Will Outsourced Product Development Specialists Survive?

Prashant Raje

I have spent most of my career of thirty years in the software product development space. ‘Product Development’ and ‘Product Engineering’ had not been invented as labels for what we did when I started my career in 1981. I was called a ‘System Software Programmer’. Our tribe was rather small. But we were a proud tribe – proud of the kind of work that we did; and proud that we did not do ‘lesser’ work, like developing business applications! We believed that our work was ‘special’. We felt that we did the hard, creative, brainy work of creating platforms that others used for the ‘mundane’ job of developing business applications.

As I grew professionally, my love and bias for product development and engineering only grew stronger.

In the meanwhile all the action in India took place in the IT Services arena. By 2005, after a phase of explosive growth, a few billion dollar players had emerged as the market dominators in the mature, established, big business of offshore IT services. I had grown into senior management positions by now. I recognized the complexity of business and social systems, and the role and complexity of the corresponding IT systems. I had developed a healthy respect for the craft and the business of building and implementing IT systems and services. Nevertheless, my conviction in the ‘specialness’ of product development was complete. I believed that it not only required engineers with special product engineering skills to develop products, but it also required managers with a deep understanding of product engineering and the product business to manage that development.

By 2005 Outsourced Product Development (OPD) also started to get recognized as a speciality with a future. OPD specialist companies like IndusLogic, Persistent and Symphony, who had been small boutique players through the nineties doing only product development, had started to experience significant growth. Some of the larger IT generalists like TCS, HCL and Wipro were doing good business in OPD as well, apart from all other work like application development and support. An interesting new battle began to shape-up in the OPD space – the smaller but dedicated and growing OPD specialists vs the much larger IT and software services generalists.

I was firmly convinced about which side would win in this emerging OPD war. The logic seemed simple. It took special skills to build products, to manage product building, and to relate to customers in the product business. The OPD specialists had nurtured these skills and knowledge through the long years of their focus. The generalist services companies could not build this ‘product development DNA’ quickly or easily. Sure, some of them had retained and even grown their OPD business; but this was getting swamped and marginalized by the swelling ocean of their IT Services business. Further, the generalists were widely known for their IT services capabilities. Product companies would not be able to relate to them. Finally, the dwarfing of their OPD business by IT services and the inability of product companies to relate to their OPD capabilities would form a vicious spiral of dissipation of these capabilities over time. The OPD specialists, thanks to their dedication and focus over several years, would emerge as the next wave of giants in the OPD space.

Much as I love my trade and my tribe of many years though, and much as this line of argument seemed convincing at first, I have lately begun to doubt my own certainty. No doubt, the job of developing products is special. So indeed are the jobs of managing such development and managing the needs of OPD customers (which are so different from the needs of IT services customers). But does that necessarily mean that the companies who do these jobs have to be special? After all, there is much in the OPD business of today, and much that is likely to be needed tomorrow, where the generalists have an edge over the OPD specialists. For example, they have the expertise and the experience of scaling business and relating to the business needs of their customers. They also have the domain and vertical knowledge required to create greater value for their customers. Finally, they have the deep pockets to be able to invest in strategies for the future. All that they need to do is to set their mind on this business, suck the talent from the OPD specialists, get seasoned senior managers from the field to drive the business, and give them the support and freedom to grow.

What will happen to the OPD specialists then? Is there any future for them or are they simply going to get marginalized? Well…while a few will get marginalized like testing and infrastructure specialists who succumbed to similar pressures when IT services generalists entered those – once niche  – segments. But a select group, who ‘super-specialize’ within a narrow sub-area of OPD; perhaps in a specific domain or vertical where they dominate, will surely survive profitably. Perhaps a couple of large specialists will emerge and create a unique position for themselves that the generalists cannot thwart easily. ‘How’ is the question!