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January - 2015 - issue > CXO View Point
The Changing face of Outsourced Product Development
Manjunatha Hebbar, Head- Product Realization, Cyient Limited
Monday, January 12, 2015
Product companies around the world have been on the forefront of outsourcing development and maintenance work to competent partners irrespective of time, domain and geographic barriers. Consider multinational companies or local OEMs in any country-most of them have contributed to outsourcing in some way. Rarely is product development done in-house completely. An outsourcing model-offshore, near shore or onshore-ends up being employed. The magnitude of outsourcing may vary depending on the type of work or nature of the product or lifecycle stage/generation of the product itself.

Some of the key reasons for outsourcing have been around the following:
- internal bandwidth crunch
- lack of capability around a specific module or functional expertise
- risk transfer around return on capital employed.

But, traditionally, it is in the DNA of product companies to work with third parties. Over the last couple of decades this outsourcing has become a global phenomenon. This globalization has impacted significantly the entire lifecycle of product development and the associated outsourcing.

"Glocal" Communities:
One major impact of globalization is the formation of "Glocal" communities-globally competent and locally significant capability profiles leading to capacity, domain expertise and value addition. Strong economies of local consumption have reinforced this position. The figure below is a simple representation of Glocal communities from the Product Development and Maintenance perspective:

As a result of Glocal communities, the lifecycle activities that are being outsourced also have changed over last decade, and cover, more or less, every element of any generation of a product as depicted below:

Given this change in capability profile and domain expertise developed across geographies, the nature of engagement is also transforming itself in a steady manner. The frame of reference of engagement is moving towards innovative transformations from what used to be traditional step-wise transition from mutual learning and respect through value delivered. As depicted below, today the need is for global innovation alliances than the traditional continuous evolution of relationship.

Driving Global Innovation
The driving forces for global innovation alliances come from the maturity achieved through innovation in four key areas-Product, Technology, Process and Business Models. The net result is a serious transition of engagements in outsourced product development, moving away from traditional objectives of cost, quality and time to revenue, margin and business sustainability. Reasons are obvious for mature players-it is only to an extent that one can achieve benefits in cost, quality and time attributes, while revenue, margin and business sustainability limits are subject only to one's imagination.

In the current scenario of outsourced product development we see many more discussions and agreements with customers around the aspects of how this relation will impact mutually the revenue, growth and sustainability aspirations than just tactical elements required for project-level success. This is resulting in several technology- transfer-led, product- program- transfer-led, long-term, large-sized deals that were unheard of in product engineering space compared to that in traditional IT outsourcing. This transformation has been catalyzed by the growing maturity in intellectual property (IP) management, technology transfers, resource capability augmentation through employee transfers, project-based setups complemented by technology lab investments, and the broader need for frugal engineering across geographies.

Future of OPD
The Future shifters for OPD include -3 Power "Cs":

Crowd: Crowdsourcing becoming mainstream across the lifecycle of product development has put the focus back on user experience, which is the most important element after the core purpose of the product. Crowdsourcing helps to bring a product closer to market needs, with end-user involvement ahead of competition.

Creative Commons: Contrary to the closely-held IP regime, the Creative Commons platform of licensing will challenge product realization cycles positively, and help participation of companies of all sizes with great product ideas to compete on an even platform in the market place. This will significantly change the way products are going to be designed, developed and maintained.

Cloud: Cloud complements the other two "Cs" in empowering product development teams significantly with access to quality resources, reduction of risks around return on capital employed, and a platform to realize the product in truly accelerated timeline.

In summary, OPD has seen a sea change in the last couple of decades, and continues to be at the leading edge of the changing technology landscape.

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