A bad experience with outsourcing in the past can really give you a sour attitude about trying it again. Some people have a visceral reaction whenever they hear the “O” word - Outsourcing. Perhaps they tried to “purchase” outsourcing services in the past and negotiated such a “good deal”, they just about guaranteed they would get poor results.

Hiring an outsourcing vendor is like hiring the employees for your internal software engineering team. Yet many companies go about selecting an outsourcing vendor as if it is a purchasing process, seeking the lowest price possible for the service.

Did you ever purchase an employee for your engineering team? Of course not. Hiring an employee takes a careful evaluation of candidates through interviews and reference checks followed by a reasonable negotiation over salary.

Sometimes you have a choice between two or more employee candidates. Do you negotiate hard so you can hire one of them at the cheapest possible salary? Probably not. If you do, you risk hiring an employee that will only stay until a better job comes along elsewhere. And then you have to start the long hiring process for a replacement all over again.

Hiring an outsourcing team is like hiring employees, and it pays to be fair and equitable. Think of the offshore team as your own team, one that you carefully hire and manage over time to get excellent results. Otherwise you face getting poor quality and having to go look for a new outsourcing vendor again. And that will cause you months of wasted time.

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A synopsis of this post was published on the Business Week website as one slide in their Outsourcing Advice from the Pros. This was an added sidebar with several articles focused on small businesses using outsourcing for manufacturing and professional services like software development.

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Accelerance client ChemSW and Costa Rica partner IsthmusIT are profiled in the Business Week article Costa Rica: Cultural Similarities Make It An Outsourcing Favorite. ChemSW used the Accelerance Rapid Ramp-Up service to select IsthmusIT. The article emphasizes many of the benefits of outsourcing your software development to Costa Rica.

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I admit it.  I am a middleman.

Just saw this post on Business of Software blog. I’m not sure I’d use a middleman to buy a used car as described in the post. But I would if he/she could present several cars that meet my requirements and then helped me objectively choose between them.  Now that would be a service!

That is the kind of service I provide for companies that want to take advantage of global software development through our network of 40+ pre-approved global software development companies in over a dozen countries. And this “Offshoring Jumpstart” program is free.

Using offshore software development isn’t for everybody. And as you probably know, there are many offshore companies you can run into that aren’t really good for anybody.

Many will take your money and just give you some very junior programmers in a room in some exotic location you have to somehow manage yourself. Others will burn through most of your budget with the first few milestone payments and then never finish. They just go on to the next victim.

If you want to develop software professionally then after you get past the big Indian mega-vendors whose names we all know there are literally thousands of smaller vendors to pick from. So how do you choose?

There is a lot of crap out there – 90% or whatever. Using a guide, broker or middleman will help you get to the good 10% of smart programming teams around the world quickly.

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In general, I agree with most of the points in an article published in InformationWeek about How To Select An Indian Outsourcing Partner. The author takes a sober view about outsourcing that comes across a bit negative.

I wouldn’t write off Indian or global software development just yet. My experience with global outsourcing of software development shows two major pitfalls that people run into:

1. Selecting the wrong kind of vendor
2. Not providing the right kind of specifications

By wrong kind of vendor, I mean one that is happy to charge you for some junior programmers put in a room for you, and even give them computers and an Internet connection, but then fails to follow through with any kind of supervision, management or professional software development process.

This kind of vendor is what I call a “body-shop” and is only acceptable if you have the time and experience to manage these programmers remotely. It’s an easy mistake to make if you can’t hire programmers locally. You think you’ll just hire them over there.

A better approach is to select a vendor that can offer you a combination of junior and senior programmers and experience with a software development process

Other vendors may be great at executing fixed-price projects but only if they are given very detailed specifications. And the author says you should have detailed specifications, but this is where I disagree a little. Anyone that develops software, especially new applications, knows detailed specifications are just not completely practical.

New Agile software development methods have become more popular lately for the development of new software. But this highly collaborative approach is difficult (but not impossible with the right vendor) to do at a long distance. That’s why many U.S. companies are now looking at outsourcing to Latin America where there is more workday and cultural overlap.

In summary, I think a key mistake people make is treating software development only as a financial transaction rather than recognizing it as a collaborative and creative process. If all you hire is cheap programmers without experience, no matter what country they are in, then you will get what you pay for.

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I just finished reading Wikinomics – How Mass Collaboration Changes Everything by Don Tapscott and Anthony D. Williams. I read Tapscott’s earlier book Digital Capital: Harnessing the Power of Business Webs back in 2000 when it was first published. Wikinomics updates many of the same ideas contained in the earlier book but with a spin on the new Web 2.0 collaborative capabilities that have recently become more popular on the web.

This book is worth a read if you are developing a new Web 2.0 application that seeks to create value from the interaction of your users. Several business models are explored and examples of several well-know companies are given.

The central concept for me is the “business web” or b-web concept which Tapscott & Williams define as “clusters of companies that come together over the Internet.” The b-web concept was introduced in Digital Capital and is also related to the more linear Value Chain concept first described by Michael Porter in 1985.

The examples given focus either on consumer websites like MySpace, Wikipedia and Second Life, or collaborative R&D business webs used by large companies like BMW and Boeing.

On a smaller scale, Accelerance has formed a business web of global partners that develop custom software for small and medium sized clients. You gain access this web through our Outsourcing Jumpstart programs and the global partners are judged on how responsive they are to your needs.

Look for announcements in the near future on changes to our global b-web including an expansion to include many more service providers that serve our clients that develop software.

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Chris Anderson, author of The Long Tail, coined the phrase “freeconomics” back in 2006 as a pun on the surprise bestseller book Freakonomics. Both words are actually a double entendres (and homonyms, for you English majors out there)

His more recent article Free! Why $0.00 Is the Future of Business expands on the idea. Of course, you can read the article for free on the Wired.com website.

From day one of the Internet, people have been expecting information to be free.  Even before the Internet, Anderson quotes Stewart Brand (author of the 1970’s best selling Whole Earth Catalog and founder of The Well online community) from 1984: “Information wants to be free. Information also wants to be expensive … That tension will not go away.”

That tension can be a strong motivator when the information is perceived to be of high value and yet offered for free. The article offers a taxonomy of free business models and product offerings enabled by the Internet:

• “Freemium” - Free software, services and/or content for: users of the basic version. Some users pay a subscription for a premium or “pro” version
• Advertising – Free content and services. Advertisers pay to get your attention.
• Cross-subsidies - any product that entices you to pay for something else later.
• Zero marginal cost - free things that can be distributed at zero or negligible cost.
• Labor exchange – free content and services because the act of using these sites and services actually creates something of value.
• Gift economy - open source software or user-generated content.

Some of these have become known as Web 2.0 business models, especially Labor Exchange where connecting with friends in your network or participating in social bookmarking can lead to profit using some combination of these models.

Are using one of these free business models to offer your product or service?

I am sorry to disappoint you if you thought this posting was going to announce that all offshore software development is now free. Not yet.

However, Accelerance will announce some new services in the very near future.  Stay tuned!

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