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Outsourced
Product
Development
- An Overview
Outsourced Product Development - An Overview 2
ABSTRACT: Outsourced Product Development
(OPD) is a rapidly emerging niche as more product
companies consider outsourcing their product
engineering work. By partnering with an OPD firm,
Individual Software Vendors are able to pay more
attention to market analysis, planning, launching and
marketing of products.
This white paper examines the logic behind
outsourcing product development, elaborates on its
benefits and discusses the other aspects to be
considered when outsourcing product development.
Outsourced Product Development - An Overview
Table of Contents
3
Introduction
What is Outsourced Product Development?
Why Outsource Product Development?
How to begin Outsourcing Product Development?
Case Studies
Summary
4
4
5
6
8
9
Outsourcing “non-core” activities to gain economic advantage has become an essential
component of any successful business strategy. However, as an industry matures, what
constitutes its “core activity” undergoes change.
For instance, manufacturing was once considered the core competence of many established
industries, from automobiles to footwear. Today, organizations have realized that
manufacturing does not enable them to differentiate themselves in the market place, and
therefore, manufacturing is widely outsourced.
Similarly, software product development is considered as a core competence of Independent
Software Vendors (ISV) today. However, the global competitive market is gradually changing
the core expertise of ISVs from product development to product management.
While the mindset that “product development is not the core competence of product
companies” goes against currently established norms, it is becoming a trend that is followed
by many successful product companies.
This white paper examines the logic behind outsourcing product development, elaborates on
its benefits and discusses the other aspects to be considered when outsourcing product
development.
Introduction
What is Outsourced Product Development?
Outsourced Product Development - An Overview 4
Outsourced Product Development, as the name implies, is the outsourcing of specific
activities or all activities related to the development and maintenance of a product. OPD
enables product companies to tap the product-building expertise and global talent pools
available with OPD providers.
While outsourcing product development may seem conceptually similar to outsourcing the
development of software applications, there are significant differences. These differences are
primarily in the areas of skill-sets, standards and execution expertise required for product
development. Detailing the differences between product and applications development is a
topic that requires an independent discussion, but we will attempt here, to put in perspective,
the primary differentiators.
Why Outsource Product Development?
Outsourced Product Development - An Overview 5
The major differentiating factors of OPD can be classified into:
An application is “custom-built" for a single organization or set of users, but a product is
"generic" and is built to cater to the demands of a wide variety of users. However, each user
needs to be able to use the product in a way that suits him/her. Hence, a product must be
customizable, scalable, robust, well architected, and must have a solid framework on which
one can build new features.
In the generic IT services business, it is enough if the functionality requirements of the
application are met. This is not the case when building products. A software product goes
through several versions and several languages and as a result, many versions co-exist. If
under-the-hood engineering of the product is not strong, maintenance of the product could
turn out to be a nightmare.
Building a "well-engineered" product requires a higher level of skills than what it takes to build
an application. Typically, customers for application development look at and test the screens
of the application to know whether it works. Whereas, product customers look into the code
base to see how it meets the attributes of scalability, robustness, customizability and
architecture adherence. Hence, the engineers working on product development need to have
a much higher level of skills when compared to application developers.
In an applications scenario, good documentation, proper configuration management, strict
adherence to the design, architecture and coding standards are important, but not mandatory.
In software product development, this discipline is "mission-critical", to say the least. How else
can a software product be packaged differently to address different needs of the market or
scale between a 10-user installation and a 10,000-user installation?
Due to the significant differences outlined above, outsourcing product development is not the
same as outsourcing the development of software applications and both require different
approaches.
A. Technology related
B. People related
C. Process related
With the software market becoming more competitive and mature, product companies are
under immense pressure to periodically release new versions in the market. In a global
competitive market, ISV's efforts to achieve better time-to-market is challenged by:
How to begin outsourcing product development?
Outsourced Product Development - An Overview 6
Shorter product life cycles
Technological obsolescence
Rapid advances in design and engineering technologies, and
Increasing design and engineering complexity
Moreover, product development is an intensive activity that requires a lot of attention. If top
management's attention is spent on the in-depth details of product development, then market
analysis and marketing activities that directly impact the success of the company will not get
top priority. In the long run, this will affect the profitability of the company.
If a product company is able to crash its product roadmap and release new versions earlier
than planned, it could gain significantly in terms of market share and revenues. However,
budgets for product development are fixed and resources are finite. So, the only way ISVs can
crash their product roadmap and release newer versions faster is to outsource product
development activities to an OPD provider.
By outsourcing product development, companies are able to:
Acquire expertise
Build additional resources
Minimize development costs
Crash product roadmaps, and above all
Boost bottom lines by focusing on new competencies.
Product development is still viewed as a core competence of ISVs and any effort at
outsourcing this activity is likely to face some resistance. Moreover, questions relating to IP
security are at the heart of any outsourcing decisions. Consequently, a step-by-step approach
is the best-recommended course of action to begin outsourcing product development.
There are many activities involved in a
typical product lifecycle, including product
development, product reengineering and
migration, product maintenance, product
implementation, and product testing. A
product company can outsource one or
more of these activities to start with or it
can outsource the entire gamut of
activities related to a particular product.
Larger product companies can begin with outsourcing just one or two of these activities. Once
they feel confident with the delivery capabilities of their OPD partner, they could expand the
relationship further. Startup companies, on the other hand, will be more open to outsourcing
all the above activities, so that they can focus their energies on defining and marketing the
product, as opposed to building an engineering team.
Outsourced Product Development - An Overview
OPD -EMERGINGMODELS
Full fledgedDevelopment
Co-Development
ModularDevelopment
PeripheralDevelopment
7
Emerging Models of Product Development
Peripheral Development: In this model, ISVs outsource certain activities of
the product lifecycle, such as testing, documentation or product
implementation, but not the core development activity itself. This helps ISVs
gain comfort with the OPD provider's capabilities and also educates the
provider on the specialized domain knowledge related to the product. One key
advantage of this model is that the source code of the product does not have to
be shared to begin working together.
Modular Development: In this model, ISVs outsource the development of
bits and pieces of the product, which are primarily considered non-core.
Product integration skills to put together these modules become a key aspect
for both the ISV and the OPD provider.
Co-Development: This is a model where the ISV's and the OPD provider's
team work in a coordinated manner to develop the product. The OPD
provider's team is considered an extension of the ISV's team and has all the
rights and privileges to work on the code base.
Full Fledged Development: The OPD provider takes complete responsibility
for one or more of the ISV's products. This helps the ISV focus on ideating
next-generation products.
Case Studies
Outsourced Product Development - An Overview 8
The following case studies illustrate how product companies at different levels are moving up
the value curve by tapping the OPD model.
An e-procurement software provider for the pharmaceutical and higher education markets
wanted to find ways to speed up their product development efforts. With this objective, they
outsourced the creation of one module on a trial basis to an OPD provider.
When this assignment proved successful, the ISV rapidly ramped up the team with the OPD
provider to 20 people, with most of them operating at an offshore location to take advantage of
the cost differentials. The ISV's team and the outsourced team worked in a "co-development"
model, sharing the development work on the 10-12 modules that were required for every
release.
The long-term relationship with the OPD provider has existed for over 3 years and has helped
the ISV:
- Release 3-4 versions of their product every year (on a hosted model)
- Crash the product roadmap and include features earlier than planned, leading to faster
customer acquisition- Focus more on product management, as opposed to dealing with the
overheads of managing a team - Achieve higher R&D productivity for every development
dollar spent
A startup ISV had a vision to change the way the organic food markets operate in the US.
Through an innovative software solution, they wanted to increase the reach and reduce the
cost of organic food products in the US.
As a strategy, the ISV decided to outsource the complete product development effort to an
OPD provider and focus on the product vision, product management and customer
development. This decision was taken primarily because the entrepreneur behind this venture
clearly recognized that partnering with a company that already has product development
experience would be a faster and less expensive way to build the product, as opposed to
building an engineering team in-house.
The product, which has gone through several iterations and beta releases, is currently being
scaled up to a large volume of users. The first version of the product has been developed at a
cost of around $500,000, while it would have taken more than four times this amount if the
Case Study I
Case Study II
www.aspiresys.com
Aspire Systems India Private Limited Plot No 1/D-1, SIPCOT IT PARK, Siruseri, Tamil Nadu - 603 103
Tel : +91-44-67404000. Fax: +91-44-67404234e-mail : [email protected]
Summary
Outsourced Product Development - An Overview 9
OPD, as a business model, has gained acceptance as an extended development option for
product companies. It represents a relatively low-risk, high benefit opportunity for product
companies, but careful planning and monitoring of the relationship with the OPD provider at all
stages is a must.
However, ISVs that see OPD as a short-term cost-cutting opportunity may get disappointed
with the results. To derive true business benefits, they must make OPD an integral element of
their overall business strategy.
development had been done fully in-house. The cost savings were partly due to the ability of
the provider to tap lower cost development locations. The companies continue to work
together on future releases to enhance the core product functionality and build additional
features that can open up new revenue streams.
A leading mainframe integration software provider wanted to automate testing of the various
database drivers they had created. While the drivers had been created over many years by a
highly skilled team of mainframe engineers, an adequate testing process was not in place and
it took 3 weeks to do just one round of "ad-hoc" testing of the drivers in different environments.
To solve this problem, the ISV decided to work with an OPD provider with whom they could
potentially scale the relationship into core development as well. The testing engagement
served as an entry point for the OPD provider to understand the technology and also for the
ISV to develop a level of comfort with the provider.
After more than a year of intensive test-automation effort with WinRunner, a complete and
comprehensive test cycle on the drivers now takes just 2 days. The ISV has started tapping
some development services from the OPD provider as well, moving the relationship to a
different sphere.
Case Study III
