Define a Sourcing Strategy for Your Development Team

• Hiring quality development team resources is becoming increasingly difficult and costly in most domestic markets.
• Firms are seeking to do more with less and increase their development team throughput.
• Globalization and increased competition is driving a need for more innovation in your applications.
• Firms want more cost certainty and tighter control of their development investment.

• Development leaders are encouraged to manage contract terms and SLAs rather than build long-term relationships.
• People believe that outsourcing means you will permanently lose the knowledge around solutions.
• Moving work outside of the current team creates motivational and retention challenges that can be difficult to overcome.

• Looking at this from these three perspectives will enable you to determine the right approach:
  1. From a business perspective, reliance on the business, strategic value of the product, and maturity of product ownership are critical.
  2. From an organizational perspective, you must examine your culture for communication processes, conflict resolution methods, vendor management skills, and geographic coverage
  3. From a technical perspective, consider integration complexity, environment complexity, and testing processes.

• Business knowledge/ expertise required
• Product owner maturity

• Complexity and maturity of technical environment
• Required level of integration

• Company culture
• Desired geographic proximity
• Required vendor management skills

1. Assess your current delivery posture for challenges and impediments.
2. Decide whether to build or buy a solution.
3. Select your desired sourcing strategy based on your current state and needs.

Three Perspectives +

Three Steps =

Your Sourcing Strategy

According to a report by ReportLinker the global IT services outsourcing market reached US$413.8 billion in 2021.

In a recent study of Canadian software firms, it was found that almost all firms take advantage of outside knowledge in their application development process. In most cases these firms also use outside resources to do development work, and about half the time they use externally built software packages in their products (Ghei, 2020)!

Info-Tech Insight

In today’s diverse global markets, firms that wish to stay competitive must have a defined ability to take advantage of external knowledge and to optimize their IT services spend.

56% of software development firms are sourcing applications instead of resources.

68% of firms are sourcing external resources to develop software products.

91% of firms are leveraging knowledge from external sources.

Outsource Roles

• Enables resource augmentation
• Typically based on skills needs
• Short-term outsourcing with eventual integration or dissolution

Outsource Teams (or Projects)

• Use of a full team or multiple teams of vendor resources
• Meant to be temporary, with knowledge transfer at the end of the project

Outsource Products

• Use of a vendor to build, maintain, and support the full product
• Requires a high degree of contract management skill

Review the issues and opportunities related to application development and categorize them based on the key factors.

Before choosing a sourcing model you must assess whether a particular product or function should be bought as a package or developed.

Based on the research, use the modeling tool to match the situation to the appropriate sourcing solution.

• Do you need to gain new knowledge to drive innovation?
• Does your business need to enhance its software to improve its ability to compete in the market?
• Do you need to increase your speed of innovation?

Technology Challenges

• Are you being asked to take tighter control of your development budgets?
• Does your team need to expand their skills and knowledge?
• Do you need to increase your development speed and capacity?

Market Challenges

• Is your competition seen as more innovative?
• Do you need new features to attract new clients?
• Are you struggling to find highly skilled and knowledgeable development resources?

Info-Tech Insight

Sourcing is a key tool to solve business and technical challenges and enhance market competitiveness when coupled with a robust definition of objectives and a way to measure success.

Regardless of the industry, a common and challenging dilemma facing technology teams is to determine when they should build software or systems in-house versus when they should rely wholly on an outside vendor for delivering on their technology needs.

The answer is not as cut and dried as one would expect. Any build versus buy decision may have an impact on strategic and operational plans. It touches every part of the organization, starting with individual projects and rolling up to the enterprise strategy.

Multi-Source Best of Breed

Vendor Add-Ons & Integrations

• Flexibility in choice of tools
• In some cases, cost may be lower
• Easier to enhance with in-house teams

• Introduces tool sprawl
• Requires resources to understand tools and how they integrate
• Some of the tools necessary may not be compatible with one another

• Reduces tool sprawl
• Supports consistent tool stack
• Vendor support can make enhancement easier
• Total cost of ownership may be lower

• Vendor lock-in
• The processes to enhance may require tweaking to fit tool capability

Multi-Source Custom

Single Source

• Flexibility in choice of tools
• In some cases, cost may be lower
• Easier to enhance with in-house teams

• May introduce tool sprawl
• Requires resources to have strong technical skills
• Some of the tools necessary may not be compatible with one another

• Reduces tool sprawl
• Supports consistent tool stack
• Vendor support can make enhancement easier
• Total cost of ownership may be lower

• Vendor lock-in
• The processes to enhance may require tweaking to fit tool capability

• Based on our research, finding the right sourcing strategy for a particular situation is a function of three key areas:
  • Business drivers
  • Organizational drivers
  • Technical drivers
• Each area has key characteristics that must be assessed to confirm which strategy is best suited for the situation.
• Once you have assessed the factors and ranked them from low to high, we can then match your results with the best-fit strategy.

• Business knowledge/ expertise required
• Product owner maturity

Technical

• Complexity and maturity of technical environment
• Required level of integration

Organizational

• Your culture
• Desired geographic proximity
• Required vendor management skills

• The level of business involvement required to support the development team is a critical factor in determining the sourcing model.
• Both the breadth and depth of involvement are critical factors.

• The strategic value of the application to the company is also a critical component.
• The more strategic the application is to the company, the closer the sourcing should be maintained.
• Value can be assessed based on the revenue derived from the application and the depth of use of the application by the organization.

• To support sourcing models that move further from organizational boundaries a strong product ownership function is required.
• Product owners should ideally be fully allocated to the role and engaged with the development teams.
• Product owners should be empowered to make decisions related to the product, its vision, and its roadmap.
• The higher their allocation and empowerment, the higher the chances of success in external sourcing engagements.

• GoodLabs is an advanced software innovation studio that provides bespoke team extensions or turnkey digital product development with high-caliber software engineers.
• Unlike other consulting firms, GoodLabs works very closely with its customers as a unified team to deliver the most significant impact on clients’ projects.
• With this approach, it optimizes the delivery of strong software engineering skills with integrated product ownership from the client, enabling long-term and continued success for its clients.

• GoodLabs is able to attract top engineering talent by focusing on a variety of complex projects that materially benefit from technical solutions, such as cybersecurity, fraud detection, and AI syndrome surveillance.
• Taking a partnership approach with the clients has led to the successful delivery of many highly innovative and challenging projects for the customers.

• Vendor management is a critical skill for effective external sourcing.
• This can be assessed based on the organization’s ability to cultivate and grow long-term relationships of mutual value.
• The longevity and growth of existing vendor relationships can be a good benchmark for future success.

• To effectively make use of external sourcing models, the organization must have a well-developed track record of absorbing outside knowledge.
• This can be assessed by looking at past cases where external knowledge was sourced and internalized, such as past vendor development engagements or use of open-source code.

• Another factor in success of vendor engagements and long-term relationships is the matching of organizational cultures.
• It is key to measure the organization’s current position on items like communication strategy, geographical dispersal, conflict resolution strategy, and hierarchical vs flat management.
• These factors should be documented and matched with partners to determine the best fit.

• WCIRB is finding it difficult to hire local resources in California.
• Its application is a niche product. Since no off-the-shelf alternatives exist, the organization will require a custom application.
• WCIRB is in the early stages of a digital platform project and is looking to bring in a partner to provide a full development team, with the goal of ideally bringing the application back in-house once it is built.
• The organization is looking for a local player that will be able to integrate well with the business.
• It has engaged with two mid-sized players but both have been slow to respond, so it is now considering alternative approaches.

• WCIRB is finding that mid-sized players don’t fit its needs and is now looking for a larger player
• Based on our research we have advised that WCIRB should ensure the partner is geographically close to its location and can be a strategic partner, not simply work on an individual project.

• The complexity of your technical environment is a hurdle that must be overcome for external sourcing models.
• The number of environments used in the development lifecycle and the location of environments (physical, virtual, on-premises, or cloud) are key indicators.

• The complexity of integration is another key technical driver.
• The number of integrations required for the application is a good measuring stick. Will it require fewer than 5, 5-10, or more than 10?

• Testing of the application is a key technical driver of success for external models.
• Having well-defined test cases, processes, and shared execution with the business are all steps that help drive success of external sourcing models.
• Test automation can also help facilitate success of external models.
• Measure the percentage of test cases that are standardized, the level of business involvement, and the percentage of test cases that are automated.

• MC Systems is seeking to outsource its innovation function to get budget certainty on innovation and reduce costs. It is looking for a player that has knowledge of the application areas it is looking to enhance and that would augment its own business knowledge.
• In previous outsourcing experiences with skills augmentation and application development the organization had issues related to the business depth and product ownership it could provide. The collaborations did not lead to success as MC Systems lacked product ownership and the ability to reintegrate the outside knowledge.
• The organization is concerned about testing of a vendor-built application and how the application will be supported.

• To date MC Systems has had success with its outsourcing approach when outsourcing specific work items.
• It is now looking to expand to outsourcing an entire application.
• Info-Tech’s recommendation is to seek partners who can take on development of the application.
• MC Systems will still need resources to bring knowledge back in-house for testing and to provide operational support.

Choosing the right model

• Changing sourcing needs to start with one team.
• Grow as skills develop to limit risk.

• Build an integrated workforce plan for the organization.
• Refer to our research: Build a Strategic IT Workforce Plan.

• Refer to our research: Manage Your Vendor Before They Manage You.

• The business should feel they are part of the discussion.
• See our Agile/DevOps Research Center for more information on how the business and IT can better work together.

• Having too many different partners and models creates confusion and will strain your ability to manage vendors effectively.