Dedicated Development Center versus Client Own Team

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) July 8, 2010 --

Many recent IT market studies, including those commissioned by Gartner, IT Sourcing Europe, PMR Research etc, confirm the fact that a growing number of Western European and Nordic businesses are currently seeking ways to benefit from different options of software development sourcing. Thus, today’s companies are much more eager to engage in nearshore or offshore outsourcing partnerships and are offered a wide array of business models to choose from. In the recent past outsourcing companies mostly partnered with their offshore vendors (as outsourced nearshore development is a relatively new trend gaining popularity only nowadays) via project-based and dedicated development center models. While the first has always been considered as the model suiting best for short-term outsourcing benefits, the latter became famous and over-evangelized in the media as a long-term value generator. However, my thorough assessment of diverse business models and their factual capability to bring long-term value to the buyers of the outsourced software/web development services does not support the ballyhoo around DDC. Instead, it supports another less popular theory that DDC model is the major contributor to the failure of most of the outsourced projects. Further in this article I’ll try to explain how it happens and describe a true win-win model that has great potential to drive today’s software development outsourcing to the next stage of maturity and, as a result, to add flexibility, innovation and quality to the outsourced operations.

In the outsourcing context, Dedicated Development Center (DDC) is referred to as having full-time cost-effective developer resources allocated to work exclusively on client’s projects for a prolonged period of time, i.e. as an extension of client’s organization in the nearshore or offshore country. IT services suppliers who want to partner with their clients via DDC are ideally supposed to provide all of the necessary resources, facilities and project teams that correspond to client’s business needs, culture, mission, objectives etc. The client is ideally supposed to pay a fixed price for the received services. The key word here is ideally. As a former marketing associate I know the kitchen of DDC at my fingertips. And the reality is far from the ideality. Normally, within DDC the IT vendor provides the client with its on-staff developers and promises their full-time exclusive engagement in the client’s project. But because most vendors want to save costs and earn as much as possible from their clients, they prefer taking the most from their on-staff developers rather than hiring new people (who 100% match the client’s project requirements) and spending additional costs on training, orientation, taxes etc. So, what they do is using the same people on multiple clients’ projects, encouraging them to work overtime and increasing their compensation once in a while. Of course, I’m not trying to say that all of the providers practice it, but believe my experience – most do! As a result, burning the midnight oil brings more harm than value: software developers and testers work on projects while being tired and exhausted, have diffused focus due to engagement in two or more projects and tend to look for better employers and higher salaries. Such situations inevitably lead to delayed project delivery, unmet milestones and staff turnover. So, when offloading their software development projects to a third party via DDC model, clients have no idea of the actual state of affairs with their vendors. Eventually, they are surprised why the actual incurred costs of the outsourced services far exceed the contracted ones and they manage to save only 10% or less from their outsourced development. It mainly occurs because they do not know that in DDC model, in most cases, clients pay for everything, from vendor’s service fees to infrastructure improvement to project staff replacement and/or promotion to project managers’ pay increase etc.

The bad news is that no matter how thoroughly you study your DDC contract, you are almost always doomed to face the hidden costs of outsourcing and pay overheads. But the good news is that there is a much healthier alternative – a Client Own Team model. It is an innovative business model that 100% shapes the hallmarks of Outsourcing 2.0 – the next stage of outsourcing maturity characterized by agility, flexibility, innovation and sustainability. Unlike DDC, in which the client has to rely on the vendor’s project management, retention strategy and honesty, Own Team model allows the client to have 100% managerial control of every tiniest detail related to the own outsourced project.

The rest of the article is available at http://blog.itsourcing-europe.com/2010/07/07/dedicated-development-center-versus-client-own-team.aspx

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