Outsourcing: The Good, the Bad and the Ugly
Although I am the Chief Marketing Officer (CMO) at Infinitec, I have also been acting as the Chief Technology Officer since we started. This has meant managing the technology development with our partner companies.
Since starting Infinitec, we have interacted with more than 100 different companies from all corners of the globe. As a young company, outsourcing has been essential for us, however has also added a management overhead to ensure things have been executed to plan (which hasn’t always been the case).
During the early days, we outsourced basically everything to a few key partners. This actually created more risk as any delivery failure meant total failure. Over time, we have separated this work to more specialised partners while growing our “in-house” capability.
To date, we have worked with partners in US, Canada, UK, Spain, Germany, Russia, UAE, India, Malaysia, Singapore, China and Taiwan in the areas of Hardware Development, Software Development, Device Certification, Rapid Prototyping, Public Relations, Branding, Advertising, Web Development, eCommerce, Manufacturing, Packaging and Logistics.
I thought I would dedicate this post to the positives and negatives of outsourcing based on our experiences over the last 18 months and provide some advice to others thinking of outsourcing work. I call it, “The Good, the Bad and the Ugly”.
The Good
Outsourcing has many advantages:
• Access to skilled resources
• Fix price/time or flexible terms
• Turnkey or limited scope options
• Resources on demand
• Support post delivery
• Remote Project Management
At the beginning fix price/time and access to skill resources was critical for us. During the start-up phase, budgets are tight and you have a limited amount of time to demonstrate value in your investment. Our focus at the time was the technology and some marketing activities.
The original prototype we took to CES 2010 and demonstrated to Engadget was actually developed within 12 weeks. This is quite amazing for any technology development which has an R&D element. The performance at the time wasn’t very good however good enough to get the attention of their Associate Editors.
The Bad
The issues with outsourcing include:
• Long engagement and contract discussions for new partners
• Company validation takes time
• Different company vision, values and policies
• Flexibility for change
• Management overhead
• Lack of control
• Time slipage
We have sent out about 10 formal Requests for Proposals (RFP) during the life of Infinitec and received proposal from 100s of companies. This is a very time consuming process. For example, one of our more recent development projects took 6 weeks from engagement to awarding the deal. This involved:
• Engaging 37 companies
• Signing Non-Disclosure Agreements (NDA) with 16 new companies
• Receiving proposals from 6. That’s only 16% of the original companies engaged.
• Shortlisting to 4 companies
• Awarding contract to the winner after contract discussions.
Once you reach project execution the work doesn’t end there. You have to allocate time for review of deliverables, signoff, resolve issues and ensure progress is made in the way you want. Change is also very difficult during execution as usually tied to a fixed scope contract.
The Ugly
Quite simply the ugly part is non-delivery. This can be based on:
• Lack of skill (no knowledge)
• Over promising on time
• Over promising on scope
• Lack of resources (number of people)
• Disagreement
• Breach of contract
Unfortunately this is a fact of outsourcing life. Some companies will do anything to win your business without fully understanding and/or caring about the commitment they are making. Non-delivery is the worst scenario you can have. We have experienced this 3 times during the development of the Infinite USB Memory (IUM) Drive and each time has dramatically impacted our business. Recovery is time consuming and costly.
Recommendations
So, what have we learnt from this process:
1. Make sure your requirements are clear.
2. Ensure acceptance criteria is understood upfront. Knowing what constitutes success and failure of a project before the kick off is critical. This should be included in the contract.
3. Understand the outsourcing company
a. When was the company established?
b. How many people are in the company?
c. Who are their customers? Talk with one of them as a reference and remember this is the best result they have had
d. How much revenue have they been getting each year?
e. Who will be working on the project? Usually the sales person is not the same person as will be delivering the project.
f. Where possible go visit them. Meet the project team and the management team to build relationships and confirm you can work with them.
4. Understand their capability
a. What projects have they worked on which are similar scope?
b. Are the skills you require for your project part of their core competencies?
c. What qualifications do they have? For example is the Project Manager PMP certified?
5. Understand the escalation process
a. Who do you contact if you have issues with the project team?
b. In what situation do you contact each escalation point? For example, how serious does something need to be to involve the CEO?
6. Understand their investment toward you
a. What payment terms are they offering? All one sided or more balanced.
b. When are payments to be made? Before or after reviews?
c. Have they completed any prework before being awarded the contract or just waiting?
d. Have the delivery team been allocated?
7. Make sure the contract addresses your priorities. For example, if a time critical project include financial penalties for late delivery and maybe even financial incentives for early delivery to motivate the outsourced partner.
8. Invest in a good legal partner to ensure your interests are protected for all contracts.
Well, I hope this has been interesting and maybe even insightful. These recommendations have come through much pain so hope we can pass on some knowledge to make your outsourcing experience as smooth as possible.
David McKern
Co-Founder and CMO
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