As companies look for the "right" vendor, they naturally try to determine a sensible selection criteria. Price per hour is very appealing, so it's hard to find a buyer who doesn't use it early on in the selection process or who doesn't focus on it as one of the main negotiation issues. While a low price per hour might make a buyer feel that he's got a great bargain, it often misdirects the selection process and misleads the vendor as to what is expected of him.

Small and mid-size industrial companies are choosing outsourcing over hiring internal staff because they lack specific skills and want to avoid investment into the fixed cost infrastructure. They are (or at least should be) looking for a vendor that will deliver results. Pricing and capabilities of the vendor in question need to be measured against desired results, not against the price per hour of competing vendors.

Pay by the hour is counter-productive. Introducing proxy metric, such as price per hour, introduces unnatural selection criteria. It also misleads the vendor's management on client expectations and at the end of the day motivates developers to "produce" more paid hours. When vendors are asked a "price per hour" question, they are forced to conform to this selection criteria, instead of offering a real value proposition. A vendor is thus forced to focus on passing the criteria, and to claim a low price per hour. Once the relationship is established, and the hourly price limit is established, a vendor will be focused on lowering his hourly costs and on charging more hours where possible - both initiatives are destructive to the value creation and to client's business objectives.

If a job is not well defined and T&M seems logical, perhaps it is time to re-examine why it's hard to come up with a clear objective. While many technology companies need to manage R&D projects or to buy T&M to extend their existing team and process, industrial companies are usually equipped to deal with a vendor only on a result-oriented basis. Often companies do not work hard enough to articulate clearly what has to be done; a vendor is not getting answers and might force T&M on parts of the project instead of helping to determine better requirements.

Don't ask for price per hour, ask for cost per hour, ask for transparency. In business we often use default privacy guidelines which might work well in some instances but are not effective in others. We are accustomed to knowing a cost structure and profits of public companies, yet we are often shy to ask a small vendor about his costs. This is a perfectly normal question. Before committing to a vendor, you need to know what is he good at, whether he invests in security and resources, how good ( expensive) his people are; how well the vendor knows his own cost structure. It might turn out that a bulk of the costs are spent on a U.S.-based office, while you will only interface with offshore-based employees.

I. Choosing a Vendor

"14 Due Diligence Questions"
OutsourcingCentral.com

Use due diligence as part of your decision-making toolkit before making the decision to outsource. Your due diligence should be directed at answering the 14 questions. What you discover through the up front due diligence will help you answer your two key questions - Is outsourcing right for you? Is there a compelling business case for this type of shift in your business model? You must have these answers before engaging in a comprehensive outsourcing evaluation.

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II. Communications

"Eliminating the Greatest Threat to Success in Outsourcing"
OutsourcingCentral.com

Effective communication is essential for the effective outsourcing practice - everybody admits it. The article studies key points of establishing the most effective communication process early on, along with selecting a provider and conducting due diligence. It gives a minute analysis of the communication fields and special features you should know before the outsourcing process starts, including the content, the frameworks and the human behavior aspect.

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III. Outsource to…: Russia

1. "Selecting A Russian Offshore Software Developer"
   www.forrester.com
   
   How Can End Users Gain Value From Russian Service Providers? This is the first document in the series on the Russian offshore software development industry by Forrester Research. Western firms have for some years turned to software development specialists in Russia for offshore application development and related services. Russia represents a far smaller reservoir of development expertise than exists in India, for example. But as costs compare well with those of other offshore venues and technical expertise is strong, Western buyers like Alcatel and Computer Sciences Corporation have been happy to turn to this source. Some representative software developers in Russia have achieved substantial growth in size and turnover as a result. Forrester believes that such firms offer a viable alternative to offshore providers elsewhere and to local services firms in advanced economies. But as these developers remain small and less sophisticated than India's top providers, we advise that only Western buyers who have strong project management and vendor management capabilities will be best placed to use Russian firms at this time. To help with vendor selection, we define a set of criteria - based around the current deliverables, future plans and market strength of candidate suppliers - that will assist firms in picking the right partner.
   
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2. "An Anatomy of Russian Offshore Software Developers"
   www.forrester.com
   
   This is the second document in the Russian offshore software development industry series by Forrester Research. This document looks in more detail at the nine companies that Forrester surveyed as representative of the capabilities of Russian providers. The software development industry in Russia remains fragmented today, and the individual firms show substantial differences in capability and geographic reach for project delivery. A pattern of well-executed projects and long-term relationships with clients in the West demonstrates that effective Russian software development providers offer an offshore option that - for appropriate projects - competes with even the best developers in other offshore locations, the US, and Western Europe.
   
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3. "Debunking Russian Offshore Myths"
   www.forrester.com
   
   This third and final part of Russian outsourcing by Forrester Research discusses some of the perceptions and misconceptions that influence client-side decisions in favor of or against Russia - or, to a certain degree, other Eastern European countries - without regard to any specific company.
   
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IV. Mid-market Challenges

1. "Mid Market Report - Shooting the Azimuth"
   OutsourcingCentral.com
   
   The compelling advantages and unique challenges of successful outsourcing for mid-market companies require special attention. This community increasingly requires outsourcing as a means to improve competitiveness, though it is poorly understood and weakly served by many outsourcing providers. This article addresses the unique challenges of mid-market companies and how to overcome them. The author identifies the right process for identifying candidate business processes and functions and discusses how to manage them to improve business results.
   
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2. "Outsourcing In Mid-Market Companies"
   www.argea.com
   
   One of the great opportunities for the mid-market companies to stay competitive is to use all the options to lower costs, provided by offshore outsourcing. While huge multinational corporations can afford maintaining the non-core departments in full measure, mid-tier companies should leverage major advantages of outsourcing their processes. In the article, the author presents an overview of mid-market outsourcing, and explores several of its unique challenges.
   
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V. Corporate Needs

"A Field Guide To Software as a Service"
www.infoworld.com

The article investigates the tendency of porting corporate software-related needs to Software as a Service. Divided into four parts, a set of solutions is presented on a comparative base. The common idea of adopting the SaaS idea to the company's non-core needs is proven.

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