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Unconventional Outsourcing

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While businesses and business models continue to evolve, one thing that remains consistent for any business or startup is the need to bring in efficiency and productivity. No doubt, that companies continue their tryst with outsourcing. Outsourcing can be applied to any business function from sales, marketing, technology, innovation, a decision that has really been dependent on the type of company, team, priorities, and ecosystem.

While the first thing that comes to mind when thinking of outsourcing is like having an assembly line set up with rows of people working with a headphone around their neck, real-world outsourced teams are pretty different and have certainly stepped up their game when it comes to their contribution and value adds.

Where Does Outsourcing Fit In This Decade?

There is a constant debate regarding outsourcing, whether to do it or not, the conclusion is mostly in the favour of outsourcing with enough evidence of companies who have successfully outsourced and have reaped the benefits.

Google uses outsourcing for a department that is now responsible for one of its top-grossing products, AdWords. AdWords phone and email support were outsourced to 1,000 reps all over the world. In 2016, it moved to outsource more IT work. Google teamed up with U.S.-based Cognizant, which has branches in India for development.

“Outsourcing is not something that’s new to Google … Google sees greater value in outsourcing, as it is more cost-effective,” a spokesperson for one of the outsourcing firms was quoted.

On similar lines, Apple, Facebook, and Microsoft have been outsourcing large parts of their business. When it comes to startups Github, Alibaba, AppSumo, Fab, Slack, Upwork, etc have all used outsourced contractors in their journey.

Top companies that have been recorded to outsourceFig: Top companies that have been recorded to outsource

While typically outsourcing has been associated with cost savings and a way to improve bottom lines, throughout the last decade outsourcing companies have built a reputation for more value-added services and higher contribution in the value chain. Today outsourcing presents a strategic incentive for companies looking for a talent pool, cross-functional workforce, and segregation of business units to build agility. It is due to these reasons that outsourcing models have continued to evolve and we have seen companies innovating the way outsourcing works.

Reasons That Would Allow Outsourcing To Flourish In This Decade

Often, we observe that small things combine together to form a larger trend. For outsourcing too, there are a lot of factors that are a harbinger of growth in the coming decade. Some of them include

  • Better Collaborative Tools Means There Is More Transparency And Clarity Available

With source control, communication tools, project management, DevOps pipelines, the risk related to outsourcing is mitigated to an extent. Reports and work logs can be automated so is testing and delivery. Teams today can set up a pretty predictable path for work and any leakages can be promptly rectified.

Add to it the maturity in project management practises with the inclusion of aspects such as UAT, Design Sprint, sprint backlogs, and combine it with the power of project management tools like Jira and Asana, you are sitting on an arsenal of productivity and data-backed decisions.

A toolkit for any team outsourcing would be as follows

Function Tool Name
Code Repository GitHub/Bit Bucket
Day to day communication Slack
Task management Jira
Code Review CodeGrip
DevOps Jenkins
  • Growth In Multiple Technologies Means It’s Hard To Keep A Team In-house With So Many Different Skills

Businesses have to keep looking for the next growth catalyst. Cloud and RPA are the current in-demand initiatives but this may change again. With diminishing competitive advantages and a spurt in technical innovations, it is hard to keep up with the learning and to have every expert in the team.

Additionally, not all expertise could be required at the same time. Hence, it makes sense for companies to outsource for the expertise and use the plug and play model to their advantage. Even for companies that take pride in having a strong technology core, the backend and algorithms can be in-house, while front end, DevOps, and design can be outsourced.

Typical parts of a startup areFig: Typical parts of a startup

  • Startups Requirements Have Changed To Build Fast And Change Faster

Requirements for most startups are not to invent. The average startup is 5% inspiration and perspiration, and 95% APIs glued together in Python. Audit it when you get acquired. Ship it, move fast and break things.

This means you really do not require all 10X engineers and thinkers. You may just need one at the top who could be the CTO or the lead of engineering and the rest of the team has to just follow the lead.

Most of the time, startups do not even need innovation from every corner. With new practises of product development where startups are continuously moving closer to their users, companies need to get to market fast and then take decisions based on feedback from real users. Developers need to be able to quickly bind things up and get it on the move, en route to the customers. The skills expected of developers are very different today and more focussed on having a good team player, being predictable, and maintaining standards rather than to innovate. These skills agencies can fulfill easily.

  • Shortage Of Tech Talent Is Also A Major Driver Of The Outsourcing Industry

Good developers are hard to find. Creating a team full of A players, available locally is a hard ask. On average, it takes 60-90 days to fulfill one position. For most startups, this is a long enough time to miss an opportunity by not making a move. Hence, the push to outsource becomes greater.

Additionally, it is next to impossible to have an A player marked for every position. Given the segregation of tasks possible as mentioned earlier, teams can go for outsourcing to use up additional hands wherever required. If you can find a good team that can be in line with the vision and is as proactive as your own team would be, you are in a great position to scale up.

Related Read: The Real Cost Of An Employee Vs Cost Of A Contractor

  • With COVID- 19, We Have A Blueprint Now For Outsourcing To Work

Before 2020, leaders definitely had an alibi to not outsource, have everyone sit side by side and work together because that was assumed to be the only way you could push more, quickly move and exchange thoughts. COVID has disrupted this status quo where people learnt that with small adjustments, things can work out. Once this small adjustment is made, it makes us open to a great pool of talented people who we would have otherwise neglected.

The lessons learnt to manage internal teams without meeting can be applied to any person or team and everyone can stay connected and collaborate with Slack and Monday apps.

With these reasons, there is a great upside for outsourcing as we start this decade. No surprises that most agencies have seen a jump in business in recent time and the trend is only going north.

Further, let’s discuss the conventional models of outsourcing that have been the most common ways of engagement for teams.

Conventional Models Of Outsourcing Engagements

In outsourcing, an engagement model is defined as the strategy that shapes the relationship between a client and the outsourcing vendor. The model defines the goals of the engagement, communication cadence, and financials of any engagement. There are three general models of outsourcing engagement:

  • Fixed Time & Costs

As the name suggests, this model means that the scope is laid out at the start of the engagement, and timeline and pricing are defined accordingly. Fixed costs imply no changes are to be made in the software project after the agreement. These engagements require a comprehensive plan for the project drawn and agreed by both teams. This is a preferred model for short-term projects where the goals are clear.

A process for managing changes can be set by the team in case of a change to scope.

Advantages of this model are clarity on expectations and budget at the start of the engagement as well as a limited upside risk to both parties as the scope, price, and timelines are fixed.

Disadvantage of the models is the detailed Project pre-work and projection requirement in a detailed manner before starting the engagement. Also, the structure may not allow for frequent changes.

  • Time & Material

This model is meant for companies that are looking for an augmented team to work with them. Here the team setting is based on agile sprints and the team works on a particular sprint, releases the updates, takes feedback, and then plans another sprint. There isn’t any fixed time or deadlines put up by the clients and the project development is done in iterations while providing the customer with the real-time information of the project completion. The sprints usually involve the customer and team working closely on a daily basis. This model is meant for medium to large projects where the scope of work cannot be defined at the beginning.

This engagement is apt for teams that are working on discovering a product-market fit and requires continuous improvement. Since the sprints and work need to be planned in a continuous manner, this model requires a tech lead at your end to manage the sprints and lead the execution.

  • Hybrid Model

As the name suggests, this is the mix of two models. The project could start as an hourly based consultation phase and then move to a fixed scope once a detailed plan is created. The hybrid model brings the best of both worlds with initial hourly engagement allowing enough space for back and forth collaboration while a later fixed scope undermines any risk related to project leaks or surprises.

Related Read: How To Define The Project Scope The Foolproof Way

These three engagement models form the basis of most outsourcing engagements.

That being said, there is always room for innovation and hence, there are many unconventional yet effective ways to engage. These models may be dependent on your unique position and journey of the product

Unconventional Yet Effective Ways To Make Outsourcing Work

  • Equity Sharing

Especially for an early-stage startup, offering equity to compensate for costs as well as to buy more loyalty from your outsourced partner can be a way to go. One of the risks that product companies get into when outsourcing is that most of the outsourced teams just focus on getting work done and may not be there to put in the hard yards as if it is their own product. With an equity-based model, the outsourcing agency or contractor can be relied on with having more skin in the game.

The relationship can be based on outright equity share or a cash+ equity model where while the development team gets to pay their bills, they also have shown eagerness to take the risk. I personally prefer a cash+ equity model as it makes the engagement driven for a longer time and the customer too has some financial obligation to keep rather than just relying on distributing equity.

👉 Pros: The equity can be exchanged to get a discount on the price of the service and an equity exchange results in a more closer orientation of the outsourcing contractor with the client and the project itself.

👉 Cons: Sharing equity is a big decision. It needs to be shared carefully. Hence due diligence and having faith in the agency or team that you share your equity with is important.

  • Build Operate Transfer

The B-O-T model enables businesses to build a team of experts in an offshore location enabling businesses to take advantage of different time zones, talent, and infrastructure costs. Here you partner with your offshore team under an agreement that after a stipulated time, that whole team would become part of your company.

The engagement consists of 3 phases- Build, during which, you work with your outsourcing partner to set up requirements and select the team. Operate where the team processes are set and the team starts working as one and then a Transfer phase where the team is transferred to your team.

Execution plan for Build Operate and Transfer model

Fig: Execution plan for Build Operate and Transfer model

Build Operate Transfer is also known as acquihire engagement where you work with an outsourced team with an eventual goal to acquire the team.

👉 Pros: It mitigates the risk and costs associated with building your own team from scratch.

👉 Cons: It may require more time to start the project than other models and not all agencies accept this model and aren’t ready for it.

Additionally, you need to have a long-term vision and clarity before initiating the model. There could be penalties if you are not able to absorb the team after the stipulated period. Hence, this fits medium to large size companies better

  • Success Based Engagement

As the name suggests, this model is an outcome-based model that depends on the success of the engagement. It allows the sharing of profit between both the concerned parties depending on the metrics of success assigned. This involves setting up mutual target milestones by both parties and upon completion of those milestones, the outsourcing agency gets a direct share in the profits gained by the initiative. This is yet another way to get your outsourcing partner to get aligned with the engagement outcome.

The Pros and Cons of this model are:

👉 Pros: The engagement between the client and the outsource team is based on the return on investment of the initiative.

👉 Cons: It can only be practiced by established companies having clear Opex to benchmark and measure success. Due to the risky environment that startups operate in, it may not be effective.

  • Building a Shared Team Top Down

This is a model aimed for companies having expert top hierarchy in house. This involves hiring the different leads in house and having them get their work done through outsourced partners or freelancers. The model means building an in-house team first and then initiating outsourcing for various initiatives.

The Pros and Cons of this model are:

👉 Pros: The core product strategy remains in-house instead of being in the hands of an offshore team.

👉 Cons: Only useful for medium and large organizations.

Related Read: A Quick Guide To Help You Decide Whether In-House Or Outsourced Development Is Best For You

Conclusion

A lot of options and innovation exist for founders to make outsourcing work. Just like any other hustle that a startup has to go through, getting outsourcing right too is something a team has to work on and get a combination right. Given the benefits of outsourcing, it does make it worth the shot.

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Ayush Jain

CEO and Founder of Mindbowser, Chapter Director of StartupGrind Pune

Ayush is the CEO of Mindbowser Global Inc, a top-notch agency providing software development services to renowned companies like Dell, Pepsi as well as to a lot of growing startups. Ayush is also the director of the StartupGrind community and editor of The IoT Magazine and Chatbots Journal. Ayush serves on the board of several startups and is a seed investor.

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