Though this post was meant to address a different flavor of tactical software outsourcing a recent encounter with a peer convinced me to address the issue of peanuts and monkeys... it baffles me how many stakeholders, sponsors and buyers are blind to the fact; if you pay peanuts you get monkeys!
At the end of one quarter many years ago, while one of my project managers was presenting performance metrics for one of the supplier we managed I queried a blip..it was déjà vu!
I asked Dan to pull out the performance metrics for the last two quarters (we had been managing this supplier for the last ten months) and overlay them, A few minutes later we were both grinning at the pattern in front of us, the next step was to break up the metrics by each project being managed with the supplier and it became clear that the dedicated team supposed to be tied down to one of their long running projects was not very dedicated at all and the supplier was evidently poaching resources from the dedicated pool to fulfill other projects. This supplier was pulling wool over our eyes!
The upside was this supplier had not been selected by ourselves instead our clients had engaged my team and myself to manage the suppliers on their behalf. Having identified the pattern I went back to the client and submitted my project manager's findings to them, Mark the CEO was up in arms but would not believe it to be true, He had been assured by their supplier that they had a dedicated team of 8 technical staff for which they were paying a little short of £7,500- per month. For me the numbers simply did not add up... they never had! This supplier was based in the Middle East and South Asia, the team my client was paying for was allegedly sitting in Dubai. Knowing the rates it was simply not possible to offer those day rates out of UAE let alone anywhere in South Asia for the caliber of resources we knew were working at the suppliers end.
It was not that the resources were inefficient, they were competent technical staff and that was it... you do not expect competent technical staff to turn incompetent every few months for a number of weeks and then get back to their usual competent self!... unless they are distracted. And we knew that caliber of staff simply did not come at those rates... Agile teams don't stumble on their velocity in a predictable pattern! unless they are disrupted, disbanded for other projects.
My client who had been using this particular supplier for over two years was in denial and in search of alternative explanations... ego is a strange thing! Here I was trying to explain to this guy that his supplier was shafting him and he was suggesting I had it all wrong.
Mark did not want to accept that he had been wrong all along and worse that he had been wrong over the past 24 months. We agreed to disagree and I was politely told that our services were no longer required and that they would be managing the supplier internally, it was an amicable parting.
A month later I got a call from Mark, we met up over coffee, Mark accompanied by Linda one of his project managers; who had reached a similar conclusion as ourselves, Linda had the benefit of the performance metrics my team had compiled while we managed the supplier and had handed over. It was an awkward meeting for Mark wanted to say 'you were right all along' but could not quite bring him self to do so, this was why Linda was there who eloquently worded the conversation so as to not make out that the boss was wrong or I right.
I inquired if they wanted us involved in any capacity and the answer was a yes, '..we want you guys to manage the knowledge transfer from these guys to a new supplier..', and I was asked to present the suppliers on our list that would be a good fit for the agency to work with.
Unfortunately this practice is pretty prevalent and we as buyers are partly to blame for its existence. Let me explain:
Though vast majority of SME's desire tier 1 quality they can not afford tier 1 or tier 2 prices, what most SME's like to pay is tier 3 prices and many work hard to drive their supplier even lower... they end up paying peanuts and they get monkeys and deservedly so.
There is a misconception that sending software development services offshore has to be cheap! the word is not 'cheap' it is 'comparatively good value' that is if you want quality outputs. SME's confuse good value with dirt cheap and in the majority of cases end up paying in quality which ends up them paying three times the number of peanuts they budgeted for and it becomes an expensive exercise in evolution where you start with a monkey and end up with something close to what you required many iterations later! one which with hindsight they realize would not have been so painful had they gone with a more quality conscious albeit slightly more expensive supplier.
I have four words for you: common sense & due diligence! (ok.. that's technically five!)There are many ways of conducting due diligence without having to fly out to the suppliers offices, and these are pretty much common sense approaches... Google your supplier and see what the web throws out at you on them, ask for and contact multiple references, ask for previous and current clients, ask for sample contracts that would be in place between you and them should you select them (the quality of a contract speaks a lot for a company's processes). If any of the references turn out to be in the same time zone as you, meet up with them. Look up the CEO and any team leads pitched to you on Linkedin and other social networking sites, you may be surprised by what turns up or equally so by what does not. And lastly check their digital foot print, needless to say you can learn a lot about a individuals and organisations from their digital footprint.
There are also common sense approaches to ensuring you do not get taken for a ride like Mark did. Demand transparency and visibility of the team that is going to be dedicated to your project/product and get to know them over Skype or whatever you use (and use the video mode it makes the interaction more personal), develop a relationship with your dedicated team as you would with one sitting in your offices or a local supplier... remember it is about relationships... it is all about people and people are more likely to be honest and open with those with whom they have a relationship than complete strangers. Just as any quality and relationship conscious offshore software service provider would try and embed themselves in your organization, you ought to reciprocate and do the same. Over time you will find that not only will this breed a true partnership approach it will lead to many intangible benefits too.
And lastly if the rates seem too good to be true... they probably are. Discuss it with the supplier... ask them how can they afford to provide such rates? what are their margins? and don't be shy to ask if they are making any money on the project? show some concern and do not try and fleece the supplier! for if it is not a win-win situation no one will win... specially you...guaranteed.
Now my two pence worth of what you can take away from the above if you are an offshore software service provider:
Be transparent with your clients and when they drive your costs down to a point where it isn't worth it anymore; let them know and walk away from it instead of delivering a half baked cake. You will be respected for it. Take pride in your output and your brand. There are many many SME's out there who will give you business... you've got to keep knocking on doors and maintaining your quality and building on your reputation which will help open many more. Lastly don't accept peanuts and never deliver monkeys!