Friday, November 30, 2007

How to choose an outsourcing partner

One of my favorite questions in our Outsourcing R&D event was around how engineering leaders go about finding and choosing an outsourcing partner. The answers revealed some best practices, and also confirmed some anecdotes from my own one-on-one conversations with VPs of Engineering

In terms of finding a partner in the first place, first and foremost, companies tend to look to partners with whom they've worked with in the past. Sounds obvious, right? It's worth mentioning because sometimes we get caught up in the need for change; we forget how much we invested with our current partner in learning how to work together, and how much they've invested in gaining domain knowledge about your business. It's often much more efficient to work through whatever issues you're having with your current partners than to change horses.

Second, the panel advised you ask your network, both internally (have other groups used outsourcing successfully) and externally.

Finally, if you need to resort to Google for finding potential partners, take the time to do reference checks. Ask for references from companies of a similar size as your own, and ideally, in your home town, so you can get a sense for how they treat companies of your size, and how they work with companies in your region (how responsive are they, are time zones an issue, do they have someone "on-the-ground" and so on)

In terms of choosing the right partner, the panel had a number of good tips and tricks:
  • avoid hot spots like Bangalore, where it is becoming increasingly difficult and expensive to find and retain engineering talent
  • conversely, make sure your partner is in a region with good infrastructure - first-mover advantage in a remote location comes with high-infrastructure costs. When working with a partner, you don't want to be paying for basic infrastructure (PCs, Windows licenses, broadband, etc)
  • use a local agency or consulting firm to help narrow down the field of choices
  • match your partner with your company size; if you're a startup, or a small group within a large company, work with a relatively small (around 200 or fewer people) partner, where you can still have the attention of their senior management

Another tip I'll share from a similar panel discussion I organized in Boston - the RFP process is your surrogate for the actual experience of working with that vendor. How the potential partner behaves in the proposal and sales process is a good indicator, or at least the best you have, of what they'll be like to work with. Here are some tips for using the proposal process to pick the right partner:

  • If you're not a Big Design Up Front (BDUF) company, don't do a BDUF request for proposal. Leave out some details on the project, so that you see if your potential partner can read between the lines, and if they ask the right questions. The quality of their questions is a great indicator of their domain knowledge and experience
  • Do your own estimates, so that you have an idea of how much the project should cost and how long it will take, however, bear in mind that most studies show an outsourced partner, at least for the first project, will be anywhere from 50% to 80% as productive as your internal team.
  • This one's tricky, and since I work for an outsourcing company, I have trouble advocating trying to trick your partner, but one tactic is to put an unrealistic deadline in the RFP and see how your potential partner reacts. If they come back with a proposal that meets the date, barring some miracle time-saving device, you should question their estimates.
  • Beware of proposals that either have too little detail, or an unrealistic level of detail given the information you've provided.
  • Finally, how responsive were they during the proposal process? Were communications open? And did they meet the proposal deadlines?

Hopefully these tips can help take some of the anxiety out of choosing your next partner, or at least help make for a more predictable outcome.