WHITE PAPER

Outsourced
Product
Development
by Bhoovarahan Thirumalai, Aspire Systems

O utsourcing “non-core”
activities to gain economic
advantage has become an
essential component of any
successful business strategy.
However, as an industry
matures, what constitutes its
“core activity” undergoes
change. For instance,
manufacturing was once
considered the core
competence of many
established industries...
 Table of Contents

1. Introduction......................................................................................................................................................2

2. What is Outsourced Product Development?....................................................................................................2

3. Why Outsource Product Development?...........................................................................................................3

4. How to begin Outsourcing Product Development?..........................................................................................4

5. Case Studies......................................................................................................................................................5

5. Summary...........................................................................................................................................................6

6. About Aspire.....................................................................................................................................................6

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 Outsourced Product Development

1. Introduction

Outsourcing “non-core” activities to gain economic advantage has become an essential component of any
successful business strategy. However, as an industry matures, what constitutes its “core activity” undergoes
change.

For instance, manufacturing was once considered the core competence of many established industries, from
automobiles to footwear. Today, organizations have realized that manufacturing does not enable them to
differentiate themselves in the market place, and therefore, manufacturing is widely outsourced.

Similarly, software product development is considered as a core competence of Independent Software

Vendors (ISV) today. However, the global competitive market is gradually changing the core expertise of ISVs
from product development to product management.

While the mindset that “product development is not the core competence of product companies” goes
against currently established norms, it is becoming a trend that is followed by many successful product
companies.

This white paper examines the logic behind outsourcing product development, elaborates on its benefits and
discusses the other aspects to be considered when outsourcing product development.

2. What is Outsourced Product Development?

Outsourced Product Development, as the name implies, is the outsourcing of specific activities or all activities
related to the development and maintenance of a product. OPD enables product companies to tap the
product-building expertise and global talent pools available with OPD providers.

While outsourcing product development may seem conceptually similar to outsourcing the development of
software applications, there are significant differences. These differences are primarily in the areas of skill-
sets, standards and execution expertise required for product development. Detailing the differences between
product and applications development is a topic that requires an independent discussion, but we will attempt
here, to put in perspective,the primary differentiators.

The major differentiating factors of OPD can be classified into:

A. Technology related

An application is “custom-built" for a single organization or set of users, but a product is "generic" and is
built to cater to the demands of a wide variety of users. However, each user needs to be able to use the
product in a way that suits him/her. Hence, a product must be customizable, scalable, robust, well
architected, and must have a solid framework on which one can build new features.

In the generic IT services business, it is enough if the functionality requirements of the application are met.
This is not the case when building products. A software product goes through several versions and several
languages and as a result, many versions co-exist. If under-the-hood engineering of the product is not
strong, maintenance of the product could turn out to be a nightmare.

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 Outsourced Product Development

B. People related

Building a "well-engineered" product requires a higher level of skills than what it takes to build an
application. Typically, customers for application development look at and test the screens of the
application to know whether it works. Whereas, product customers look into the code base to see how
it meets the attributes of scalability, robustness, customizability and architecture adherence. Hence, the
engineers working on product development need to have a much higher level of skills when compared
to application developers.

C. Process related

In an applications scenario, good documentation, proper configuration management, strict adherence to

the design, architecture and coding standards are important, but not mandatory. In software product
development, this discipline is "mission-critical", to say the least. How else can a software product be
packaged differently to address different needs of the market or scale between a 10-user installation and a
10,000-user installation?

Due to the significant differences outlined above, outsourcing product development is not the same as
outsourcing the development of software applications and both require different approaches.

3. Why Outsource Product Development?

With the software market becoming more competitive and mature, product companies are under immense
pressure to periodically release new versions in the market. In a global competitive market, ISV's efforts to
achieve better time-to-market is challenged by:

Shorter product life cycles

?
Technological obsolescence
?
Rapid advances in design and engineering technologies, and
?
Increasing design and engineering complexity
?

Moreover, product development is an intensive activity that requires a lot of attention. If top management's
attention is spent on the in-depth details of product development, then market analysis and marketing
activities that directly impact the success of the company will not get top priority. In the long run, this will
affect the profitability of the company.

If a product company is able to crash its product roadmap and release new versions earlier than planned, it
could gain significantly in terms of market share and revenues. However, budgets for product development
are fixed and resources are finite. So, the only way ISVs can crash their product roadmap and release newer
versions faster is to outsource product development activities to an OPD provider.

By outsourcing product development, companies are able to:

Acquire expertise
?
Build additional resources
?
Minimize development costs
?
Crash product roadmaps, and above all
?
Boost bottom lines by focusing on new competencies.
?

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4. How to begin outsourcing product development?

Product development is still viewed as a core competence of ISVs and any effort at outsourcing this activity is
likely to face some resistance. Moreover, questions relating to IP security are at the heart of any outsourcing
decisions. Consequently, a step-by-step approach is the best-recommended course of action to begin
outsourcing product development.

Peripheral Modular
Development Development

OPD EMERGING
MODELS

Full fledged
Co-Development Development

There are many activities involved in a typical product lifecycle, including product development, product
reengineering and migration, product maintenance, product implementation, and product testing. A product
company can outsource one or more of these activities to start with or it can outsource the entire gamut of
activities related to a particular product.

Larger product companies can begin with outsourcing just one or two of these activities. Once they feel
confident with the delivery capabilities of their OPD partner, they could expand the relationship further.
Startup companies, on the other hand, will be more open to outsourcing all the above activities, so that they
can focus their energies on defining and marketing the product, as opposed to building an engineering team.

Emerging Models of Product Development

Peripheral Development: In this model, ISVs outsource certain activities of the product lifecycle, such as
testing, documentation or product implementation, but not the core development activity itself. This helps
ISVs gain comfort with the OPD provider's capabilities and also educates the provider on the specialized
domain knowledge related to the product. One key advantage of this model is that the source code of the
product does not have to be shared to begin working together.

Modular Development: In this model, ISVs outsource the development of bits and pieces of the product,
which are primarily considered non-core. Product integration skills to put together these modules become a
key aspect for both the ISV and the OPD provider.

Co-Development: This is a model where the ISV's and the OPD provider's team work in a coordinated manner
to develop the product. The OPD provider's team is considered an extension of the ISV's team and has all the
rights and privileges to work on the code base.

Full Fledged Development: The OPD provider takes complete responsibility for one or more of the ISV's

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products. This helps the ISV focus on ideating next-generation products.

5. Case Studies

The following case studies illustrate how product companies at different levels are moving up the value curve
by tapping the OPD model.

Case Study I

An e-procurement software provider for the pharmaceutical and higher education markets wanted to find
ways to speed up their product development efforts. With this objective, they outsourced the creation of one
module on a trial basis to an OPD provider.

When this assignment proved successful, the ISV rapidly ramped up the team with the OPD provider to 20
people, with most of them operating at an offshore location to take advantage of the cost differentials. The
ISV's team and the outsourced team worked in a "co-development" model, sharing the development work on
the 10-12 modules that were required for every release.

The long-term relationship with the OPD provider has existed for over 3 years and has helped the ISV:

Release 3-4 versions of their product every year (on a hosted model)
?
Crash the product roadmap and include features earlier than planned, leading to faster customer
?
acquisition- Focus more on product management, as opposed to dealing with the overheads of
managing a team - Achieve higher R&D productivity for every development dollar spent

Case Study II

A startup ISV had a vision to change the way the organic food markets operate in the US. Through an
innovative software solution, they wanted to increase the reach and reduce the cost of organic food products
in the US.

As a strategy, the ISV decided to outsource the complete product development effort to an OPD provider and
focus on the product vision, product management and customer development. This decision was taken
primarily because the entrepreneur behind this venture clearly recognized that partnering with a company
that already has product development experience would be a faster and less expensive way to build the
product, as opposed to building an engineering team in-house.

The product, which has gone through several iterations and beta releases, is currently being scaled up to a
large volume of users. The first version of the product has been developed at a cost of around $500,000, while
it would have taken more than four times this amount if the development had been done fully in-house. The
cost savings were partly due to the ability of the provider to tap lower cost development locations The
companies continue to work together on future releases to enhance the core product functionality and build
additional features that can open up new revenue streams.

Case Study III

A leading mainframe integration software provider wanted to automate testing of the various database
drivers they had created. While the drivers had been created over many years by a highly skilled team of
mainframe engineers, an adequate testing process was not in place and it took 3 weeks to do just one round
of "ad-hoc" testing of the drivers in different environments.

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 Outsourced Product Development

To solve this problem, the ISV decided to work with an OPD provider with whom they could potentially scale
the relationship into core development as well. The testing engagement served as an entry point for the OPD
provider to understand the technology and also for the ISV to develop a level of comfort with the provider.

After more than a year of intensive test-automation effort with WinRunner, a complete and comprehensive
test cycle on the drivers now takes just 2 days. The ISV has started tapping some development services from
the OPD provider as well, moving the relationship to a different sphere.

Summary
OPD, as a business model, has gained acceptance as an extended development option for product
companies. It represents a relatively low-risk, high benefit opportunity for product companies, but
careful planning and monitoring of the relationship with the OPD provider at all stages is a must.

However, ISVs that see OPD as a short-term cost-cutting opportunity may get disappointed with the
results. To derive true business benefits, they must make OPD an integral element of their overall
business strategy.

ABOUT ASPIRE SYSTEMS

Aspire Systems is an Outsourced Product Development firm committed to helping our customers build
software products better and faster. We work with some of the world’s most innovative Independent
Software Vendors and software-enabled businesses, ranging from start-ups to established industry leaders,
transforming the way software is built.

Aspire provides complete product lifecycle services, ranging from new product development and product
advancement to product migration, re-engineering, sustenance and support. Our product development teams
are spread between our Global Innovation Center in Chennai, India and offices in the United States.

Aspire Systems India Private Limited

Plot No 1/D-1, SIPCOT IT PARK, Siruseri, Tamil Nadu - 603 103
Tel : +91-44-67404000. Fax: +91-44-67404234
E-mail : info@aspiresys.com
Web: www.aspiresys.com

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