Want to Profit More from Offshore Software Development Services? Aim for a Win-Win

Profit More from Offshore Software Development

According to recent research, the majority of companies using offshore software development services are not fully satisfied with their outsourcing relationships in a number of areas including access to talent, technology and innovation. Is your business one of them? Instead of looking to your IT service provider for better solutions, initiate the change from within your organization.

“You Get What You Pay For”

The 2013 survey conducted by business consultancy KPMG and outsourcing analyst firm HfS Research involved some 400 companies who had opted for offshore software development services. Besides cost reduction as the primary reason for outsourcing IT offshore, the clients surveyed identified their key motivating factors as accessing better talent and technology as well as improving analytical capabilities.

Though 88 percent were satisfied with the cost savings and the general performance of their suppliers, only 9 percent were happy with the standard of innovation in their outsourcing relationships and a mere 18 percent said their expectations were met when it came to new technology through offshore software development services.

Can you see the catch? While clients want to get more out of IT outsourcing than just cost-efficient service, they’re hardly willing to pay for it. In fact, the low price tag on offshore software development services is why they chose them in the first place. “Often organizations with a strong focus on maximizing cost savings contract with providers in a way which limits their ability to deliver premier services or premier resources,” says David Brown, principal in KPMG’s Shared Services and Outsourcing Advisory. “It is a case of ‘you get what you pay for’, and over the past several years many clients wanted to pay for as little as possible.”

If they’re serious about their goals, IT outsourcing clients need to reconsider their approach, the analysts warn. Here are a handful of ways they can break the deadlock.

Clear communication. In Brown’s words, “Unless clients understand and define innovation, a provider cannot help enable it.”

More creative freedom. It’s hard to come up with innovative solutions when one’s hands are tied. Buyers need to loosen up a bit and allow their providers more room to experiment.

Invest first to harvest. If IT outsourcing clients insist on driving providers’ prices ever lower instead of investing in them, the result is a downward spiral of shoddy quality and misplaced expectations. A more viable alternative is joint innovation where both buyer and provider of offshore software development services contributes and shares benefits accordingly.

Balanced partnership. Ever noticed how Western companies’ use of offshore software development services resembles colonialism? “Providers have become integral to the success of the smart enterprise… but their clients have to treat them fairly and engage them as an extension of their own enterprise, as opposed to the ‘master/slave’ model,” says Phil Fersht, CEO of HfS Research.

Realistic goals. Being clear about the limitations of an IT outsourcing collaboration goes both ways. Buyers need to establish feasible objectives and providers need to set the right expectations about what can be delivered.

Moving forward together. Thinking long-term requires that parties focus on collaboration in negotiations, not cost. According to Fersht, “Smart operations leaders need to learn the capabilities of their providers better in order to create contracts that inspire co-investment and co-learning from both parties.”

By adopting these changes in their approach, IT outsourcing clients acknowledge that the key to a more successful collaboration is in their hands. Do you agree?

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