Create An Extraordinary Exerience With Outsourcing
Runtime - The Software Outsourcing Newsletter
for Executives and Investors
from Accelerance and Steve MezakI was cleaning my office over Thanksgiving weekend and found a handout from a talk I attended earlier in the year. It was from Jim Chapman from Silicon Valley Law Group. Jim's talk was on how to provide a service (like his legal services) without lapsing into a commoditized service that is differentiated by price alone. Many products and services today are threatened by the dreaded specter of commoditization. You can avoid the threat of commoditization by moving up the value curve beyond a mere service to provide a more satisfying and valuable "experience"
Commoditization of goods and services has been happening throughout recent history. For example, consider the computer industry. True commodities, like raw materials are manufactured into goods. Improvements in the manufacturing process and low cost labor offshore has reduced many goods into commodities themselves. I am embarrassed to admit paying $10,000 for an IBM PC-XT in 1981, several orders of magnitude higher than the cost of the same computing power today. There is no question that personal computers have become a commodity.
In the hierarchy of products and services - you can move from raw materials, to manufactured goods, to services. Now services themselves have been commoditized. The Internet has widened the market to enable competition by service providers from every corner of the globe.
For example, software development services have become a commodity. Are you are inundated with phone calls (usually over a noisy VOIP line) from people in exotic places that want to develop your software? Very few callers can explain why their service is better than their competitors. "We can develop your software cheaper!", is usually the best they can do. More about the commoditization of outsourcing later...
Even software products are becoming commodities. In fact the trend is to use Open Source software instead of paying for big, closed-source software products. Some software companies are placing their products into the open source community and offering services to help you install and configure the software for your specific needs. See Laszlo Systems, Orbeon and SugarCRM as examples.
It is too early to tell how this strategy will play out. If your software is freely available as open source, then there is nothing to stop other service providers from cutting into your own service offering. Again, it is the threat of your service becoming a commodity.
How can you avoid commoditization of your software product? The answer is to offer an "experience" to your customers.
You know about purchasing experiences. Anyone that has gone to Disneyland or Disney World has purchased an experience. People will pay more for a high quality experience. Compare the cost of visiting Disneyland at $49.75 and an all-day ride pass for the roller coaster at Santa Cruz for $14.95.
In the movie, The Game, the character played by Sean Penn buys his rich but uptight brother, played by Michael Douglas, what turns out to be a bizarre, mind-bending experience as a birthday present. An experience is a dramatically different present for "the man who has everything" and goes way beyond the value of a necktie or aftershave. People will pay more for the value they receive from an experience.
How can you create a good experience for your customers and users? You must think carefully about the experience you want them to have while using your software, and then appeal to all the user's senses to create that experience. It may require unique uses of sound, visuals and even the feel of the packaging (if you are delivering your software on physical media). The user's experience is enhanced by carefully crafting an intuitive and compelling user interface. Test your software carefully to ensure the user experience exceeds your customer's expectations.
You may be able to deliver a more dynamic experience to your users if you are providing a hosted software service rather than software installed on the customer's own computers. Web sites and peer-to-peer systems can offer a more complete experience through interactions with other users. Consider AOL. For years, people put up with high prices and poor customer service because they valued the experience of getting on-line. Personally, I was willing to put up with a small amount of technical detail (remember TCP stacks on Windows 3.1?) to take advantage of commodity pricing of a local ISP (remember Best.com in Mountain View?).
Let's flip the experience concept around. What kind of experience are you creating for your employees? Are they experiencing a vibrant company environment where their contributions are valued? Are you creating a company that recognizes we are in a global economy? There is a picture at the bottom of the Career page for Lumenarè, a startup company here in Silicon Valley that sums up the global nature of software development today. The page contains job postings for the US and jobs in India. This company is truly a micro multinational. What does the picture say to you about what it is like to work at Lumenarè?
How about your management team and investors? What experience do they have when looking at the quality and cost of your work. Are you creating an extraordinary experience for them or behaving as a commodity manager?
One CEO I spoke with recently said he did not want to outsource his software development. He did not believe you could create the same level of "synergy" between an outsourced development team and the rest of the company, and customers. He wants a "synergy experience" for the software development process at his company. Only an outsourced team that can create the experience of "synergy", and perhaps exceed his previous experiences in developing software, will be able to win his business.
As mentioned earlier, basic outsourced software development services are a commodity today. As a consumer of these services, you can shop by price only to a certain extent. There is a limit to how low the cost can go and eventually you have to be sure the vendor will stay in business long enough to finish your software.
A better approach is to use an outsourcing team that is capable of delivering a positive outsourcing experience. You may pay a little more, but an outsourcing team that is sophisticated enough to engineer your experience of outsourcing, as well as the technical details of your software, will be worth every penny.
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Until next time,
Steve Mezak
Accelerance, Inc.
Risk-Free Outsourcing213 Garcia Avenue
Half Moon Bay, CA 94019
1-650-712-8990(c) 2005 Accelerance, Inc. All rights reserved. You are free to use material from the "Runtime" eZine in whole or in part, as long as you include complete attribution, including live web site link. Please also notify me where the material will appear.
The attribution should read:
"By Steve Mezak, CEO of Accelerance, Inc. Please visit the Accelerance web site at http://www.Accelerance.com for more information and resources on outsourcing and creating great software products."
