Selecting a provider: like finding a bride
Outsourcing is a unique process and it always reminds you that you are looking for a long-term partner, not just a contractor.
Oct 02, 2001
Outsourcing is a unique process and it always reminds you that you are looking for a long-term partner, not just a contractor. You have to approach the selection process with all possible attention and to take into consideration a lot of different factors. The process can take some time, but the benefits justify the effort and patience.
First, let's go over briefly the preliminaries. Today outsourcing is considered a transformational process. Transformation means adding new, previously inaccessible competences that your company gains in the course of the partnership. Keep this in mind when selecting a provider.
It is also important that potential provider understand your needs. It is preferable when the prospective provider already has clients like. "Like" means not just working in the same type of business, but of similar size and business culture. A small size provider may be no problem when you are small yourself.
Major disappointments of outsourcing often are the result of a badly organized selection process, and so can be prevented at the earliest stages. The selection itself is a multi-stage process and we recommend the following scenario.
Stage 0. Market evaluation.
The selection process starts with market evaluation. Make sure that the activity you plan to outsource fits the market standards. Although the client is always right and demand shapes supply, if nobody is ready to do the job or there are very few potential providers with relevant experience, you will very possibly face problems. The market must exist in order to make the selection process workable.
The main goal of market evaluation is to understand the type of providers you need. For this purpose we recommend to start with assessing the two main types of market players - market leaders and major buyers. If you can afford to buy services from market leaders, it is recommended to go to the stage 2 of the scenario. Otherwise the level of difference between your company and major buyers must correspond with the level of difference between market leaders and your potential providers.
The main problem when evaluating a market, especially the Russian offshore outsourcing market, is gathering information. Rather little information is readily available. While it is growing and gaining reputation, the Russian offshore outsourcing industry does not have such strong name recognition as India's. There is a lack of public reports available to international buyers. As for the local media, major participants in the market rarely advertise since they do not have or seek local clients.
Nonetheless some public sources do exist in addition to this portal. See the Software Industry section of our Knowledge Base.
Finally, remember that almost the same selection process has been carried out hundreds of times before by others. It makes sense to follow in their tracks.
Stage 1. Online research
The main goal of doing online research is to line up a set of potential providers for further investigation. Rule of thumb suggest 10 are enough. There are several main points to pay attention to when visiting a provider's website in addition to the decision criteria you have:
The next step is sending RFPs to the pre-selected providers. Usually an RFP consists of two main sections. First are the questions concerning various aspects of the provider's business: its demonstrated competencies, total capabilities, relationship dynamics, previous experience and achievements. This part can also exist as a separate document, named RFI (Request for Information). Please refer to the appropriate section, containing a detailed definition of RFP's and samples. The second section of an RFP offers a description of your problem/ activity under consideration for outsourcing.
Stage 3. Processing proposals.
Try not to use price as your sole criterion. Look at the provider's capabilities, experience and proposed solution first. If price is very important to you, select the cheapest solution from among the best , not the best from the cheapest.
Assessing the proposed solution is fully up to you. Only some fundamental advice can be offered here. You should look to see if the solution fits your project and human resources requirements, how the financial proposal meets your budget, and so on. The only thing we can say is you should be ready to be asked for clarifications. When requirements are specified to the level www.some_site.com", no provider is able to give a concrete proposal in terms of money, people, time frame and so on. An exact proposed solution to an overly vague specification shows the provider's desire to win the contract whatever happens and does not point to professionalism or experience in the field.
Nevertheless, there are other important considerations you have to keep in mind when evaluating proposals.
Stage 4. Visiting the provider's premise
Onsite investigation is another important part of the selection process. The visit provides valuable information on such matters as the provider's development process and his quality system. Moreover, the visit tests the candidate provider's credibility. Visiting Russia is not a problem today. There are a number of published guides that may help to make the experience easy.
Stage 5. Selecting the provider
Once again, only very general recommendations can be given here. Every stage in the selection process, including the final one should reflect your desiderata. You should only choose the provider who meets your requirements better than others.
First, let's go over briefly the preliminaries. Today outsourcing is considered a transformational process. Transformation means adding new, previously inaccessible competences that your company gains in the course of the partnership. Keep this in mind when selecting a provider.
It is also important that potential provider understand your needs. It is preferable when the prospective provider already has clients like. "Like" means not just working in the same type of business, but of similar size and business culture. A small size provider may be no problem when you are small yourself.
Major disappointments of outsourcing often are the result of a badly organized selection process, and so can be prevented at the earliest stages. The selection itself is a multi-stage process and we recommend the following scenario.
Stage 0. Market evaluation.
The selection process starts with market evaluation. Make sure that the activity you plan to outsource fits the market standards. Although the client is always right and demand shapes supply, if nobody is ready to do the job or there are very few potential providers with relevant experience, you will very possibly face problems. The market must exist in order to make the selection process workable.
The main goal of market evaluation is to understand the type of providers you need. For this purpose we recommend to start with assessing the two main types of market players - market leaders and major buyers. If you can afford to buy services from market leaders, it is recommended to go to the stage 2 of the scenario. Otherwise the level of difference between your company and major buyers must correspond with the level of difference between market leaders and your potential providers.
The main problem when evaluating a market, especially the Russian offshore outsourcing market, is gathering information. Rather little information is readily available. While it is growing and gaining reputation, the Russian offshore outsourcing industry does not have such strong name recognition as India's. There is a lack of public reports available to international buyers. As for the local media, major participants in the market rarely advertise since they do not have or seek local clients.
Nonetheless some public sources do exist in addition to this portal. See the Software Industry section of our Knowledge Base.
Finally, remember that almost the same selection process has been carried out hundreds of times before by others. It makes sense to follow in their tracks.
Stage 1. Online research
The main goal of doing online research is to line up a set of potential providers for further investigation. Rule of thumb suggest 10 are enough. There are several main points to pay attention to when visiting a provider's website in addition to the decision criteria you have:
- Size of the provider. As already mentioned, size is not necessarily an issue, but there should be some correlation in size of the partners and with the scale of the given project.. But it pays to consider that the number of people you plan to hire should not exceed a certain percentage, shall we say 25 %, of the provider's staff. There are two reasons for this. The provider always tries to have several clients to get more stability in his order book. .If he is prudent he rarely allows any single project to take more than 25% of his staff. If your project is larger and nonetheless he agrees, that likely means he has never dealt with projects of your size. Another argument is that if you cannot provide a constant workload (in case of long-term partnership) for the provider, then stopping all the activity means you will impact hard on the provider. To compare the size of the project and size of the provider you must know exactly his staff numbers. If this is not mentioned on the website, just say goodbye.
- Track record You don't want to be the first client, right? Although some providers tend to say that "they can not name their clients due to privacy reasons", don't take that for an answer. Satisfied customers usually have nothing against a provider's mentioning their names on his website. If there is no track record for you to inspect, find another candidate.
- Detailed description of provider's projects. Don't expect that references will be given on a provider's website. But some description of projects must be adduced. There should be information about skill sets, client name and coordinates for purposes of verification. The clients shown should be international companies, not domestic companies. This requirement follows from the intention to outsource offshore and because the provider must prove his ability to cooperate with western companies.
The next step is sending RFPs to the pre-selected providers. Usually an RFP consists of two main sections. First are the questions concerning various aspects of the provider's business: its demonstrated competencies, total capabilities, relationship dynamics, previous experience and achievements. This part can also exist as a separate document, named RFI (Request for Information). Please refer to the appropriate section, containing a detailed definition of RFP's and samples. The second section of an RFP offers a description of your problem/ activity under consideration for outsourcing.
Stage 3. Processing proposals.
Try not to use price as your sole criterion. Look at the provider's capabilities, experience and proposed solution first. If price is very important to you, select the cheapest solution from among the best , not the best from the cheapest.
Assessing the proposed solution is fully up to you. Only some fundamental advice can be offered here. You should look to see if the solution fits your project and human resources requirements, how the financial proposal meets your budget, and so on. The only thing we can say is you should be ready to be asked for clarifications. When requirements are specified to the level www.some_site.com", no provider is able to give a concrete proposal in terms of money, people, time frame and so on. An exact proposed solution to an overly vague specification shows the provider's desire to win the contract whatever happens and does not point to professionalism or experience in the field.
Nevertheless, there are other important considerations you have to keep in mind when evaluating proposals.
- Communication protocol. First of all, the provider must demonstrate an ability to communicate and to listen to your needs. This doesn't mean that provider has to agree with everything your propose, showing all his commitment to the axiom "the customer is always right." Don't forget that the provider is assumed to be more experienced in the field and so the solution he is putting forward can differ from what you originally supposed. Don't overlook the innovations which a provider can offer at this earliest stage. Another key consideration, especially for ebusiness, is time-to-market. Standard customized solutions, when offered, can greatly reduce time-to-market. But a potential provider must show his flexibility, because provider who is rigid at this stage will definitely be inflexible at later stages.
- Proven ability to get the job done. Prior experience and innovation are key attributes of a worthy provider. You may feel that the providers does not have experience in your field. But software development providers usually define their services from skillsets of their staff. This means that they sometimes have horizontal focus, not vertical focus. Understanding whether you need a provider with vertical focus or with a horizontal focus depends on how vague your requirements are. When you clearly imagine the final result, then a provider with a horizontal focus is better. A horizontal focus is the sign of a technology-oriented company and vertical focus indicates a marketing-oriented company.
- Total stability and availability for service. You don't just hire people, you hire a company. So, examining a provider's financial strength as well as his total stability as a company is also important. Financial strength is characterized by balance sheet, cash flows, debt to equity ratio, insurance with reputable institutions. You should also look at other clients of the provider in order to understand how sound these contracts are, because contact closeout with other client impacts on total stability of the provider Current order book, the ability to change and adapt its structure, and an established recruiting system are rather important indicators of a provider's ability to weather new challenges. We also include scalability of the provider's infrastructure in the term "total stability".
- Commitment to a long-term partnership. As said before, the selection of an outsourcing partner is like entering a marriage and buyers tend to choose providers once and forever. Looking at a provider's relations with his other clients help you determine his commitment to long-term partnership. In addition, the closeness between your business cultures and business values is the measure of your compatibility.
- Established quality system. Although the role of established quality system can not be overemphasized, this point requires some comments. Sometimes executives make CMM or ISO 9000 quality certification a precondition for awarding contracts . Unfortunately, to date no Russian vendor is known to be certified according CMM and there are few ISO-certified providers. Nevertheless, almost every Russian provider has some kind of quality system. Usually an onsite visit allows you to determine whether this system makes sense and meets your requirements. Also, when sending out an RFP, you should ask for a detailed description of the company 's QA and Project Management procedures and samples of procedure documents, i.e. guidelines, checklists, etc, which will ensure that an "established quality system" is not just words.
Stage 4. Visiting the provider's premise
Onsite investigation is another important part of the selection process. The visit provides valuable information on such matters as the provider's development process and his quality system. Moreover, the visit tests the candidate provider's credibility. Visiting Russia is not a problem today. There are a number of published guides that may help to make the experience easy.
Stage 5. Selecting the provider
Once again, only very general recommendations can be given here. Every stage in the selection process, including the final one should reflect your desiderata. You should only choose the provider who meets your requirements better than others.