Centers of Excellence – the Future of Outsourcing?
Each year it becomes increasingly more challenging for IT outsourcing companies to grow and develop their business. Global software outsourcing market is restlessly expanding. In 2017 the market size of information technology outsourcing amounted to 64.3 billion U.S. dollars. More and more small-scale companies appear year after year. And technology itself is changing quickly. Outsourcers are constantly in a rush to acquire new technology expertise to remain competitive. Here on the market if you don’t react fast enough, in the best case scenario, you’ll have to narrow down your professional direction, in the worst – leave the market.
Centers of Excellence (CoE) – the team that focuses on researching and implementing the best practices in a particular niche – can be a solution to the problems that software development outsourcing companies face.
Let’s take a look at the outsourcing market main issues. To make it simpler and more comprehensive, I’ll call these issues ‘client-related’ and ‘employee-related.’
The client-related issue: how do you align sales with development?
Ideally, an outsourcing company has several large, long-term projects (clients) with good rates. These projects grow slowly but steadily so there’s enough time to search for new employees to expand the team. Such projects, however, exist only in the perfect world. The reality looks more like this: most projects are short-term, developers work at low rates, the project price is fixed, a client fully manages their team (if we're talking about an outstaffing business model), and you must constantly fight with the client to prove that you need to increase the number of hours.
Finding good, profitable deals is one of the biggest problems we face on the outsourcing market. To resolve it, software development companies call for a great sales department. We all know that the IT sales are special in their own way. As a rule, a sale takes two steps:
1. Step 1: First, the sales expert finds a software development project and gets the company to discuss it with the client. Then, the technical team must convince this potential client that they possess relevant competencies and experience, and that the client will only benefit from working with them.
2. Step 2: The second step usually involves a technical research, project estimation, design review, demonstration of the existing solutions, etc. Here, a team of developers comes into play alongside the sales department. The sales expert must be confident that all technical specialists are really competent and able to implement the project.
An efficient combination of sales and development is the primary objective of the Centers of Excellence (CoE).
Next, I will tell you about the second issue – an ‘employee’ issue, to make it more clear why an IT company should create their own CoE.
The employee-related issue: how do you stop missing opportunities because of unplanned turnovers?
Suppose you’ve resolved the previous issue and found a good project. You’ve signed a deal for 10 developers, five of which are already working in your company and are ready to begin working on a new project. The core of the team is in place, and there is also a technical lead who will be in charge of the project. It's his or her job to hire five more programmers. Everything looks quite optimistically. Your developers are already anticipating a tasty bonus by the end of the year and you are preparing a success story for your case portfolio.
But the day comes and your technical lead comes to you and says that he’s leaving the company in two weeks. Moreover, you realize that one of your Senior developers will follow the tech lead and quit the job too. Instead of 10 developers you now have three and none of them can be put in charge of the project. The company has other specialists with sufficient knowledge and experience, but those are engaged in other projects. You aren’t able to find the required experts in the market in time. What do you do?
In the best case scenario, you’re starting to distribute developers between projects. Simultaneously, you must also hire contractors from other companies, offering them huge rates and thus sacrificing profit. In a few weeks (or even months) of hell, you get a zero profit from this new project and a bunch of complaints. Your client isn't happy with how your developers handle tasks. Your team complain that the deadlines are so tight they can't keep up with them. And your HR managers say people are burning out. Congratulations! You’ve gained a whole lot of new risks.
You may acquire more projects now, but your developers are already busy working on other projects and there’s a good chance that some technical experts may become discouraged and leave the team. Hence the risks we are talking about. Software developers are a key success factor in the outsourcing business model. If you don’t have good developers, you can lose your best projects without being able to do anything about it.
The turnover of employees in the outsourcing companies is extremely rapid. I don't know any company in Ukraine that wouldn’t complain about the labor market situation where the demand for developers massively exceeds the number of available candidates. To win the competition for good developers companies offer larger compensations and exciting projects. These luring promises stimulate developers to leave their current place of work and apply for a better job in a new company.
The story about a new project that I described above is showing that it’s impossible to launch a new outsourcing project without a core technical team in the company. On the other hand, though, small-sized companies are often unable to regularly pay salaries to all of their developers including those who temporarily aren't engaged in commercial projects. And even a large company experiences difficulties in trying to hire 10 Senior developers within a month. Money is a crucial motivating factor for developers, but it isn’t the main factor. There are a number of criteria by which a developer selects a company: interesting projects, advanced technologies, the popularity of the company in the market, strong team, etc.
IT companies are actively fighting for developers. Employee benefits and perks play a big role in choosing a company. Personal concierges, corporate parties in Sicily, massage right in the office, relaxation areas, super advanced working space, individual discount programs, and much more – all of this exists to make a developer feel most comfortable both inside the office and outside.
In Belarus, one IT company offered their staff an individual concierge service. It takes care of reserving vacation tickets, taking the car back from the repair services, purchasing an insurance, ordering a taxi – all that daily stuff that needs to get done. Such employer initiatives really help developers with their domestic chores, but they are powerless against yet another issue. No matter how many additional privileges you can come up with to offer your employees, if the project they have to work on is about supporting Java 5 legacy code, and your company doesn't offer any possibility to advance your employee toward new technologies, sooner or later he or she will leave you to work for a more prospective company.
All the above-mentioned issues can be resolved given your management is a strategically-minded and there is the Centers of Excellence in your company.
What is that exactly?
What is the Center of Excellence?
The Wikipedia gives the following definition: "A center of excellence (COE) is a team, a shared facility or an entity that provides leadership, best practices, research, support and/or training for a focus area. The focus area might be a technology (e.g. Java), a business concept (e.g. BPM), a skill (e.g. negotiation) or a broad area of study (e.g. women's health). A center of excellence may also be aimed at revitalizing stalled initiatives."
Currently, we are working on the creation of our CoE at Intetics and we have adapted this definition for us in the following way: "A team that provides management, implements best practices, conducts studies and educational events in a certain focused niche. The focused niche may be a technology (for instance, Cloud), a business concept (e.g. BPM/RPA/Digital transformation), a skill (e.g. customer support), or a field (e.g. software quality assurance)."
According to both definitions, CoE needs a a group of people or a team to work effectively.
For us, CoE is more of a business concept. If a company has several Java developers that study and implement the newest frameworks – they don’t form a Java CoE. But a team of Java developers with a deep experience in a particular business niche does.
For example, Java developers in the X company possess an experience in developing corporate solutions for a contact center. The company’s management analyzes the market and realizes that such solutions are in demand for numerous contact centers. Having such a group of developers, the X company also has an ability to sell their unique (or practically unique) solutions for a narrow target audience. In other words, CoE at Intetics are more specific and oriented at the resolution of business tasks.
With such an approach to business, we have high chances for an ultimate success. CoE must focus on trending, rapidly-developing niches. The creation of CoE can help outsourcing companies promptly react to the market fluctuations and become more competitive in pre-sale negotiations and tenders.
CoE is a team whose goal is to transform the company in accordance with a new business direction. The whole point of CoE is innovation. So if you want to implement CoE in your company you need to look ahead and focus on technologies the market requires today. The result of CoE's work is a business case and a marketing offer. The members of this team need to:
- Have the knowledge of standards and best practices in the focused niche.
- Have certificates in their field of knowledge (e.g. CoE members who are in charge of cloud solutions need to have an AWS certificate), and a distinct process of how teams can acquire these certificates.
- Conduct training courses for the staff members.
- Participate in niche conventions and other events.
- Have a portfolio with expert publications (this isn't a requirement, but it will be a significant advantage).
- Have previous experience working on projects in a given niche (this isn't a requirement, but it will be a significant advantage)
Many companies have R&D departments and strong technical teams. They conduct various educational events, and publish articles. Why aren’t they still a CoE? What is the difference between regular outsourcing (or outstaffing) and CoE?
The difference is that the CoE challenges the company internally and opens new areas for the company to cover. Think of CoE as of a new business direction.
The general idea of the Centers of Excellence is that they become a sales outlet. CoE also refines processes, collects and systematizes expertise and discovers new directions for business development.
CoE basically impacts the strategic development of a company. Such "centers" aren’t simply an R&D or R&D + business. This is a possibility to systematize your acquired (or one that is being currently acquired) expertise, bind your team of sales experts with the R&D team and as a result, build up a strong and unique expertise that clients would want to get. Instead of waiting for a potential client’s request and thinking about what to occupy your bored employees with, CoE allows you to take the lead.
Why is the creation of CoE profitable for companies?
- The involvement of your own technical experts in the development of the CoE solution.
- Strategic planning is conducted by the whole company. It is often difficult to predict which technology will blow up in the nearest future. Sometimes, managers can simply miss the appearance of a certain technology. Let the best experts of your company choose the CoE direction and make strategic decisions.
- New line of business. Each CoE is a new business line for an IT company and a sales department. The availability of experienced developers in a certain focused area and their close cooperation with the sales department will let you deliver your solution to a client in a matter of hours.
- Candidates motivation. A well-developed CoE and the accumulated expertise in a focused niche will attract new experts to the company who are looking to grow professionally in that niche.
- Company brand. CoE experts take part in promoting their CoE solutions. For that, employees accumulate their own portfolio (presentations at conferences, articles, certifications). Their names can frequently be heard in the market, which makes the company more recognizable and provides more competitive advantages.
Why are developers interested in CoE?
- CoE is a sort of freedom. You get an ability to not just write code, but resolve complex tasks and do that the way you find to be the most exciting. A company management don’t push you towards certain technologies. The CoE concept and its focus area are accepted collectively on the initial stages. The developers can very often become the initiators of choosing the CoE focus area.
- CoE is a guarantee that you won’t need to support a project based on Java 5 any more. The participation in the CoE is also an ability to boost your skills in the most advanced technologies and niches.
- A well-developed CoE attracts top skilled workers. There will be no setbacks.
- The CoE experts participate in sales. This means that you can also boost your soft skills (skills in negotiations and sales, foreign languages, mentor qualities).
- CoE gives an ability to accumulate personal professional portfolios (publications, presentations, various certifications and trainings).
- A strategically-built CoE in your company provides an almost 100% guarantee that you won’t stay without work.
In fact, there are many ways to develop the CoE. There are also no distinct rules in how it should work, managed, budgeted, or how a focus area should be selected. Each company resolves these questions individually. The creation of CoE isn't about going far and beyond. It's about concentrating on narrower niches, and limited technical and working resources. The two common outsourcing issues that we talked above can all be resolved with the help of CoE.