More and more firms are rapidly adopting outcome based outsourcing models for product development. However, not all are ready for it as these quotes from recent articles mention.
Down To Business: Outsourcing’s Next Big Thing (InformationWeek)
Outcome-based outsourcing isn’t more widespread, Brooks says, because most vendors and customers aren’t prepared to manage them. All outcomes, whether judged on business results, product quality, or timeliness, must be quantifiable.
Personally, in dialogues with folks in the tech industry, majority are keen on adopting outcome based models within the next 6-12 months if not already doing so at present. However, I have also seen quite a few folks who are not ready to move to this model. Clearly an outcome based model is not suitable for all outsourcing engagements. Many OEMs have implemented such engagement structures on the hardware side working with ODMs. Are you ready to have your product engineering groups adopt this model on the software side?
Many engineering managers are comfortable today with the typical time-and-materials model based on high level statements of work. This has worked for many because of the level of direct day-to-day management of the outsourced engagement. However, this has a number of pitfalls that can be effectively addressed by an outcome based model.
The key is to quantify and define measurable output parameters for a given engagement or project. You could go one step further and tie the engagement to the desired business outcomes. The outcomes are already always defined by product management and business prior to any product activity. In that sense an business outcome oriented approach is likely easier than an output based approach even though they are tightly intertwined.
Symphony Services: Orchestrating Innovation (BusinessWeek)
Managing outcome-based deals is far from simple and requires a labyrinthine system of metrics. “One of the challenges in software development is there is no real set of measures that are simple and make sense,” says Dave West, a senior analyst at Cambridge (Mass.)-based Forrester Research.
What usually worries engineering management is that the requirements and output vary over the course of a development cycle so how do you structure an output based engagement? However, measurable output parameters work independent of such changes in requirements and market. These are metrics that measure the quality, schedule adherence, performance, productivity and such factors applicable to the success of the product. Ultimately an outsourcing partner who has a ready framework and the processes in place to monitor and ensure the outcomes will be able to successfully deliver on such engagements.
What has been your experience? Have you considered this in your organization? If not why?