Agile Outsourcing: Where Agile Methods and Outsourcing Intersect

Agile outsourcing? At first blush, agile methods and outsourcing seem to be somewhat disconnected and irrelevant to each other. On the contrary, they have never been needed more by each other than now.

In fact, I believe that buyers and sellers of outsourcing services need to care about agile methods in outsourcing if they want to still be gainfully employed in five years’ time.

In May 2006, Sprint sued IBM over unmet expectations and unrealized productivity gains promised in the five-year, $400 million, mega-outsourcing deal they signed some years back. Sprint claims that IBM didn’t deliver on promised productivity gains in IT operations and software development.

In October 2005, UK supermarket chain Sainsbury cancelled its outsourcing contract with Accenture for all of its IT operations. Sainsbury claims that Accenture didn’t deliver on its new supply chain software implementation, so now it’s taking the effort in-house. The contract would have run until 2010.

Business process outsourcing, both within the country and offshore, has seen its own shares of failures recently. Apple recently pulled its back-office operations out of India since it couldn’t ramp up its Bangalore BPO center quickly enough.

Another recent report claims that the declining wage gap between the US and Asia is diminishing the cost effectiveness of offshoring software development, IT operations and business processes.

If cost savings aren’t there, what’s the rationale for outsourcing — especially if you don’t have productivity gains either?

Agile methods in software development and continuous process improvement in business process outsourcing (agile methods as well!) may be needed by the buyers of outsourcing services to realize cost savings in the long run.

The story is even more compelling from the outsourcing services vendor side.

It’s common knowledge that the more successful a country is in garnering offshored services, software development, IT operations or business processes, the more the cost escalation is quick and inevitable. Add to that very high personnel turnover rates at offshore vendors. You have an untenable situation where the contracts may move off to places that don’t have these problems yet or where the costs are even lower!

So if you’re a vendor of outsourcing services in India, how do you make sure that the business you get doesn’t move to even lower-cost countries (like China) or locations where the personnel turnover isn’t turning off buyers?

Agile methods and their rapid adoption promise a value proposition that China-based vendors may take a while to catch up with. Cost escalation for service providers without concomitant increases in the revenue lines will mean only that your margins will get squeezed. Combine this with high personnel turnover and you have a bad situation, indeed! Agile methods can offer an attractive value proposition to your customers and you may be able to justify even higher billing rates if you can show bottom line savings.

Agile methods in software development, lean Six Sigma and continuous process improvement offer countless opportunities for service providers to add significant value to their outsourcing services.

That’s what I expect to write about in depth in this column. I’ll address individual agile methods appropriate to software development, IT operations and business process outsourcing.

My hope is that this will spawn good discussions and an exchange of ideas from buyers and sellers of outsourcing services.

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