Software Outsourcing: Changing Times Calls For Change in Strategy

By Dan Berthiaume

Significant innovations and changes in how software is developed and deployed have created an impact on the IT outsourcing (ITO) market in the past few years. Alan D. MacCormack, MBA Class of 1949 Adjunct Professor of Business Administration at Harvard Business School and an innovation/product development specialist, recently spoke with Nearshore Americas about how the ITO marketplace is evolving in tandem with the changing software environment.

‘Pervasiveness’ Changes Software Development

A general increase in the “pervasiveness” of software is changing how it is developed, according to MacCormack. “An individual car now contains more software than the Apollo rocket that landed on the moon,” he said. “It’s challenging to development. It creates differences in how development support occurs.”

MacCormack said there is a “fallacy” in the marketplace that advances in software development make changes easier. In fact, making changes is now more difficult, especially in late stages of development. “Impacts of changes in late stages are not felt for several weeks or even months, or not until the product hits the market,” he said. “There is a steep development learning curve.”

Need for Agility Benefits ITO Providers

In response, MacCormack said companies are bringing software more into the internal development organization and integrating it more with development of hardware and of larger products. In addition, many companies are embracing newer agile development methods, a trend that helps reopen the door to outsourcing parts of the software development process.

“Some companies use a fusion of the traditional ‘waterfall’ development model with smaller, new experimental areas using agile methods,” he said. “This requires a repertoire of different development styles.” Rather than try to develop in-house proficiency with all styles, MacCormack said some organizations will outsource portions of the development and concentrate on performing certain methodologies in-house.

Operating System Development Comes Home

In terms of developing operating systems, MacCormack said a previous trend toward offshoring development is shifting toward developing operating systems domestically. “The first wave of operating systems were based on resources companies had capacity for in-house along with development and maintenance technologies available in other parts of the world at significantly cheaper cost,” he said.

However, delays caused by sending development to offshore locales in different time zones or distant locations have caused many organizations to focus operating system development in-house. He said nearshore ITO providers have an advantage over “farshore” providers when it comes to providing operating system development services since the time zone and geographic distance differences are not as great.

Achieving an Onshore-Offshore Balance

Ultimately, MacCormack said most companies try to create an onshore-offshore and in-house-outsourced balance when assembling software development resources. “You try to balance the benefits of having a highly skilled person on the payroll who you can tell on Day A to do Task B with a fixed cost against the benefits of telling Joe he can work 60 hours one week and 20 hours the next.”

MacCormack said organizations must determine which options are most effective for which circumstances in their own unique situations. “Also, Joe could be down the road or Joe could be in Mumbai at one-third the cost,” he added. “You could have people in different places.”

In conclusion, MacCormack said each organization must determine its own internal approach to software development, whether it involves in-house resources, outsourced resources, or a combination. He also advised companies to keep an open mind and remain flexible when it comes to software development strategy.

“The best approach this year may not be the best approach next year,” stated MacCormack. “Real life has a funny way of surprising us.”