Tuesday, February 13, 2007

Fixed Price vs. ODC

Outsourcing and offshoring of software development is gaining momentum every day. Most offshore vendors are embracing what's called the ODC model, which stands for Offshore Delivery Center. In this model, clients essentially rent resources on a monthly basis, largely manage the deliverables themselves, with accountability remaining primarily on the client. The vendor is only accountable for supplying "competent" and "productive" resources. The client must measure that competency and productivity, and if unsatisfied simply requests new/better resources.

Will this model continue to be the future of offshore outsourcing? Are clients satisfied with managing the risk themselves, even when key resources are often distributed around the globe - sometimes thousands of miles away? Do companies need to enhance their own skill sets to get adept at managing global outsourced resources? Or, is another model percolating?

There are a number of new companies springing up that are essentially adopting a more general contractor model. They work/source to a number of outsourcing firms, manage the client/project, and take on accountability themselves. Their expertise is that they know exactly how to manage global software development.

Is a shift underway? Doesn't specialization usually win over the day. Might the offshore outsourced software development model evolve into a 3-party relationship, where a company engages an onshore project management firm that specializes in global software development management. That firm then applies its expertise to compile a spec that meets the needs of offshore resources. It sends it out the design, development and testing aspect of the spec for bid to a number of outsourced providers, and then manages and is accountable for a fixed price deliverable.

I think this model is likely to gain momentum. It is all about specialization. Most offshore outsourcing firms don't want to be accountable, and most customers want them to be. This clash provides a real opportunity for the emergence of a new type of firm. Maybe onshore IT Services firms will see this as an opportunity to leverage their customer relationships, while taking advantage of the commoditization of software development services by tapping into a cadre of offshore engineering suppliers. Thoughts?

1 comment:

Anonymous said...

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