Intelligent Solutions: When does outsource product development make sense?

Outsourced product development has caught the imagination of the entire business world. Sometimes, an enterprise opts for outsourced product development to manage costs, boost bottom line and save time for core activities. Other times, some strategic purposes such as dispense with some centers located at critical geographical regions have bearing on the option for outsource product development.

There are several reasons can be cited for outsourcing option. But the moot question is -When does outsourcing make sense?

What are the reasons to outsource product development?

Acquiring Expertise

One of the most plausible and successful reasons to offshore product development is to acquire expertise not currently available within the company. This lack of expertise could be because of a specific, non-core activity within the company, or it could be due to sudden rise in demand that exceeds the company’s existing capability.


Building Additional Resources

One very obvious reason to outsource is to supplement the number of development teams available to complete projects. Actually, in most of the cases firms prefer to staff below their total development capabilities in order to lower costs and risk, and with outsourcing they escape the possible burden of repetitive layoffs and hiring sprees.

This approach to outsourcing, or resource expansion, works well when the company outsourcing the project understands the capabilities required to effectively outsource a development project.

Minimizing Development Costs

One very pertinent reason to outsourcing is to minimize costs involved in the development of products. Outsourcing seems to be a better and cost-effective measure, if you take into consideration all costs involved in maintaining the necessary capabilities within your company, which include:

• Employee costs such as salary, taxes, benefits, etc.


• Overhead expenditure on office space, desks, computer, training, software and hardware tools, etc.


• Supporting costs on information systems, management, human resources, payroll, etc.


• Risk costs such as downsizing costs including severance pay, legal support, etc.

In addition, certain irritating questions keep recurring such as:

• How do we build and maintain a high quality development team within our corporate culture?


• What traits and skills are important? Are those traits and skills available in our area of geography and expertise? How long will it take? What will it cost?


• How many teams will we need today and should we try to staff every project internally?

In addition, organizations having internal product development resources that choose to outsource product development projects can have the following benefits of outsourcing:

• Gaining new perspective & process


• Acquiring quality system reviews, and


• Gaining industry standard practices
  

To glean the maximum benefit, the firm outsourcing the development should have systems in place to imbibe within the lessons-learned and to integrate them into its systems where appropriate.

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