The pace at which companies need to bring their products to market today requires a newer model than the traditional outsourced software development on a time-and-materials basis. "It's taking the thinking around outsourcing up a couple of notches," says Hari Haran, president of Persistent Systems. "Outsourcing is evolving to more creative and strategic partnering models."
Haran explains an example of this kind of thinking and the types of product development services that Persistent Systems performs for its customers. "We leverage our knowledge of our customer's products and product strategy to extend the product functionalities to reach customers in new markets. We take on risk to build product enablers and build bridges to other products or even bridge from our client's products to other products in the ecosystem to make even greater products."
He believes the model he describes is similar to what the contract manufacturing model for the hardware business was 20 years ago. In this model, the outsourcer needs to be a true partner, must understand the client's ecosystem, and must know not only how to put a product together but also how to disintegrate it and create enablers for a new direction. It's a focus on revenue generation rather than cost savings.
"We are consulting strategists with our customers," says Haran. "When a company thinks in isolation, its P&L is a constraint for investing in product development." However, with Persistent Systems as an outsourcing partner, a company's P&L expands to a co-investment model, its market capabilities increase, and its risks go down.
New model requires changes in thinking and behavior
Persistent Systems is no novice in the product development space. For the past 19 years, its customers include such giants as IBM, Microsoft, and Oracle -- and an innovative startup, eMerge Health Solutions, a solutions provider to the global healthcare market.
Haran further explains the thought process for organizations that are leveraging this new model. "Our customer organizations need flexibility in their thinking. They can't continue thinking with boxes created around sales, marketing, and finance according to how they have always done things. They must be open to thinking about what's possible and how to open up areas of new types of revenue thus giving them profitable access to new sources of revenues."
Bharat Saini, co-founder and chief technology officer of eMerge Health Solutions, agrees. In 2006 his company outsourced to Persistent Systems the development of an innovative, robust, enterprise-grade electronic medical records (EMR) system for use during operative procedures.
eMerge's product is an extension of the usual types of EMRs where doctors input medical data after performing a patient procedure. In the case of an operation, doctors normally have to remember what they did in surgery perhaps hours earlier and input that information later into an EMR system. With the eMergeEndo, doctors and nurses dictate voice commands into wireless headsets indicating operative actions in real time; this information integrates with data imported from medical devices into the patient's electronic chart. It allows doctors and their support staff to create, store, and retrieve accurate and up-to-the-minute electronic medical records.
The challenge was to accelerate the time to market with the innovative new product but, at the same time, limit the development cost. "We needed to get to market within one year from the time of idea generation," says Saini. Research revealed that eMerge couldn't achieve that objective with most outsourcers in the United States or India without spending a great deal more money than in the arrangement with Persistent Systems, and even then it might not have made it to market even in two years.
Saini worked at General Electric for a number of years and has extensive experience in outsourcing strategies with on-site, nearshore, and offshore providers (companies in United States, Mexico, and India, for example). He describes the usual approach to offshore product development as "project driven and not focused on the bigger picture."
Achieving an accelerated go-to-market date with an outsourcing service provider depends heavily on the quality of the provider's people, a deep understanding of the product needs, the ability to be nimble and cost-effective, as well as the ability to see the bigger picture.
Dr. Pradeep Bekal, an eMerge founding partner, says his company was open to the possibilities of working collaboratively with Persistent in the new model for product development, but he admits that he had reservations in the beginning as to whether it was doable to get to the market quickly and yet limit development costs. He says that the confidence level of his partners (doctors and business people) that it was possible to achieve both objectives went up after initial discussions with Persistent Systems' executives.
"It was clear that they are in the forefront of innovation in product development. They hire only scientists -- and only the best. And they have a high level of commitment. They are providing services, but they have a genuine sense of ownership and partnering over their work." Dr. Bekal adds that the extremely low attrition of Persistent Systems' employees was another key to success.
They successfully developed and deployed the new EMR product, and Persistent Systems now maintains and supports it. "It's definitely doable to build a product end to end with few resources in the United States, less capital, and control of the work remotely," says Dr. Bekal. "It's been a great experience working together so far." They're now looking at other initiatives they could achieve together.
The trust factor
Trust is the primary success factor in thinking and behaving together in the new model that Haran describes. "And trust comes from the proof in the pudding," he says, "whether it's our client observing us taking risks in small, incremental measures or whether we are constantly bringing proactive ideas or whether the agreement includes a risk-reward or revenue-sharing strategy. "
Technology expertise does not limit the possibilities of new product development in this co-development model. Haran says that a lack of a free flow of open, honest communication is the major inhibitor, as it's foundational to building trust. He warns that relationships lacking this type of information flow will experience problems midway through the product development.
"The more knowledge that companies share, facilitating our thinking and strategizing together, the higher value we can achieve," says Anil Nair, vice president of Technology & Solutions at Persistent Systems Inc. Without the ability to seed the team with knowledge and build on free-flowing, honest information, we would be talking in isolation and only about technology."
Intellectual property concerns are not an issue in this model, according to Persistent Systems' president. The fundamentals of this model require that the outsourcer is flexible about the ownership and arrangements in the IP or patents. "We are very pure about this aspect. Otherwise, it would pollute the trust that is an essential foundation for this type of outsourcing arrangement," says Haran.
This model requires thinking and behaving non-traditionally. Haran says that product-development organizations are used to this model but are not used to applying it in an outsourcing context.
Most of Persistent Systems' resources are currently located in India, but the company is evolving its service delivery capabilities to a global model over the next few months in order to locate resources close to customers. This will better facilitate trust and relationship building. "It's important to walk the corridors, be involved in team meetings, and strategize together," Haran explains.
He concludes, "To facilitate the pace of product development and achieve a competitive advantage, this new outsourcing model allows us to become an extension of our customer's product organization. That way, we can think together about whether we are solving the right problem and strategize on the best way to solve it."
Lessons from the Outsourcing Journal:
- Outsourcing is evolving to more creative and strategic partnering models. Where accelerated time to market in outsourced product development is the objective, a risk-reward model incentivizes the service provider to take on more risk in ensuring the companies achieve their agreed goals.
- Companies considering adopting such a new outsourcing model for product development must first change their thinking. They can't think with boxes created around sales, marketing, and finance according to how they always did things. They must be open to thinking about what's possible and how to open up areas of new types and sources of revenue.
- A lack of free flow of open, honest communication is the major inhibitor to successful use of new types of outsourcing models, as communication is foundational to building trust. The more knowledge that companies share with the outsourcer, facilitating their thinking and strategizing together, the higher value they can achieve. Relationships lacking this type of information flow will experience problems midway through the product development.