The Future of Application Development Outsourcing

We recently were asked by a prospective client what our view was on the future of application development outsourcing. It was a good question.  I'm posting our answer below.

In 2011 Mark Andreesen wrote a Wall Street Journal article titled "Why Software is Eating the World". His point was that every business, in order to survive and thrive, was going to have to become a digital business at its core.  At Solstice, we believe this realization has created a shift in the application development outsourcing model. For the 10 years prior to Andreesen's essay, software development entered a phase where it was considered somewhat of a commodity; something that could be purchased "by the hour".  The world scrambled to find a region with "skilled enough" labor that could drive this hourly cost down as far as possible.  In our opinion, this was one of the greatest mistakes of our generation. Digital innovation suffered.  Customer experience suffered.  By utilizing this model very few businesses moved "ahead" in their digital transformation, and many put themselves at great risk to be disrupted.

The application development landscape has changed.  Businesses are realizing that in order to become a digital business, software development teams need to be close to and have great empathy for the end user.  Companies have begun to strategically embrace Agile practices and co-locating their development teams with business product owners to ensure user empathy is understood by everyone working on the project.  Companies have begun embracing human-centered design and investing in user research and validation testing; to ensure they are not only building good software, but the right software.  Businesses have instituted continuous delivery and Agile development practices to allow products to pivot as market conditions, competition and user expectations change. Ironically, they have started to emulate the same team structures and development practices as the digital startups that are trying to disrupt them.

This has caused a shift in how businesses partner for software development services.  In the US and other parts of the world, businesses are partnering with more nimble local consultancies to get digital products to market faster.  This is because the application development imperative has shifted from cost-savings to re-imagining core business delivery (or re-imagining the business model itself). Companies are not simply looking for their software development partners to provide "programming by the hour” but are looking for fully integrated teams of product strategists, researchers, designers and engineers. 

This does not mean there isn't a place for a global delivery model.  For example, Solstice has a very effective nearshore office in Buenos Aires, filled with some of the brightest and hardest working people I know.  It simply means that effective application outsourcing strategies consider the social and technical complexity of a project before making the decision of where it should be built.  Solstice utilizes the Stacey Diagram (below) to determine candidates for offshore development.  

Projects in the bottom left (i.e. “ Simple”) are candidates for offshoring, while everything else is more l likely to succeed in a domestic, iterative, Agile delivery model.  Given the increasing pace of change in technology platform evolution, market opportunities and user expectations, fewer and fewer projects fit into the “Simple” box.

This is forcing businesses to look at budgeting for digital product development differently.  Instead of viewing software development as an “operational cost” they're starting to consider digital product development as a revenue center and/or an enterprise value creator, and budgeting accordingly.  Some businesses are shifting marketing dollars to software development, as many intelligent marketers realize they are getting more value from having an engaging, delightful digital customer experience than they are through traditional content advertising channels. 

The re-shoring of software development has allowed many companies to experiment faster, shift their business models quicker and increase the pace of their own digital transformations.  The world is again watching the United States as an example of how to capitalize on digital innovation. The future is going to be powered by software-enabled businesses, it only makes sense to bring this capability home.