Due Diligence in Uncertain Times: Assessing Tech Partners for Success

Ryan Schauer

Ryan Schauer

Jul 20, 2022 | Accelerance Blog

Having a deep understanding of the due diligence process in your software outsourcing project is more important than ever given the current economic state. By building business resilience during this time of economic uncertainty, you can set your company up to be one step ahead of the game and prepare for the unknown.

Accelerance has over two decades of experience in conducting due diligence on US companies for maturity in their business, management and technical capabilities. We can help you identify critical gaps in your technology function and restore confidence in offshoring software development among US companies.

Consider this case study in which we delivered the perfect-fit partner through our due diligence process to CSG International, a Colorado-based provider of business support systems to the telecommunications industry. Thanks to a highly productive and successful experience with one of our Mexican software development partners, CSG now counts offshoring among its accepted practices for sourcing engineering skills.

Knowing how to assess and identify the right partner is critical to the success of an outsourcing project – and, ultimately, to the quality of the software produced. 

Our new Software Outsourcing Due Diligence Guide provides perspective into due diligence in today’s digital-first world. It draws on our decades of experience in perfecting our own winning process to vet the world’s most qualified software development firms. We regularly update our process to keep it relevant to latest business trends and to ensure our global software outsourcing network contains the best outsourcing partners available anywhere.

Whatever your end goal is, careful planning is essential – and that process needs to begin before you start thinking about picking a partner. Here’s our seven-point roadmap to set your next software development project on the right track.

1. Choose the Right Project

Technology requires a commitment of time and money, so review your priorities and assess each potential candidate. Look over your list of options and ask yourself: 

Which projects, if successful, will provide the best return on investment for the company?

Initiatives with a clear business benefit will generally get better buy-in and higher quality participation.

Which projects have the clearest goals and scope of work?

Clarity of vision is a key factor in ensuring a successful outcome. 

Do any projects require the use of new, unproven technology?

Unfamiliar technology can be a dangerous variable when it comes to accurately assessing the cost of development and the time involved.

How many other systems will the newly completed solution need to integrate with?

Integration testing can be very time-consuming and requires a higher level of coordination.

Which projects are expected to have the longest duration?

Variables beyond your control pose a higher risk in long-running projects, such as key personnel changes, loss of momentum, or other business distractions.

Which projects are expected to require the largest number of participants?

More people involved equals more complexity.

2. Do a Self Examination

Different company cultures can lead to miscommunication if you’re not conscious of them. A big part of the due diligence process is determining whether the outsourcing provider is compatible with your internal stakeholders, and assessing its organizational culture. How a company works on a day-to-day basis is what ultimately defines its culture and how well they will work with global clients. Certain characteristics within your company culture can add unwanted risk to your project, and are particularly damaging if you’re outsourcing for the first time:

  • A highly conservative culture with a low tolerance to risk.

  • Internal processes that are immature or unproven in large enterprise work.

  • Key stakeholders who are relative novices, either in their current role or in leading formal IT projects.

  • Historical resistance to outsourcing – whether in IT or in the business community.

If you’re looking at outsourcing a high impact software development with potential for significant benefit, but where the scope of work or complexity is high, you need to be willing to accept a greater level of risk. Companies compatible with this approach usually have one or more of the following characteristics:

  • Good ability to assess risk/reward payoff when evaluating options.

  • Confidence that the new application, when delivered, can contribute to the company’s performance.

  • Key stakeholders are relatively mature in their role – or are new to the role, but seen as good “systems thinkers”.

  • Strong sense of urgency in the business culture.

  • Employees are able to collaborate within teams and cross-functionally.

3. Select the Right Software Outsourcing Partner

This step is the most critical one. Make sure your software partner has the capabilities to take on every aspect of the project, from the requirements and planning phases, to the actual development of the product, to the testing and evaluations. Look for outsourcing firms that can provide senior programmers who have a broad range of engagements under their belt, can ramp up quickly and provide you with examples of high-level, high-quality products used in your industry.

Due diligence in the partner selection process will make all the difference in the success of your outsourcing engagement and ultimately, the quality of your software. Here are just two important aspects to consider:

Skills Matter

Access to technical skills is often cited by IT executives as the greatest barrier to their department’s success. Software development outsourcing makes it possible to access high-caliber teams with expertise you don’t have in-house. Look for technical certifications and relevant project experience that shows your nearshore or offshore partner has the right intellectual capital and company culture to be the best fit for your project.

Size Matters

A partner that’s too small won’t have sufficient bench strength to cover your needs. But a partner that’s too large can also be a mismatch if your project isn’t “big enough to matter." At Accelerance, our rule of thumb is to make sure your engagement represents no less than 5% and no more than 20% of your outsourcing company’s revenue base.

4. Choose Your Methodology

For software development outsourcing projects, Agile has been proven to produce high-quality results. If you’re new to software development outsourcing or are working with a new team, the Agile framework also helps you get a good sense of your partner during Sprint Zero and Sprint One (the first 30 days). As a sweetener, some outsourcing partners will offer to waive the fees for Sprint Zero if the client feels irreparable issues have arisen and the relationship is severed. So, if a problem arises, the only lost investment is in time, not in wasted money.

5. Pick your Pricing Model

In concept, a fixed price seems appealing. After all, if you know exactly how much the project will cost, aren’t you minimizing your risk? Actually, we find it’s rarely the best option, for these reasons:

  • Design specifications are rarely complete, so many assumptions must be made to come up with a bid.

  • Most fixed-price models are padded for risk-contingency.

  • Most fixed-price models require upfront money.

  • You have one chance to document everything you want designed into your software. Anything left out will have to be managed by a change-order process, which can become frustrating and onerous.

  • Instead of incremental design and sprints of completed work, a development team on a fixed-price contract deploys software in large “big bang” phases – forfeiting the benefits of speed and effective design made possible using an Agile development framework.

The one exception where a fixed-price model may be worth considering is if the scope of work is small and fully outlined, such as a minor enhancement or remediation to an existing software application.

Your pricing model and rates are important to consider but the total cost of engagement (TCE) will also need to be factored into the budgeting process. When hiring your own developers in-house, for instance, TCE includes a base hourly rate, plus taxes, healthcare, retirement plans, vacation, etc. Comparatively, when you outsource, many of those in-house costs disappear.

Outsourcing Cost Comparison Update

6. Use Project Metrics

Numbers don’t lie. You and your outsourcing partner need to establish a clear set of project metrics for tracking and reporting the work progress throughout the engagement. This won’t 100% guarantee the absence of problems, but will certainly identify issues that need to be addressed. Capturing metrics not only provides comparative analysis but, over time, also allows teams to refine their ability to estimate. Include metrics that reflect the iterative nature of Agile development: lead time, sprint time, sprint volume, issues and issue open/close rates. 

7. Prepare Your Partner Relationship

The real work begins after your partner selection is made and the contracts are signed. You’ll want to establish team member roles, finalize your software work plan, and set standards for coding, development environments, libraries and change management. Have a process in place to evaluate your new development partner’s ability to integrate with your team, communicate effectively, and adhere to mutually approved timelines.

Beware of silence! If your partner is chronically late to meetings, absent from meetings, communicating poorly, or just generally not interacting with good questions – these are early warning signs that your project may be in trouble. Your outsourcing contract should clearly outline a remediation process to resolve any issues that arise. 

How Working with Accelerance Can Make all the Difference

We’ve done the due diligence for you. Accelerance can connect your company with thoroughly vetted and verified global teams to find the perfect partner for your next software development – minimizing the risk and maximizing the outcome.

Accelerance connects companies that need software engineering services with the most qualified outsourcing firms around the globe. As the global outsourcing authority, Accelerance has developed a proven process for verifying the skills, references, business practices and trustworthiness of top software service providers in more than 30 countries. The Accelerance proprietary Rapid Referral System reduces the time it takes to identify and select a trusted outsourcing partner from five months to five days.

Talk to an Accelerance Advisor about your software needs today. Set an appointment here.

Ryan Schauer

Ryan Schauer

As Accelerance's Partner Success Manager, Ryan is responsible for building partnerships and quality management of Accelerance’s global software outsourcing network. He maintains a working knowledge of in-demand technologies, industries, strategies and practices relating to software development outsourcing. He has more than 10 years of managing software development projects, all with globally distributed teams. His experience includes enterprise project management with Bank of America focusing on core technology platforms and systems.

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