Outsourced Product Development (OPD) involves the outsourcing of specific activities or all of the activities that are related to the development of a product, and can also include product maintenance. While OPD is used for many different kinds of product, between 15% and 20% of the OPD market involves IT.
The outsourcing model generally relates to the outsourcing of non-core activities. For instance many companies outsource manufacturing as manufacturing does little to differentiate a product; similarly outsourcing business processes or a help desk are examples of outsourcing non-key activities. In fact outsourcing non-core activities is seen as an essential way of gaining economic advantage and a necessary part of modern business strategy.
Today there is an increasing trend to view product development as non-core and for many organisations product development is already considered to be a non-core activity, while activities such as the generation of product ideas, marketing, and customer relationships are core.
In such organisations the motivation to outsource product development is driven by rising employee costs, reduced product life cycles, and increasing rates of attrition. By outsourcing software product development an organisation is able to better utilise its own resources while taking advantage of the product building skills, the know how, and the talent pool of the OPD provider with the result that the time to market is reduced considerably.
For OPD to work effectively a special set of skills and knowledge is required. It is essential that there is integration between both on premise teams and the dedicated team of the OPD provider. For the outsourcing company the crucial question is how to best utilise the extensive capabilities of the OPD provider, with the pillars of successful OPD being communication, collaboration, planning, and management.
Advantages of OPD over and above the outsourcing of other components leverage the knowledge of the OPD provider and include:
• Improved value, flexibility and integration than is available through internal assets and resources
• Increasing the capacity of the company to innovate and keep ahead of the game by integrating with the resources of the offshore team
• Improving coordination between different divisions of the company
OPD is not without its risk and concerns. For instance, companies may be concerned that they will lose the very skills that they outsource; that they will become over-dependent on the OPD provider; that they will meet resistance from internal staff; that they will relinquish direct control over quality and timelines; or that their IP could be compromised by the provider who might deliberately or inadvertently leak it. Naturally due diligence means that all of these should be addressed before making an OPD commitment, but mitigating the level of risk can be achieved quite easily. When analysed the risks associated with OPD are no more than those experienced with in-house processes.
The OPD model
In essence the OPD model is simple. You communicate your general product requirements to the OPD provider and develop a collaborative relationship. Both parties then confer over the precise product requirements and the OPD provider demonstrates its capacity to deliver.
However there are a number of potential pitfalls. For instance the product requirements might be vague or conflicting; designs don’t perform as anticipated; or validation and testing requirements are not well defined.
Making OPD work depends on a number of pivotal areas:
• Product requirements – it is crucial that all stakeholders agree in detail what your dedicated development team will design, and that available experience and knowledge is identified and leveraged to provide best possible solutions. This includes testing, certification and other requirements so that all who are involved will be aiming at the same goals.
• Establishing mechanisms for managing change effectively is also essential. Change will always happen and it is important to know how to deal with it up front.
• Utilising expertise and knowledge – in many instances an OPD provider will have the expertise and knowledge to find a better answer realise your requirements, for instances by suggesting alternative ways to achieve specific product services.
• Good process – it is important to select an OPD provider that is process driven and will work with you deliver all required product features, minimise costs, and minimise time to market.