Application Software Outsourcing: Buyers Are Seeking More Expertise from Providers

  • Written By: Yu Chen
  • Published On: June 2009



In a previous blog post, based on TEC’s outsourcing selection criteria, I summarized 6 types of experiences that a buyer should consider when choosing the best provider for application software outsourcing projects. Since then, my interest has been raised to the level of taking a further look into outsourcing buyers’ requirements for their potential providers’ expertise in a real selection process. Thanks to TEC’s Outsourcing Evaluation Center, users are able to identify their high-level requirements, run outsourcing service comparisons, and receive a short list of qualified providers. I was also able to look at the statistics of these high-level requirements and found out something that might be interesting for both outsourcing buyers and providers.

About the Data

To come up with a short list of the best-fit providers, users need to answer 14 critical questions in TEC’s Outsourcing Evaluation Center pre-screen questionnaire. Amongst these, four questions are related to the providers’ expertise. These areas of expertise are

  • system development process expertise,

  •  application development expertise

  •  domain expertise, and

  •  technology expertise.


Of course, TEC’s selection service goes far beyond generating a short list of qualified providers, but the short-listing process is informative enough to provide me with a general understanding of buyer requirements of the above expertise areas.

The sample size of this data is also quite satisfying. There were 2,351, 3,619, and 6,299 comparison projects taking place in the application software outsourcing area in the years 2006, 2007, and 2008, respectively.

The Rankings

The following figures show outsourcing buyers’ requirements in the four expertise areas. In each chart, expertise options are displayed in a descending manner from left to right according to the frequency that they are selected by buyers in year 2008.

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Figure 1. System development process expertise.


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Figure 2. Application development expertise.


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Figure 3. Top 10 domain expertise.


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Figure 4. Top 10 technology expertise.


The Overall Trend

Since the four figures explicitly show the changes in expertise requirements over the three years, I’ll leave further analysis to you. The only point I want to make is that application software outsourcing buyers are now more demanding than before in terms of what they expect regarding a provider’s expertise.

If you were not aware of this trend after your first glance at the figures above, roll back and have a second look at them. You will find that the height of most of the bars grows over time. Actually, I did some calculations to show the average numbers of selected options during the comparison projects. The result is that in 2006, an average buyer selects 3.7 options in the domain expertise area; this number increases to 4.2 and 4.4 in 2007 and 2008, respectively. The same trend applies to all the other expertise areas as well (see figure 5).

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Figure 5. Average number of selected options per comparison project.


There might be multiple reasons that have lead to this increasing demand on providers’ expertise in various areas. Some of my guesses are that application software outsourcing projects are becoming more complicated; buyers are more aware of the relationship between vendor expertise and project success; or, buyers now have more bargaining power as the supply-demand equilibrium shifts. Since the statistics only show the result, I will leave the “cause” part open for discussion, and hope that your comments will help us to better understand the “reasons why."
 
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