The Outsourcing Advantage: Saving Money in a Down Economy

Tough economic times make many businesses think twice about spending money. Usually, the first people to get cut out of the budget when cash gets tight are the consultants. The interesting thing is that in many cases, a good outsourcing program can help companies spend less money while getting more done. This is especially true with application development projects. So the snap reaction of cutting outsourcing spending may actually cost the company more money in the long run (in lost opportunity) as well as in the short run (in project dollars).

There are several main advantages of outsourcing software development efforts. They are:

1. The development team is dedicated to the effort resulting in a shorter development timeline.
2. The project team members can be much cheaper than the more expensive in-house staff.
3. The development costs can be capitalized if the developers go away at the end of the project.
4. Key staff can focus on growing the business while the project moves forward.

The fact of the matter is that even with all the productivity gains in recent years employees can still only be counted on to be productive for around 50% of their day. The remaining half of the average worker’s day is filled with answering emails, sitting in meetings, eating lunch, talking in the hallway or on the phone, surfing the internet, etc. That combined with the competing priorities associated with having multiple projects on their plate (not to mention keeping things moving for existing clients) means that they can simply not compete with a standalone, dedicated project team.

A blended project team that uses a combination of U.S. and offshore resources give businesses the advantage of a locally based senior consultant to help them with their project while also allowing them to enjoy cost savings associated with an offshore team (without the headaches). This approach can save companies up to 120% on a well executed project. These savings are based on the average costs for a 90-day application development project for my company (see http://www.ifconnect.com/) as compared to the wages over the same period for workers in similar positions in the Boston, MA market as reported by the U.S. Department of Labor’s Bureau of Labor Statistics.

One effect of outsourcing that is often overlooked by managers is the impact of the opportunity costs associated with not outsourcing. Because a project can be completed more quickly and internal staff can remain focused on key initiatives and running the business, companies can get more done quicker. The net effect can be higher revenues in the period and the ability to bring a product to market more quickly. Both of these conditions can serve to reduce business risk and help prop up revenues under certain conditions.

In addition, as long as the software being developed provides the company with some future benefit then the development costs can be capitalized. The main advantage of capitalizing your software development effort (as opposed to expensing it) is that it aligns your investment dollars more appropriately with the future revenue you expect to reap from making the investment. This allows you to protect the profitability image of your company in the current period, which can help with debt financing, etc. If you do not expect to realize a financial benefit from the development effort (as reflected in new or increased revenues or real dollar savings) then you should not capitalize. Your accounting professional can help you determine the eligibility of your project.

If you already outsource then you should think twice before cutting back. If you don’t outsource already, then you should consider how outsourcing might help you reduce your business risk and get more done for your budget dollars. After all, getting things done is more critical now than ever.

Online Collaboration: Why You Should Consider It If You Haven’t Already

The sharp increase in the number of companies offering “cloud computing” or “software as a service” solutions has increased dramatically in recent years. This, naturally, has resulted in a sharp increase in the number of companies that have discovered online collaboration as a new way to do business. Interestingly, there are still many companies that continue to operate business as usual without taking advantage of some of the cost effective products that are now readily available.

There are a myriad of good reasons to collaborate online with your employees and customers. If done properly, this can create a closed “community” where ideas are exchanged in a secure manner in order to move a business idea or product forward. Here are a few other good basic reasons to collaborate:

Transparency – By moving operations into a virtual environment management has better visibility into internal processes and client interactions. Searching across project documents can improve efficiency and ensure that expensive resources are being used wisely.

Security – Many businesses ignore the fallibility of email by using it as a rudimentary workflow platform. Using your inbox as a work queue is an inefficient workflow method at best. Transferring sensitive financial data via email opens your business up to considerable risk from unsavory characters (accountants take note!).

Business Continuity – By ensuring that critical data and documents are centrally located on an off-site server (via a third party solution) companies will ensure that their business information is well protected from catastrophic system failures and employee shenanigans.

Relationship Management – Using a collaboration platform wisely can help companies get closer to their clients. Clients can access the information they need when the need it through various search and data visualization tools. Key product managers can create virtual focus groups to ensure that product features are being fully utilized. User manuals and other useful information can be easily accessed by customers. This can all result in fewer client services calls, reduced support costs and happier clients.

Communication – Many applications available in the market today also include the ability to assign tasks and proactively push important messages to members of your network. This type of dynamic communication around projects can ensure that project risk is mitigated to the greatest degree possible and that stakeholders’ expectations are being appropriately managed.

Cost – In many cases, a cloud computing model will save you money. In the end, you are sharing the cost of sophisticated software with other subscribers. If you had to purchase software with the same functionality it would be cost prohibitive both from a licensing perspective and from a maintenance perspective.

Infrastructure – If you are a start up, a few well placed subscriptions can have the effect of quickly building out all the infrastructure you will need to support your new venture. This is not only cost effective, but also an expedient way to move forward while freeing you up to focus on growing your business.

Despite the benefits of this type of solution, managers should make sure that they still maintain some sort of platform independence. For example, make sure that any solution you choose allows you to export data into an easily digestible format in case you want to switch to another provider at some point. Otherwise you might find yourself married to a third party simply because they own your data. Try to look for one that will allow you to integrate with other standard applications, like MS Outlook or QuickBooks. These providers realize that they can’t be all things to all people and expect that their users will want to streamline their activities further by blending functionality from multiple platforms. The best solutions are not threatened by this type of third party integration (they encourage it).

Many of you reading this are already using some sort of collaboration tool. But if you’re not, then you should seriously look into it before you get left behind.