Thursday, May 22, 2008

Making Outsourcing Work

I attended a great conference this week called the International Software Development Outsourcing Conference. The panels comprised of engineering executives from companies like Symantec, Siperian, Intuit, OfferTap, and EA and discussed everything from Outsourcing in Startups to Choosing a Partner to Making Outsourcing Work.

I gauge the value of a conference or talk from how many notes I take, and how many actionable insights I walk away with. I have about 10 pages of notes from this one-day conference. Here are some of the insights shared by the panelists:

  • T&M is a broken model and customers are starting to move away into a more balanced model, where both partners share some risk -models like Fixed Price/Fixed Time engagements, or a T&M arrangement with ratchets for meeting KPIs (Key Performance Indicators)
  • The more partners are aligned on a risk model, the closer you are culturally - the more you have a common understanding.
  • Waterfall methods in outsourcing assume that your partner is just like you - which is rarely the case, and why throw-it-over-the-wall outsourcing usually ends in overruns.
  • One of the best ways to describe requirements to an outsourced team is through wireframes, storyboards, and UI mockups
  • Five years ago, 50% of respondents in an outsourcing survey said they outsourced to India to reduce costs, about 40% said for quality, and less than 10% said they outsourced to India for innovation. 5 years later, those stats have flipped.
  • You can find pockets of specialized skills all over the world. If you outsource to a large vendor, on the other hand, for a specialized skill - you are very likely paying them for on-the-job training
  • CMM is no longer a selling point. When the customer is CMM level 0.2, working with a CMM level 5 company is somewhat pointless. There is also a healthy skepticism about CMM - being CMM level 5 doesn't necessarily mean that every person or ever team is folllowing the process
  • One of the best-practices cited was to use T&M for the scoping and requirements gathering phase of the project, where there is a high degree of unknown, then a Fixed-Price/Fixed-Time arrangement for development and QA, then back to a T&M project for the user acceptance testing and integration, where again there is churn while the customer organization lines up the right resources.
  • There is a growing backlash in Silicon Valley against being on calls from 7 pm-12 pm every night with overseas teams. Some new hires are making this a condition of employment - that they will not take a job where they will need to be on calls every night when they should be spending time with their family.
  • Local, and on-site presence is becoming increasingly important.
  • Take termination fees off the table. As an outsourcer, you have to earn the right to stay.
  • The next generation of outsourcing arrangements will shift from bottom-line focused (how can I get there cheaper) to top-line focused (how can I get there faster, better, and smarter). Customers will expect outsourcers to work with high-level requirements, and are becoming less interested in paying for effort, which may or may not translate into value. Think of developing software like how Apple sourced the iPod - "I want it to be 2x3, weigh 3 oz, and have 40gb of storage - you figure out how to get there. I don't care of you use 1000 man hours or 10,000. And I want you to share in the risk".
  • A successful outsourcing relationship comes from mutual trust. Trust is built on openness with information, competence, honesty, follow-through, and benevolence.
  • If you want success with a distributed team, humanity comes first. It's not the Golden Rule, it's the Platinum Rule: "Do onto others as they would have it done". Not "as they would do onto you". If the team was all like you, they would be sitting beside you. Did you hire the guy sitting next to you because he was the cheapest you could find? Do you talk face-to-face with them once a year?

Thursday, May 8, 2008

Why do people find innovation so difficult?

Maybe it's because I'm attuned to it, but it feels like there is more and more being written in the business press about design and innovation. Business Week just did a profile on innovative companies, and this week spoke to Eric Shmidt about innovating at Google.

The last section of that interview sums up my thoughts lately about innovation. After Eric has talked about some of their principals, like listening to employees, allowing employees to spend 20% of their time on personal projects (and how it's policed, to make sure managers don't override it), the interviewer asks "Simple, no?". To which Eric replies, "But not often practiced"

Innovation takes courage.

Everyone reads the same articles and books about innovation and design. So why isn't everyone churning out great products? Because most people pay it lip service. They have a hard time putting a value on doing things like letting employees spend 20% of their time on personal projects, and they chicken out.

Take Proctor and Gamble. To fuel their growth, and to keep their product pipeline full of new compelling products, they set out to get as many as half of their products from external sources. Sounds easy, but P&G is known worldwide as an R&D leader. Do you consider yourself strong in R&D? Imagine the internal conflict in your company if someone said "you know, 5 years from now, I'd like us to be getting 50% of our new products from outside the company - maybe even from competitors". I'm told that even today at P&G, it's still tough, and they have internal debates about whether it would be better to develop something internally vs. going outside, but they don't falter.

Take IDEO. They are known as one of the best innovators on the planet. In fact, Fortune 500 companies hire IDEO to help get them get "unstuck". IDEO lets their employees structure their own workspaces as they need to to suit a project. Most companies would see this as chaos. IDEO spends time thinking about how to create workspaces that stimulate creativity. Most companies would think this is a waste of time. They encourage fun and play at work. Some companies would fire you for that.

So you see, innovation takes courage. Or to quote one of my favorite movies of all time, Glengarry Glen Ross, "You know what it takes? It takes brass..." Never mind...