It’s 2008, and this is not your father’s definition of outsourcing. Two companies with updated views about software development engagements are showing that many of the pitfalls of sending work away to be done can be overcome.
At GlobalLogic, CEO Peter Harrison said both the engagement and business models are changing to reflect the needs of companies being started by domain experts, not technical experts. And at TopCoder, the social network of developers who vie for work has exceeded 140,000 in more than 200 countries, proving the concept of “crowdsourcing” can be an efficient way to create quality software components.
“In the last couple of years, companies are really looking to engage in a global model earlier in their lives,” Harrison said. “We’re now engaging with entrepreneurs directly instead of engineers.”
Harrison explained that GlobalLogic would get approached by companies that already had products they wanted to extend or build out—”a team extension type model,” he called it—with a retainer to GlobalLogic and performance incentives. Now, Harrison said, “It’s businessmen who say, ‘This is what I need and this is how much I can spend on it.’ It’s much more project-oriented. We give a fixed bid based on a napkin, a date and the vision.”
Those entrepreneurs want to define their products and find the paths to market, but they are looking elsewhere for the end-to-end engineering—a take on the “as-a-service” model that now increasingly includes development. “It’s a flexible model,” he noted. “You can tap into the expertise when you need it, and not have to have [developers] on a payroll when you don’t need them.”
GlobalLogic will structure their new relationships with a royalty component—pay them two-thirds of their fee in cash and tie the last third to the success of the product.
Harrison described a meeting he recently had in Delhi, India, with a banker who was looking to market a hybrid social networking/research-sharing intelligence for individual investors. Another company wanted to build out a disaster-response solution that uses mobile technology to route people to safety, or health services, as needed. The common theme, he pointed out, is that these startups know all about the business they want to build, but lack the technology savvy. And they don’t want to set up an internal development shop, which takes time that might cost them any market advantage they might have attained.
“If they’re trying to build a product or solve a particular problem, our ability to do it is more of a value to them than their trying to find the expertise and experience to build it on their own,” Harrison said.
Finding the best people for the job is what TopCoder is all about. The company best known for its Las Vegas coding competitions has created a formidable network of developers skilled in any number of areas—”crowdsourcing with competition,” as senior vice president of software development Mike Morris described it.
Morris agreed with Harrison about the efficiencies of a virtual work force: You pay for what you need, when you need it. He said that companies engaged with TopCoder look at it as their software factory: “We build a relationship where we set up a joint program office with a customer.”
Knowing that the development team is working with the company helps organizations that are leery of outsourcing. Their fears are rooted in not having full knowledge of the developers’ skills and wondering whether the language will be a barrier, the requirements will be muddled or IP will be protected.
TopCoder is set up to build software through a bid process. Projects are posted within the community, and any developer can work alone or with others to solve that problem. TopCoder records all kinds of data about those people and sees who comes to work on a project. If the company feels there isn’t a high enough probability of success based on which developers came to work on a project, TopCoder might increase the money it’s offering for that work, to entice more developers. That keeps costs fairly well fixed—another uncertainty in the world of outsourcing.
As for costs, Harrison tried to show there still are gains to outsourcing, especially overseas. He cited numbers that show wage inflation in China and India to be about 3 percent to 4 percent during the past six years, compared with 2 percent to 3 percent in the U.S. The difference is that from year to year, salary gains in the U.S. are modest, while overseas the step increases are much greater.
Still, he noted, the average middle-class worker in India makes roughly US$7,000 per year, dwarfed by U.S. workers, who earn more than 10 times that amount. So, even if wage inflation is 3 percent in India and it’s 2 percent in the U.S., Harrison said, “it’ll take a long time for that gap to narrow.”
David Rubinstein is the editor-in-chief of SD times.
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