By Gary Prioste-CEO Menlo Technologies

IT outsourcing then and now

IT and software engineering outsourcing has been in place for over a decade, and has evolved considerably since its beginnings. A number of changes have contributed to the evolution, including:

  • Better tools, infrastructure and communications to support global work sharing
  • Experience gained from early failures, forcing organizations to modify work processes, procedures and the distribution of tasks between geographies
  • Elevation of technical, consulting and project management skills in various locations
  • Access to a broader range of geographies, with unique cultures and technical specializations in different locations.
  • Many new technologies that can be leveraged for business value and to meet customer demand.

As a result of the above characteristics, outsourcing has evolved in many ways. Five key elements seem predominant:

1) Fewer barriers for collaboration and communication

Historically, communication has often been a problem for teams of professionals who are working on a highly collaborative type of IT project. It was difficult to share documents and information, plus the dramatic time differences could make communication a real issue.
Today, with the availability of free messaging and video conferencing, plus collaboration tools like enterprise social networks and robust file sharing platforms these efficiency problems simply aren’t an issue anymore. Collaboration tools enable teams to work closely together on projects while leveraging technology to help them communicate directly and stay aligned at a fraction of the cost.

2) Modification of work processes

In 2000 I embarked on my first outsourcing initiative with an IT Services firm without understanding the level of commitment required to put in place detailed process and communications.   Throwing requirements “over the wall” and expecting superior results was just not realistic.   The results we achieved were far below what we expected, and we basically had to start over.
Companies who are successful in engaging an outsourcing partner pay considerable attention to establishing and continually enhancing work processes, strong communication and quality reviews to measure the productivity and overall success of their outsourcing relationship. Moreover, outsourcing firms have become more sophisticated in their engagement processes, especially during the initial ramp up phase of engagement and knowledge transfer.
Finally, companies who have achieved success in outsourcing pay careful attention to establishing a well defined strategy of work distribution. They need to determine:

  • what work should be done on-site by company and outsourcing partners
  • what work should be done onshore
  • what work can be done successfully offshore.

Companies also need to ensure that work coordination between the members of the team is well defined and understood by all.

3) A change in perspective – from cheap to productive

In the early days of outsourcing, organizations were lured by the promise of considerable cost savings from cheap offshore resources. Unfortunately, many of them found that poor productivity and high communication and management overhead severely eroded expected gains.
However, both clients and outsourcing firms have learned from these early failures and have adopted staffing models, including part on-site/onshore and part offshore, and processes to avoid the early failures and to reduce the client overheads. More outsourcing firms provide complete project and team ownership, with fixed price deliverables based services, reducing greatly the client’s risk.
Clients have learned that their best value is usually not with the lowest cost provider and are willing to pay somewhat more for a self-sufficient provider.

4) New technologies and broader requirements

There has been an explosion of new technologies and customer behaviors as a result of the proliferation of internet access, mobile technologies, social networking and cloud computing. As a result, both product companies and IT organizations must manage their legacy systems, increase application integration and build products and applications for the new technologies.
Given the limited supply of technical resources in any given location, organizations are driven to look globally for resources with skill and experience in both established and new technologies. Selecting the right outsourcing partners enables them to meet the application demand and also the flexibility to increase or decrease resources quickly to meet demand.

5) The emergence of outcome-based engagements

Since IT solutions are increasingly in support of direct customer interaction, businesses are not just looking at technology to play a supporting role, but to become a business driver and to deliver measurable business results. As a result, businesses are looking to outcome-based models of outsourcing partnership, where value is driven from measuring business impacts such as revenue generation, market penetration and resource optimization. Clients are asking for their outsourcing partner to share in the risks and rewards with outcome based pricing. They are also seeking rewards or penalties for early or late system delivery.


Gary Prioste has over 25 years of experience building and operating technology organizations. He is the founder of three successful software and technology services companies, including Localize Technologies, acquired by Welocalize in August of 2007. Prior to Localize, Gary founded and served as CEO for Servinet, a software outsourcing company based in San Francisco that catered to financial services and technology companies.