August - 2008 - issue > Outsourced Product Development
Ravi Thummarukudy
Thursday, August 7, 2008
The economic downturn at the end of 2001 was so swift and dramatic that many companies had to find ways to trim their product development costs in a hurry. While the big companies could move to scale up their lower cost offshore design centers rather quickly, the smaller companies were without that option. Unable to find a quick and economical way to implement their dream projects, many startups were forced to shut down. Many others struggled to open their own centers in India or China but found it difficult to hire and retain qualified product development engineers. Still others signed contracts with limited third party product developers in low-cost geographies only to realize that outsourced product development is easier said than done.

With those lessons learned, this article will detail how companies can now succeed in product development with offshore partners. It’s especially relevant now, as 2008’s economic slowdown has cooled product development activities. Now is the ideal time to explore these options, as well as prepare guidelines for future engagements. In fact, I strongly believe that this is the best option for economically developing products at the moment.

To add some credibility, I’ve been working in product development for the last 18 years, first from an automation standpoint at Cadence and later in outsourced product development as one of the co-founders of GDA Technologies. I’ve worked with many customers and have been associated with several successful projects (along with few failed ones, admittedly). I continue to manage the IP & IC services business at GDA, now a 100 percent owned subsidiary of L&T Infotech, and I still consult with many of our customers on ways to make their outsourced product development successful.

Occasionally, customers discuss their past unhappy experience in product development with offshore companies, almost always noting failures by both parties. Like everything else, there’s a process for successful outsourced product development, and lack of enforcement will lead to expensive mistakes. Bigger companies with established infrastructure and processes succeed because they can identify risk factors early and take corrective actions quickly, while startups can only count on prior individual experiences. Any outsourced development project has several stakeholders, starting with the management of both the product and service companies. But the key stakeholders are the VP and Director of Engineering in a product company and the Technical Lead and Project Manager in a services company; their experience and skills can make or break the engagement.
Over the last 12 years, I’ve worked with numerous product development programs as the outsourced partner and I’ve come to realize that succeeding here is quite different from doing the project internally. The successful projects followed a methodology, and I’d like to share some key aspects leading to successful engagements.

I’ve detailed the stages of engagement and how, at each stage, the successful engagements differed from the failed ones. Of course, this is a summary of general positive actions—an individual program should follow the guidelines best suited to its own success.

Business Model: It’s important to know the business model of your partner. While many companies make available qualified engineers, tools, and infrastructure, they sometimes do not take delivery responsibility for the product. Companies such as GDA, though, take responsibility to execute the project in a turnkey fashion, with the payments based on milestones and deliverables. The product development almost always involves hardware and software. While it’s much easier to have everything done by the same vendor, one must also consider their capabilities in both areas separately. Turnkey development is better for product companies as it aligns both parties’ objective: to finish the project at the earliest. In any case understand the business model and their fit to your requirements.
Requirements Documentation: Outsourcing a product’s development requires extensive documentation, much more than when doing it internally. Since it is a contractual arrangement, it requires very detailed documentation. Lack of adequate documentation is one sure way to end up in failure. Successful engagements document the requirements before the actual work starts and all the way through completion.

Vendor Evaluation: Successful outsourcing companies go through extensive evaluation of their partners’ capabilities from both business and technical perspectives. Visiting your partner’s facilities and discerning the skills and aptitude of key people are very important. Another point to note here is to start early and take your time to complete this step. One mistake many people make here is to jump in with someone they know, or worked with on other things, hoping they can deliver product development services as well. Evaluation of the partner’s financial condition is also necessary. The internal quality and security standards practiced by your partner are also important.
Development of Statement of Work: This is probably the most important step in successful implementation. This is the document that describes the details of engagement, milestones, deliverables, schedule, and resource allocation. Experts in outsourcing spend a great deal of time developing this document, and I strongly recommend its full critical review. It is important to understand the ownership of the development and all its components. One must also make provisions for ECOs (Engineering Change Orders) for any change in specifications, schedule, etc. The roles and responsibilities of the key personnel should be listed here. Another important aspect is to document each phase’s success criterion on the project and the overall project itself. I always insist on creating a risk analysis and mitigation procedures guide early in the life of the engagement. Price Discussion and Contracts: Of course, price is always important but when price becomes the only benchmark, it’s always a red flag. Be sure that you’re not putting the project at risk to ensure execution at below cost. Such engagements rarely succeed in the long run. It’s important to have a legal agreement between the partners that guides the business arrangement. And be sure to remember you can amend these agreements from time to time to better reflect changes in the engagements. Finally, warranties and liabilities are other important topics covered in the agreement.

Project Kick Off Meeting: An important first milestone of any program, this is to introduce the key members of the team, decide on the frequency and modes of communication, procedures for reviews, etc. Be sure to review the schedule, dependencies, and commitments in the meeting with the entire team. One key question to ask in the meeting is that whether everyone in the team including the junior most engineer has signed up to the objectives and schedule of the program.

Program Management: A good Program Manager will make a successful program. Be sure the programs are reviewed at least once with every team member present. Action items and dependencies must be identified and corrective steps taken on a weekly basis. The Program Manager should also address external dependencies. A good program manager anticipates issues ahead of time and takes corrective actions.

Milestones and Reviews: Successful companies have a process for doing good program reviews. The first rule in a review is that the participants should have already reviewed the documents and come prepared to the meeting. Don’t hesitate to ask tough questions early in the program. Managers must be good reviewers asking the appropriate questions. See if you can get your peers attend the reviews to get an independent view of the status of the program. You should encourage even the junior-most members to ask questions about the program.
Management Review: It is not enough that you manage a good program; you must also involve your management in the program at least once a quarter, ensuring they interact with their respective counterparts in the partner company. Such exchanges always strengthen the whole process; and they also give multiple levels of communication, should any issue needs to be escalated.

Tailpiece: Success in outsourcing is not obtained through black magic. It is the ultimate fruit that is harvested after the long process of careful and planned implementation of the various components that go into the execution of a project of outsourced product development. The stages of engagement with the outsourcing partner as I have detailed above would be of significant help in moving in the right direction before finally tasting success. I sincerely believe that this roadmap will be of remarkable aid in shaping the product development project as a process that can be replicated in future with assured success.

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