Why do you Outsource Tech Development?

You outsource tech development for 3 reasons – 

1. Scarcity of good tech talent – It is extremely difficult to find good technologists, digital product managers, UI-UX designers, and data scientists. 
2. Cost of good tech talent – There is a multiple X difference in cost of low quality vs good quality tech talent. 
3. Attrition of good tech talent – There is a 25% to 35% attrition rate in this segment. The mere act of trying to retain and/or replace these resources is an art and science on its own.

In addition, you bring in external tech partners to get a fresh outside perspective for innovative solutions to existing business problems. This is critical for large companies whose internal tech teams are set in a fixed frame of reference developed over time.

The traditional approach to tech outsourcing that has been followed till now involves 3 steps –

1. Define the tasks and calculate man-hours for each task
2. Employ lowest cost bidders to complete the project
3. Engage post-build maintenance resources

This approach works when the scope of the digitization effort is limited to automating some known predefined tasks. The business impact of this effort is also limited by what you would have thought would work before you started on the digital transformation journey. 

Why do you need a different approach?

When you build innovative digital products with a wider vision you need to play around with various hypotheses before you get it right. This means using a lean product-building approach wherein you make some assumptions, build light prototypes to test those assumptions, and keep going through these cycles till you get it right. 

In this build-test-fail or scale cyclical approach, you can’t pre-define the scope of tasks or calculate the total number of man-days involved. Nor can you decouple the ‘build’ and ‘maintain’ phases of the product – you are always building to stay competitive in the market. E.g Linkedin, Facebook, Instagram, Minecraft, Spotify (you get the drift) – they all have big tech teams still ‘building’ the product.

However, the problem in tech innovation, especially amongst larger corporations is that their CTOs and other tech gatekeepers are often deeply entrenched in the traditional IT sourcing mindset. They have spent their entire careers writing or reviewing BRDs (Business Requirement Document), defining the scopes of projects, negotiating on headcount costs, haggling on project scope modifications, and so on. This rigid old-school approach to product building kills innovation even before the first line of code is written.  

Building innovative tech products requires a completely different mindset as compared to traditional IT outsourcing. You need an outcome-focused approach, you need tightly integrated product teams working as a single unit, and you need experienced product builders (not just code writers).

Some large companies have recognized this issue and started segregating the role of the CTO from that of a CDO (Chief Digital Officer). The CTO manages the legacy core systems of the organization while the CDO addresses the technology innovation needs of the organization. The CDO often comes from a non-traditional tech background and reports directly to the CEO. (S)he has the leeway to create new innovative solutions by bringing in external digital partners, bypassing the old way of tech partnership thinking.

The difference between the traditional IT outsourcing model and the digital product-building model can be summarized below: