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August - 2008 - issue > Outsourced Product Development
How Firms Choose OPD Partners - Providers
Sudin Apte
Friday, August 1, 2008
Since the time Forrester unleashed the OPD space and its potential — followed by a detailed view of the vendor-landscape, one of the most frequently asked questions by product firms has been: How do we choose a suitable partner provider? What benchmarks be set and followed for choosing the right partner provider? While addressing this unique query from hundreds of product firms across industries and sub-verticals, a standard vendor short-listing framework – comprising multiple parameters, evolved at Forrester; and the same is being leveraged today by most product firms having OPD work step-up plans.

Forrester’s OPD Vendor Selection Model used by global firms
This is a model meant for an end-user, so for providers’ benefit, I have captured the essence of it to present as an ascent-path for them. It’s important to understand how firms segment their OPD providers according to capabilities and what type of relationship they enter into with each segment providers.

The OPD propositions of firms range from the age-old benefit of labor arbitrage to using the provider to connect with your firm’s customers to determine the most valuable future product features. And to effectively consider all options and make the most appropriate decision, most firms first index their suppliers into three value-segments and then choose a combination based on product life-cycle objectives. The three segments are additive, where each successive one builds on the other, and helps providers realize where on the value-curve they stand.
* The first segment of R&D money savers are viewed as ones focused on lower-end skills with solid ability and strong process discipline, and that can ramp up OPD teams quickly. Such providers are usually leveraged to cut product development time and costs and typically handed the volume work such as maintenance of mature or end-of-life products, re-purposing, re-engineering or porting established products, and running product certification labs.
* The second set is termed as Product launch-date sprinters. In addition to cutting costs as above, clients look for clear specialization in managing large-scale programs along with experience in managing dedicated offshore development centers (ODCs). Other capabilities expected from these providers are effective transition of work from the client to the offshore location, commitment to business metrics such as on-time, on-budget product launch. Also, pricing models related to output rather than full-time equivalents (FTEs) come to fore in these relationships, and they are best viewed for outsourcing a key or time-sensitive project as well as running a large, long-term program via a dedicated facility.
* And the most respected segment is treated as Strategic product partners. Cost-cutting and faster time-to-market are “hygiene”, and the key expectations include demonstrated domain knowledge and capability, thought leadership, OPD market ecosystem access and control, delivery center geography diversified beyond one offshore location, and high-value, reusable intellectual property in a given area. These firms are leveraged for end-to-end product development, helping to build competitive products and relationships where the client wants to share risk and reward.

The checklist global firms leverage to segment OPD providers
To place providers into these three segments, smart firms develop and rely on a checklist of key questions to be asked to vendors. And the checklist is built around the following four areas:

*Baseline domain suitability. Selecting a provider always starts with the basic question: Which providers can do this work? Because many providers make claims of OPD expertise, firms usually ensure that they pick providers that have demonstrated strategic focus on this space and have experience as well as business traction to keep them going. Therefore, information regarding:
1. Providers’ revenue from OPD segment
2. Type of products they have built in past
3. Number of clients they possess and level of engagement they have with these clients.

All providers from R&D cost savers to strategic product partners must pass this primary checklist to warrant further consideration.

* Cultural fit. Firms having mature OPD initiatives understand and recognize that relationships can fall apart for even cultural differences or miss-fits. So they interview providers’ HR executives, key project team members, and delivery management to determine if there exists a cultural match in terms of openness, learning, passion, harmony, and flexibility. This category is more of a sliding scale, where lower cultural compatibility may be acceptable for R&D cost savers, higher compatibility may be required for product launch-date sprinters, and very high compatibility will be necessary for strategic product partner relationships.
* Consultative skill. Firms that want to evolve their relationships from R&D money savers up to the other two categories evaluate if the potential providers can provide strategic value in addition to operational efficiency. Such value could include the ability to suggest new, competitive product features; additional related services such as market analysis or decision support for unearthing unknown problems; or willingness to share risks associated with product ownership.
* Long-term viability. Given the difficulty of changing providers as needs evolve, many firms choose to do OPD with vendors that have the potential to become strategic product partners. As a result, they assess providers’ long-term suitability by asking basic financial viability questions and also review these providers’:
* Investments in building domain and vertical industry expertise and solution accelerators
* Client management processes and skills

For example, if a provider shows OPD commitment and financial strength but little investment in expanding specialized domain expertise, firms consider this provider as a good R&D money saver that may never become a product launch-date sprinter.

This Forrester OPD providers short-listing and selection model at global product firms will get further sophisticated as market evolves in the near future. After all, we firmly believe that building offshore capability for the product design is a journey and not a quick fix. To develop a globally distributed R&D system, firms primarily pass through four stages as they mature their program management processes, define what core and non-core development is, and build trust in their suppliers.

And just as these firms’ such methodological supplier selection approach, Forrester recommends OPD providers should also possess tools to assess clients’ technical and cultural readiness, and should undertake initiatives such as client educative workshops, for a win-win relationship. Such proactive measures along with upfront relationship investment commitments from the providers’ end will actually help their clients prepare internally and accelerate offshoring.

Sudin Apte is the Senior Analyst, Forrester Research. He drives Forrester’s research on OPD/Distributed Product Development space. It was his landmark research on OPD space that earned him stature of the foremost analyst in this space at present. He has been advising several end user and high-tech sector companies across North America and Europe in building their offshore strategy. He also advises majority of leading OPD vendors through buyer behavior trends analysis, market sizing-segmentation data & custom analysis, and workshops on specific topics such as captive acquisition strategy or Go-to-market approach. He can be reached at opdresearch@forrester.com
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