Third platform technologies "mobility, social business, big data and cloud" are transforming traditional offshore outsourcing models, including software development and research. In its survey of more than 200 software industry business leaders and software development professionals, SoftServe identified outsourced software development trends that will have a major impact on business strategies and IT offshoring this year:
Companies continue to partner with third parties for software research and development, with a clear preference for single-source offshoring and multi-source onshore outsourcing. The report showed that companies support a long-term onshore and offshore outsourcing strategy. Most service providers offer comprehensive services that range from planning and design to maintenance, allowing buyers to work with one provider that have in-depth understanding of their product. Long-term relationships are beneficial because they can drive down costs even further when the buyer and vendor work on several projects over time.
Key Destinations: India and Eastern Europe
India remains the top offshore software R&D destination, with 46 percent of respondents (down from 75 percent in 2010) working with Indian partners. However, Ukraine and Eastern Europe are on the rise, with 29 percent of respondents preferring to work with vendors in these regions. Russia, Mexico, Brazil and Latin America dropped in favor, while Southeast Asia and China gained a little support, increasing from 13 percent to 16 percent in 2014. More than half of respondents (55 percent) said they plan to outsource other IT functions in 2015, while 33 percent said they had no outsourcing plans.
Increased Security Initiatives
Security remains a top concern when offshoring software R&D projects. Forty-two percent of companies surveyed indicated the need for advanced load testing security solutions and scaling up their ability to stress test solutions, while 40 percent of respondents wanted assistance from third parties to integrate security into quality assurance (QA) and build processes.
To reduce the risk of hacking and data leakage, service providers have developed strict procedures and policies that are often superior to in-house processes. According to the SoftServe survey, most companies show an interest in working with third parties for independent audits, security process validation, and loading test security solutions.
The survey indicated that more companies are engaged in developing and implementing mobile applications, while early adopters are releasing products and entering the support stage. Buyers were mostly concerned about the challenge of mobile user experience while defining return on investment and tangible benefits. Twenty-one percent of respondents are also focused on defining their SaaS/Cloud strategy, a slight but notable increase from previous years.
Service providers constantly update their offerings, skillset and technologies. Offshore software developers are aware of the impact of cloud services, big data, mobile apps and social business on software R&D, and they ensure that their solutions meet client needs. Small and medium-sized businesses that have limited resources can leverage the expertise of third parties to ensure that development is up-to-date.
Agile design is fast supplanting traditional development models. Companies today no longer offshore development of very large applications, then wait many years for the service provider to deliver a fully functional product. Agile development allows software to be designed in smaller pieces and implemented individually, increasing speed to market and reducing coordination complexities. This is critical in an environment where change is so rapid that applications get outdated by the minute.
Case Studies & Success Stories of Companies that Outsourced Software Development
U.S. Financial Services and Insurance Company
An American financial services and insurance company wanted to reduce its software development costs through offshoring. Initially, the company partnered with a major Indian service provider that used waterfall development methodologies. However, the client failed to receive value from the engagement due to communication issues and unclear specifications and requirements. Deliverables often did not meet the requirements of end users, and the product needed to be reworked.
How Outsourcing Helped
When the company needed to develop a new pension plans system, it partnered with a different service provider. It is a high-end application development firm that uses a distributed agile development approach. The new contract was less expensive, and it included a mix of onshore and offshore teams. Team members travelled between the U.S. and offshore sites to ensure that the groups operated as a single team. As a result of agile methods, the vendor was able to provide value to the client quickly by delivering the most important features first. Delivery was done within budget and in half the time compared to the initial provider.
Broadcom Corporation designs and sells semiconductors for the wireless and broadband communications industry. The fabless chip firm is based in Irvine, California. When the company acquired Armedia Labs in 1999, it also acquired an offshore operations base for manufacturing single-chip solutions for HDTV. Broadcom handled market development exclusively while sharing all design and development work between its U.S. and offshore locations.
In 2006, the offshore center employed 190 professionals that were divided into teams. Each team was part of a global team composed of engineers in the U.S., Israel, and Singapore. At any time, each team might be composed of over 100 people located locally and offshore. Due to the need for close coordination, the final chip design was assigned to one location only. This used to be done in California, but later on mostly in the offshore center.
How Outsourcing Helped
Unlike the teams in Massachusetts, Israel and Singapore, the offshore team from the new service provider was allowed to take the lead during the chip development process because of its capabilities and scale. For example, the offshore team was granted 10 U.S. patents out of the 140 that it filed, and Broadcom expected it to be granted up to 30 patents per year. This placed the offshore team on par with the best U.S. patent approval rates. Some tasks needed to be done locally, however. One member of the offshore team was located in the U.S. on an eight-week rotation to manage localization and customization of the fully designed chip for different types of customers.
By employing a hybrid offshoring approach, Broadcom saved an average of one-third of U.S. costs and improved the skill level of its offshore operations in terms of very large chip development and embedded software.
When offshore outsourced software development was in its infancy in 2001, Agilent Technologies was a pioneer in outsourcing software development. Agilent Technologies designs and manufactures test and measurement equipment for medical diagnostics and chemistry applications. The company chose its outsourcing partner based on its large talent pool of experienced developers, mature management talent, and a judicial system that favored intellectual property protection. However, Agilent retained most of its development work in-house, while outsourcing routine programming and maintenance work. The term of engagement was short in case of issues; all offshore operations had a six month overlap in staffing.
How Outsourcing Helped
Initially, Agilent's engineering department assigned offshore workers to provide parts lists to its global customers and perform date entry for the CAD team in the U.S. The service providers assumed more complex development activities over time as Agilent grew confident in the vendor's capabilities. Most support services were then offshored.
In 2002, Agilent's communications solutions department established a 10-person team offshore to automate test suites for the company's Netexpert project. This engagement initially failed due to a lack of coordination, but the service provider recovered by increasing coordination time and implementing a quality improvement system. In 2005, both development and maintenance of software products were done by teams located offshore and in the U.S.
NetScaler (Acquired by Citrix Systems, Inc.)
Founded in 1998, California-based NetScaler manufactured network appliances. After developing a product that redesigned infrastructure that regulated internet traffic, NetScaler needed to add features to increase consumer acceptance. NetScaler believed that it could attract more customers that were moving to their product from legacy systems if they added more functionality.
How Outsourcing Helped
NetScaler had limited resources at that time and wanted to reduce costs while improving their product. In 2001, the company outsourced software development in order to develop added features. The offshore service provider the company hired delivered the requirements successfully, pushing NetScaler to establish offshore operations instead of continuing with a long-term outsourcing contract. NetScaler mostly hired local developers from the service provider.
By establishing an offshore subsidiary, NetScaler was able to increase the number and complexity of development projects and improve engineering integration in that country. NetScaler started to offshore high-value work, while outsourcing routine engineering support to local vendors. With its U.S. and offshore teams, NetScaler was able to provide software documentation and 24/7 support to customers.
Learn more about business process outsourcing and the Philippines as an outsourcing destination. You can also get more information about software development outsourcing by visiting our Software Development page.
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