Internet/Web software product engineering is becoming all pervasive as businesses continue to embrace digital and last mile experience for their customers. Getting a product ready and putting up on the Web or App Store is just beginning of the journey. There is a pressing need for continuous upgrades and enhancements to keep your products relevant and competitive. This would essentially mean that we need to continuously deploy and engage with product engineering teams. With rising cost of quality software engineers, budget optimization is becoming is an important activity to meet continuous software product engineering, product maintenance support and enhancements. In the product engineering and support journey another complexity comes in on account of cyclical stages of growth and slowdowns.

This write up attempts to address some of the issues mentioned in the above paragraph and various options product companies may have available to them related to in-sourcing, outsourcing, and offshoring with advantages and disadvantages of various models. This write up also talks about several business engagement models like Time & Material, Fixed-Price, and Hybrid models.

Business driven product management essentially calls for modulating product development budgets. There are generally cyclical stages in product development. In a growth stage typically product business is picking up, and there is more money available for product engineering. In this growth stage, generally additional teams are hired in the product engineering and marketing teams and mood is typically upbeat, budgets are not only liberal but have tendency to increase.

If product business is short of planned projections and not doing so well, the product engineering budgets are likely to be negatively impacted. This Slowdown/ Consolidation stage could mean budgets are under pressure and teams are being rationalized reduced and overall mood is somber or low.

In product development, launch and maintenance journeys these cycles are pretty much like riding sometimes uphill on the mountains and then hitting valleys. How do we prepare ourselves for these uncertain project peaks and valleys?

Hiring models of in-sourcing, outsourcing and offshoring and their permutations and combinations may have an interesting way to address this complex challenge of product engineering budgets optimization.

In-Sourcing, Outsourcing, Offshoring

In-sourcing is when an organization engages/ hires professionals internally to accomplish desired tasks and activities. In-sourcing can be accomplished by either hiring full time employees, or contract workers who work directly under project management control of the organization.

Outsourcing is when an organization engages another external organization or an external contractor to execute a piece of work, module or project. Project management in case of outsourcing may or may not be outsourced.

This would be a good opportunity to visit terms on-shore or off-shore. When a job gets executed by an organization within the same country or region it would be termed on-site or on-shore. When the same work gets executed outside the country or region then it may be called off-shore.

In-sourcing can be either on-site/on-shore or off-shore or both. For example GE can in-source employees at their headquarters and/or at GE’s own offshore locations in Asia or anywhere else in the world.

Similarly, outsourcing can be done either on-site or off-shore or both. An American corporation like GE could outsource to Accenture in the US or to Accenture or some other organization in Asia.

Typical Distribution of On-site vs Off-shore Tasks

Onsite tasks:

• Initial Study
• Requirement Analysis
• Project Management Planning
• High-Level Design, Architecture
• Client Acceptance Testing
•  Knowledge Transfer

Off-shore Tasks

• Detailed Design
• Milestone-based Development – Agile Methodology
• Integration Testing
• Application Management
• Application maintenance & Support

Managing Product Engineering Cyclical Stages- Growth, Slowdown, or Maintenance

Outsourcing can come handy in situations, where in house competencies/skills do not exist or it may be less rewarding to maintain in-house competencies skills because of limited or sporadic road-map of these competencies in specific areas. There are situations where business or product development asks for additional product features enhancements that need to be accomplished in a short time and outsourcing can be helpful in these situations.

Core Teams and Flex Teams

Core team is generally a product engineering team that has a medium to long term view of the product and the team remains associated with the product. This could mean time period of at least a year or more. The team members develop in-depth understanding of the product. On the other side flex teams join projects with a short-term view for example may be for a period of a quarter or two quarters.

How we structure a project team with components of in-sourcing out sourcing, core and flex teams can be an effective tool to modulate team capacity.

In a slowdown/consolidation stage, organization may need only internal 5% reduction of team to get overall 40% reduction in capacity because remaining capacity reduction comes from partners. Similarly, when things are going great and product development cycle is in a growth stage, only 5% internal capacity increase can yield 55% capacity increase from slow-down/ consolidation stage as additional capacity is coming from partners’ organization and majority 35% component is coming from flex team of the partner which has a limited time 3-6-9 or 12 months commitment.

Other benefits of Leveraged Capacity Modulation Model

1. Higher productivity per (in-sourced) employee.
2. Risk management both for good times and bad times.
3. Increased capacity at a short notice.
4. Shared risks and rewards with partners.
5. Maintain core competencies and no need to maintain peripheral competencies.
6. No commitment for sun-set competencies or competencies with a limited roadmap.

Engagement Models- Time & Material, Fixed Price, Hybrid

Time & Material (T&M) engagement model is when contractors are paid based on time they spend on the project. Payments are done typically on hourly or daily rates. T&M models are suitable when product specifications are evolving and not fully ascertained or fixed. However, when product specifications are completely final, Fixed Price engagement model can be considered more appropriate. In the fixed-price model, the organization can put a cap on the maximum price it is going to pay to vendor against a well written down specs and associated deliverables from the vendor.

There are situations where an outsourced team is engaged in a T&M model, but some components of the product are done in fixed price model, therefore making the engagement a hybrid of Fixed Price and T&M model.

Innovations in Engagement models – Based on Outcome or Success

There are some innovations emerging in the product engineering engagement models with vendors. Outcome or success based models are structured in a manner where some payments are linked to success or outcome of the product.

Essentially this model has shared risks and shared rewards. For example, a vendor may agree to 85% of the payments towards product engineering budget. Remaining payments can be linked with success/outcome of the product. If product does well, vendor may get 15%-20%-25% additional payments and on the other hand not meeting desired outcomes may mean getting lesser payments 10%-5%-or no additional payments at all.

Vir Bhanu is an entrepreneur and CEO of Suventure – suventure.in.