Outsourced product development
Outsourcing "non-core" activities to gain economic advantage has now become an essential constituent of any winning business stratagem. Nevertheless, as an industry matures, what constitutes its "core activity" is undergoing change and is a constant debatable topic. The same has been happening for ISVs to develop software products by vendors with specialized services in specific domains. Forrester Research recently identified Outsourced Product development (OPD) as a rising trend adopted by ISVs all over the world to remain competitive.
To take Instances from the Past:
- Nike outsources manufacturing of shoes
- Asian Paints, India's leading paint company has ancillary units providing thinners and even manufacturing season paints
- GE outsources manufacturing of F-16 engine part to an organization in Bangalore
The industry is in maturing phase of Virtual organizations, where HR, Finance, IT, operations, marketing and in some instance even idea generation is being outsourced.
The equilibrium as to what constitutes core function continues to change .
Today, organizations have understood that manufacturing alone does not enable differentiation therefore, manufacturing is widely outsourced. Companies like Asian Paints have started building services around products while moving in direction to outsource the manufacturing process, as non-core activity
Why Outsource Product Development?[edit | edit source]
With heightened customer demand and ever increasing pressure to cut down product cost and crunch time to market, ISV can remain competitive only by
- Reducing Product Lifecycle
- Preventing product from reaching stage of technology obsolescence
- Building modular, tightly integrated product to add on functionality
More-over product development also involves watching competitors, defining product road, product technology road map, planning early releases, testing through different approach, targeted industry trends, trends in technology usage and acceptance, pricing, marketing and promotion, finding add on feature and so on. In the entire value chain of product development, "Core product development" execution contributes less than 20% of value but take away as much as 80% of management time. That is where profitability of companies still concentrating on developing products in-house takes a hit.
According to study Profitability is directly proportional to crashed time to market and number of release and indirectly proportional to number of bugs.
Product Profitability = K *(Shortened time)*(Number of release)/ (Number of error)
By Outsourcing product development, companies are able to Shorten time to market, increase number of releases, decrease bug. The value K is value factor which outsourcing service provider further brings to table.
By outsourcing product development, companies are able to:
- Obtain expertise
- Put together additional resources
- Reduce development costs
- Crash product roadmaps, and above all
- Boost bottom lines by focusing on new competencies.
The OPD Philosophy[edit | edit source]
On similar lines as above, ISVs have started looking at outsourcing product development, labeling the activity as " Non-core" while concentrating on product ideas, marketing, financing, customer relationship as core activity. The drive to outsource product development is further heightened by rising employee cost, rising attrition rate and reduced product life.
An outsourced software product development is principally a way of utilizing an organization’s resources and infuses new thought, skills and know-how, while plummeting time to market. Outsourced product development is the palpable therapy to the contemporary market circumstances where technology, skills and approaches are transitory.