by Eugene Goland
Chapter II: Vendor Selection Principles That Work
While there isn't a single prescription for what works best in selecting a vendor, there are some best
practices that can significantly simplify the process and minimize risks.
Long-term focus
Engagement with an offshore software outsourcing vendor is a costly initiative. Unless you engage the vendor for an extended period of time
you won't see a good ROI. Even if you have a small immediate job, look for a vendor that can become a long-term development partner.
Simple selection criteria
Start by articulating what kind of a company would make a good outsourcing partner based on your long-term outsourcing objectives.
Usually, this can be done in one sentence. Good example: "Software outsourcing vendor with project management capabilities in New York,
between 100 and 500 people in size, with expertise in financial services, strong .NET and SharePoint expertise". Bad example: "Reliable Indian
company that is easy to work with and with strong technical skills and top-notch people". Use simple "Request For Information" (RFIs) to
pre-screen vendors for the right capabilities.
Right Size
The size of the vendor company is one of the few objective criteria that can be utilized for pre-screening.
If a vendor company is too small, it will be hard to scale up; to change people on your team; the vendor might go under due
to the loss of a client or two. If a vendor is too large, you might not get the best people and/or leverage with the management
when things go off-track. The optimum size of the outsourcing vendor is between five and fifteen times that of your project, In
other words, if you outsource a project worth a million a year, the vendor's yearly billing should be between $5 and $15 million.
Industrial and technology expertise
You need to decide what kind of industrial and technology expertise the vendor should have. While it is important in some cases, for
instance with historical commitment to a particular technology platform, such as .NET, or with the need to know the industry's lingo for
effective knowledge transfer, such as for financial services, in many cases it's not required. If you do feel expertise is important in your
case, make sure to articulate internally what exactly you mean by that requirement. That can be determined through client references, by
evaluating whether developers on the vendor's team understand your terms and concepts, by certifications, relevant experience by the
company, etc.
Invest into the process, limit the number of candidates
Once you have candidates that have responded to your RFI, you need to select a few companies that you want to keep talking to. Make
sure to leave only as many as you have enough time to deal with, even if that means no more then a few. To make an effective decision, you
really need to invest in due diligence. A visit to the vendor's facility is best if it is planned correctly (see future articles). Test projects and
prototypes are an excellent tool to test out a relationship.
Be open
Share with candidates as much relevant information as possible about your business, objectives and selection criteria. Things that
might seem obvious to you might be difficult to guess for a vendor. Remember that you are going offshore to save costs and you
should expect some cultural and business differences. It is more practical to look for a vendor that can learn fast and be creative
rather than the one that can correctly guess what you need. Another reason to be open is to contribute to transparent trust-worthy
relationships.
Look at people, not documents
It is common to read a vendor's case studies, talk to references. While it doesn't hurt, you need to remember that these are just marketing
materials and selected clients. You will only see the examples that make the company shine stuff. A vendor might have lost people who
worked on a particular project, and the references might be from friends or people with vested interests.
It is much more useful to speak with people who will be involved in your project and to check references that can't be easily influenced, such
as discussion forums, trade groups associations and former employees.
Speak to the right people
When screening candidates, try speaking to people inside the company besides those in sales, marketing or PR . The only people you
want to spend your time with are the top management and those who will be working on your project. Look for vendors where the top
management wants to talk to you and who have the policy of being transparent.
Test projects
The very best tools in a vendor selection process are test projects and prototypes. While it is expensive, there is no substitute for direct
experience. The best test projects are short, have clear and measurable objectives and leave some room for creativity and extra effort on
the vendor's side.
