Sunday, November 02, 2008

Efficient Outsourcing

The business model at Eurocenter is 'Extended Engineering'. Although the fancy term might give u the feeling that it's actually another term for 'Out Sourcing', it's not. We try to be partners of our client which in most cases is an ISV, Independent Software Vendor. Our ISVs are from Scandinavian countries and we tend to work with them not for a project or 2, but for a long time. We already have several clients who had been working with us for more than 3 years.

Although one of the strengths of Eurocenter is its commitment to delivery once a project is signed off, a recent whining I get from one of the clients is that time taken for us to sign off a project is too much. This is due to the fact that we like to resolve as many grey areas as possible in the scope to prevent scope creep and unhappy situations with the customers late in a project. Mind you our projects are usually small in size, roughly 3000 hours and completed within 6 months or so. But what I noticed is even for a project which is smaller than this we take around 1 month of back and forth discussions to finally agree and start the project.

This is not healthy for an ISV who's looking forward to cut down on his Time to Market by partnering with a company like Eurocenter. We have tried framework agreements where the client basically agrees to pay for a certain number of resources for an period of time (6 months) which is kind of Time & Material job. But this is more suited for projects where customer manages the resources and provide them small grained tasks as oppose to whole projects. The typical advantages customer gets by working with a company like Eurocenter is that the emphasis in quality and process. But in a time & material based cost structure this is not captured and the customer can't expect the same quality & process benchmarks as a fixed price complete project. In case of a typical product development (Which builds a specific product for customer) we follow the fixed rate model where we scope & estimate prior to sign off. This is where the initial delays are seen, when we try to agree on scope & estimates.

One of the models we came up in our discussions recently is a model where as soon as the client gets the idea of a product/project and wants it to be done by us, 1 or 2 resources from us can start working on the project while also scoping and estimating. There is always a % of actual project work which can be done before the scoping is not completed. There is a risk of the project not progressing after couple of weeks. What we have agreed is to share this risk with the client. So for the initial work that we do on this project will be billable to the customer on a time & material basis. This gives the client time to go through scope & estimates properly while knowing that he's not impacting the final delay of the product by much. On the other hand we get to provide our resources with billable work which is both good for the company and satisfying for people. In the current fixed price model we end up having 2-3 resources doing non-billable work for a few weeks just because customer hasn't yet signed off a project rather than any other technical problem. Of course the client and the outsource company can't do this if they have met for the first time. You need to have a certain level of trust and confidence on both parties for a model like this to be a success. We plan to employ this tactic soon and see how it goes with matured clients of ours.

If the model proves to be a success it can be one of the most efficient models of outsourcing. while managing the risks.



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