In 2001 I came across an entry in the Times Fast Track 100 for a London based event management company that had started making inroads into web applications and software projects, was growing fast but struggling to keeps its development costs in control.
Having made contact and spent a good part of an afternoon with their MD their Achilles heel (well wounded and bleeding) was pretty evident and much to my surprise ought to have been to the company's CFO and MD too.
The company had a great brand and reputation in the event management sector that enabled them to win significant tech projects even though their tech wasn't their strength; delivery was bleeding them dry. There was very little in-house technical know how and every tech project they were engaged in was being delivered by contractors whose day rates were unsustainable, their internal project management capabilities for managing software projects were pretty thin and were supplemented by even more contractors.
My timing for getting in touch with them worked out to be quite fortunate for they had just won a new bunch of contracts and their capacity to house any more contractors was maxed out, in fact the company was thinking of leasing out more space to house a growing army of contractors.
It was a simple case of tactical software outsourcing on an on-demand basis, selecting the best outsourced software services supplier based on the requirements of each project to be delivered. The mix of domains was pretty interesting, the company had managed to get a foot hold in multiple verticals from automotive, industrial to healthcare; they had managed to do this through their core business of event management and their very impressive rolodex and strength of relationships. They had successfully pitched cross sales in areas they did not have any expertise to deliver and were pulling at all and every string to deliver!
Their MD was very eager to retain project management, it took some convincing to highlight the lack of necessary skills and that they were better placed to program manage leaving the project management of software projects to people with relevant experience. Project managing event builds and conferences is very different to project managing Agile software delivery, though some skills are interchangeable but the experience is not, and smooth operations require a mix of both; relevant skills and relevant experience.
Having pitched and won I found myself and my team to be in a fortunate and an unfortunate position with this client; they drowned us with projects old and new, some needing parachutes as of yesterday others needing scoping with only days to deliver estimates to their end clients. For them my team and me were the bullets and the gun itself! and we did not let them down. For us it became a test of scalability, for me it became a test of leadership and disruption!
The challenge was not so much delivery but maintaining boundaries, the client wanted to white label every supplier's service as their own and present themselves as the one stop shop for their clientele. I put my vetted software service providers to good use, picked a number of suppliers with pure offshore facilities, transfer of knowledge was neither a desire or need, as far as their board and PMO was exclusively focused on economical delivery, how it gets done was an after thought for the board.
Having resolved their delivery issues within budgets and timelines, having cleared up their projects backlog I sat the stakeholders down to discuss their internal process, skills and scalability issues, those were early days and the workshop got hijacked by the stakeholders who'd tasted blood and the only thing they wanted was cheaper and faster delivery... not 'good value for money' but 'cheaper' (their exact words if I can recall were along the lines of '...find us cheap outsourcing partners you can manage for us'.
With explicit instructions to find the cheapest offshore service providers whilst guaranteeing both deadlines and quality, our role was scaled down to brokering! No amount of convincing could get them to understand that they did not posses the relevant skills in-house to manage Agile software projects and the simple fact that if you pay peanuts you get nothing other than monkeys was entirely lost on them. Since I would not find them the cheapest provider they took that job on to themselves and sourced a 'cheap and cheerful' service provider and instructed me and my team to manage them. When reason failed and it was apparent the only thing that mattered was cost at the expense of innovation, quality and value I threw in the towel and walked.
They went out and hired another bunch of consultants to manage their suppliers and hopped from one 'cheap and cheerful' service provider to another and after a disastrous few months; delayed deliverables, significant overspend on budgets and clients up in arms I was called back and asked to take on the the unenviable task of rescuing close to a dozen projects across multiple technology stacks. My team and I stepped up to the challenge, rescued a few of their projects and having done so walked away for good.
Where stakeholders and sponsors can not differentiate between 'good value for money' and 'cheap services' it is best to stay well clear of that ball park. My team and I managed and delivered over 20 projects ranging from intranets builds to data crunching web based applications to complete software products for their end clients, in automotive, manufacturing, healthcare and pharmaceutical verticals. On the supply side I started with three separate suppliers on various projects and over time cut that back to two suppliers both of whom were based offshore with no onshore presence. Each supplier was aware of the nature of this client's off shoring needs; tactical and on an on-demand basis which kept everyone's expectations in check.
When the machinery was oiled and performing as desired their management had a brain wave! if they could squeeze the off shore suppliers, pay them peanuts, replace skilled and tooled project managers with comparatively inexperienced in-house resources they would make a killing on their margins. The only thing killed was their brand reputation and their business.
It is impossible to source, manage and pointless to approach any potential software services supplier worth their salt if the sole objective is increasing margins by squeezing the supplier's rates. Software service providers onshore or offshore know their worth, their capability and the demand for their services and those who do allow clients to squeeze their rates and pay them peanuts will deliver nothing but monkeys.
There is plenty of opportunity to earn healthy margins but the way to go about it is not to squeeze your suppliers to the point where the only ones willing to work with you are those who follow no standards, have no desire to maintain quality outputs and are only in for the season.
For example my own offshore development center which (as at Nov 2010) has over six years of domain experience for talent management, learning management, workforce planning, asset management and knowledge management applications within the healthcare vertical can command higher rates than any offshore development center that does not posses the same depth of domain expertise in this vertical. The value this specific offshore development team adds to any project in this space is a deep understanding of the domain, enabling them to take apart and add to the clients ideas and concepts and deliver a robust and stable product in record time... the point is you can maximize your experience, skill and your ability to apply it for clients; to negotiate higher rates. From a client's perspective it is acceptable if it improves their return on investment by enabling them to take products to market faster, it is as simple as that.
The other critical error this company made was inappropriate allocation of their in-house resources, they got project managers without the relevant expertise or experience to work with their cheap and cheerful suppliers, this created a loose-loose situation. I have seen some pretty amazing project managers squeezing quality out of cowboy service providers... it takes a colossal effort which negates any costs savings but it is possible!
These stakeholders believed in a win-loose situation, their belief was for them to make money someone has to loose it, the only party that lost in the end was them, they went out of business... literally.
As I have said in an earlier post for any outsourcing relationship to work it has to be a win-win situation. Cost alone should never be the driver to outsource offshore, on shore, near shore or to any shore. Ever.
Recognize your internal 'forte'; theirs was was event management. They would be a very successful company had they stuck to that instead of trying to grab every budget their clients had, it was bizarre for they swung from one end of the spectrum (hiring contractors to do everything) to the other (bringing almost everything in-house without the relevant skill set) never keeping their core competence in focus.
A company cannot and should not try to emulate someone else's competences just because it would make them money!... a software engineer can not become a doctor overnight just because he/she has access to a prescription pad and webmd.com!
Allocate your resources as per their strengths; match talent to roles, skills to tasks. Commitment to innovation, quality, timely and within budget agile delivery come first, success follows thereon. The moment quality becomes an after thought, it is game over.
For suppliers and external contract managers the lesson is know your 'walk away' position: when shared values break down walkaway, revenues from such clients are not worth the angst they will cause, or the damage they will do to your brand and team.