsibilities and modus operandi.
2. Set-up a vendor management agreement
Have this agreement cover way of working, performance management and liability. As we mentioned previously, when discussing the importance of a clearly defined collaboration, agreeing upon expectations and documenting them in such an agreement is crucial.
This can be a Service level agreement (SLA), an operating level agreement (OLA), an underpinning contract (UC) or even a combination between some of these.
3. Have an ongoing risk management plan
A lack of agility can mean missed opportunities and delays in resolving issues, that’s why it’s essential that a risk management plan and someone held accountable to implement it are agreed upon.
4. Get a primary vendor and assign program management to them
With multiple parties involved both in development and in communication, it’s imperative that one person supervise the entire project management.
This can be a primary vendor that you’ve worked with for a longer period of time and that can oversee that everyone is performing their role as they should and that deliverables are on schedule.
5. Look for a cultural fit
A company’s culture guides their every action. It encompasses their values, beliefs and also their geographical culture. From a cultural standpoint, one company could be accustomed to always speak their mind and point out issues that need resolving, while others will rely on common practice and the status quo, making it difficult to promote new ideas mid-project. Hierarchical dynamics are also strongly influenced by culture and could become an advantage or a setback on your collaboration with that particular vendor.
Ensuring that there’s a cultural fit can help minimize some of the risks that come with outsourcing and ensure better chances for fluid communication and a deeper understanding of each other’s ways of working.
While the advantages of having multiple outsourcing partners are surely a compelling reason to dive into such a business model, finding the right partners requires patience and sometimes trial and error.
At TJIP we spent years learning how to make this type of collaboration deliver results. We worked with multiple vendors in multiple locations around the world and once we found the right setup, it has definitely helped us deliver quality software products for our clients.
If you’d like to find out more about the specific steps that we undergo when selecting vendors and what our vendor management strategy is, download our Case Study On Multi-Vendor Outsourcing For The Financial Industry.