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Software Development Outsourcing 2023 – Roundtable discussion

21 November, 2022 | reading 3 min.

Round Table - Software Development Outsourcing 2023

Taking software development vendors outsourcing as a starting point, the participating companies had the opportunity to discuss market trends and best practices, the different vendor contracting models, Agile projects, flexibility, the relationship between rates and quality, and the challenges in relation to attracting, and retaining talent today.

All this was part of the round table organized by LedaMC on software development procurement in 2023, a meeting held last Thursday, October 20, which brought together Vodafone Spain, Orange Spain, Orange Belgium, ENEL, OEPM, ONCE, Liberbank-Unicaja, SGT&O and CBRE.

Vendor contracting models

What is your current vendor contracting model? What are its advantages? What do you miss? With these questions, the round table began.

Companies such as Orange Belgium, explained that they have a framework that allows them to contract according to the type of delivery made by the vendor (Waterfall or Agile), with a cross governance layer for both types of development. In turn, they work with specific productivity indicators based on the software product, encouraging continuous improvement. To ensure the workflow and improve communication between the parties, having an application such as Quanter facilitates management.

The case of procurement in the public administration is very different, since it presents a very tight framework with little room for manoeuvre. In tenders, price is usually a key factor, so much so that they are sometimes faced with the problem of a vendor making proposals that are too risky. Therefore, they are finding it useful to introduce governance methodologies also used by the European Commission, such as the function points, with the aim of improving this issue.

In general terms, the participants felt that the vendors’ experience in Agile was lacking. On the other hand, flexibility was a theme praised during the meeting, and almost all attendees mentioned it as a positive point of their models, as it allows them not to be “tied” to rigid and long-term contracts with large vendors.

Rates vs. Quality

Several participants shared their experience with very mature, flexible, and experienced multivendor contracting models. In these cases, productivity is an important element of negotiation, although this negotiation has a price and quality was one of the key points on which the focus could not be lost.

Vodafone Spain commented: “It is a mistake to lower the rates too much, as this leads to a decrease in the quality of the developments and sometimes compromises our day-to-day work”.

From Enel, they added that the relationship between the parties should encourage the efficiency of software vendors to establish models where both customer and vendor benefit, valuing rewarding those vendors that show a better performance in terms, for example, of quality and productivity.

The software product at the centre

Companies have had to move away from predictive, mature and controlled contracting models, where technical assistance was contracted and perfectly predicted according to the needs, due to the irruption of digitalization and, with it, Agile. This has changed everything from the form of governance to the way of managing external and internal teams, leading to a reduction of vendors, which, although it may seem easier to manage, is complicated by the positions of power that they may have in the organisation.

Establishing “golden rules” has made Agile development easier for Vodafone, as it reduces inefficiencies coming from other areas. A dynamic contracting model for releases based on productivity and vendor rankings was also discussed.

When are you going to have the project and how much is it going to cost us?”, this is how Liberbank-Unicaja put it. The predictability of estimates is lost and therefore, you end up paying more than expected. Some businesses lend themselves more easily to agility, but in others, such as banking, it is more complex.

To combat the above problem, several companies have incorporated a model based on bidding for long-term applications, with large vendors and using cost per function point as a driver. The main advantage of this model is that a better negotiation is obtained due to the large volumes involved, but there is some resistance to change on the part of the vendors.

In the case of OEPM, they commented that they have achieved a better understanding between technology and business, certifying both areas in different disciplines, thus facilitating negotiations, determining priorities and better managing scope changes.

REDEIA raised the following concern: how to agree on productivity with a vendor when introducing a new technology? Different alternatives were raised, for example, matching productivity with previous similar technologies, taking the average productivity value of the company or through productivity benchmarking.

Talent challenges

The challenge of attracting and retaining talent in such a changing and competitive environment is something common to all companies, which have had to tend more and more to remote and hybrid formats, facing a high turnover of teams, problems to retain talent, as well as to recruit certain profiles. This is particularly complicated in Agile projects: Agile remote vs. Agile on-site?

An “efficiency tribe”

To close the meeting, the participants called themselves an “efficiency tribe” and look forward to the next edition of the round table, as well as the presentation of the next Agile Software Development Market Report 2023, which LedaMC will publish soon. The report will address several common myths about agile, including whether it is more expensive or not, and how team composition affects its efficiency.