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Issue 13

Romania, the ugly duckling of the software outsourcing lake

Mihai Nadăș
CTO
@Yonder
OTHERS

The "90s have been dominated in Europe by the aftermath of the fall of the iron curtain. Eastern-European markets, which had been marked by the principles of the planned economy, were opened towards capitalism. Then a chaotic increase ensued, which left no industry untouched. Some mammoths, such as metallurgy, steel industry and mining, fall into the category of losers; however, a new species started developing, distinguishing itself among the winners, namely the information technology in general and software development in particular.

In 1993 a programmer from Cluj-Napoca was earning approximately 50 German marks, the equivalent of 25 euro, per month. Today, the best professionals have expectations that exceed 2000 euro, an increase of almost 1000% in less than 20 years. This is probably the most spectacular salary increase in modern Romanian economy.

At the same time, in Western Europe, the salary of a programmer is close to the amounts earned in Romania, and, should the trend of increase be maintained the competitive advantage based on reduced costs and a suitable geographical positioning (i.e. nearshoring) will fade in a few years n comparison to destinations such as the Ukraine, Serbia, Russia or the traditional India.

This background forces the outsourcing companies from Romania to think differently when it comes to their strategy and to diversify their portfolio of services in order to justify the significantly higher price compared to 10 years ago. In other words, the outsourcing companies must re-invent themselves, and innovate in order to remain competitive in a globalized market in a flat world, like Thomas L. Friedman called it in The World is Flat.

Software Projects vs Software Products

I would like to make the distinction between two broad software categories: projects and products. By products I mean Microsoft Office, Google Search, Salesforce.com, Skype, Evernote or Dropbox. These represent the central element in the strategy of the company producing them, have a large-scale impact and are used by thousands, million and sometimes even billion of users.

In contrast to the products, software projects represent efforts to optimize business processes through software, are secondary from the point of view of the company funding them and are to be found mostly in the form of internal, individual initiatives of departments that are designing their own software system in order to make their work easier (e.g. the internal system for the management of reservations of a tour-operator) or of some websites for presentation-related purposes.

This distinction is important, because, if the objective is to increase the value Romania brings through outsourcing, then the effort must be concentrated in the area in which the impact is the greatest, and from this point of view one must wager on software products and on the manner in which Romanian outsourcing could create value in this area. "Projects", as introduced above, have low impact by default, and are therefore available for outsourcing based on reduced costs, an area in which the Romanian outsourcing companies compete against cheaper destinations, thus eroding their own competitive advantage potential.

The needs of a software product company

Value is created by addressing needs, and if the greatest impact outsourcing companies can have is in the area of software product companies, then understanding their needs is the first step to be taken. Essentially, from this point of view, we can speak of two big needs: the need to adapt to change and the need of predictability in delivery.

The need to adapt to change refers to the fact that we are living in a world in which the only constant is change. Market requirements are changing, competition is changing and, last but not least, technology is changing at an increasingly rapid pace. If we are to look at technology in further depth, we can notice how, for a product company, losing an innovation cycle (by innovation I understand the adaptation to new technology and technological trends) could destabilize its position on the market in a decisive manner. An average product company cannot afford to invest too much in innovation, a reason for which the risk from this perspective, and thus the need, are very high.

The needs of predictability in delivery pertain to being professional. We are talking about on-time delivery, according to the agreed quality standards and within the agreed budget. This is a wide field in which initiatives such as the Capability Maturity Model Integrated (CMMI), a model developed by the Software Engineering Institute (Carnegie Mellon University) seeks to decipher a complex issue. The lack of predictability in delivery is, again, a risk factor, which, has more than once taken product companies out of the game (e.g. Netscape).

A functional model

Change starts from vision, but vision itself does not lead to change. Change needs models, results and proofs. The vision described above was implemented at Yonder and, for almost 2 years, we have been able to speak of a functional model within which we notice how addressing the need for change and predictability on the European market of software product companies generates value that differentiates us and offers completely new perspectives of development in comparison to the traditional model of outsourcing, which is based on low costs and low added value.

Beyond the efforts to address the need for predictability, resulting in certifications such as CMMI and in changing the organizational chart, which took place in 2012, this year we reached a new benchmark by launching a booklet that concentrates our vision on the need for software product companies to adapt to change. The paper is called "The Innovation Roadmap of Successful Software Product Companies" and presents an innovation model that software product companies must adopt in order to remain relevant on the market in the long run and describes in detail four trends that we believe the companies must take into account when defining their plans for developing their products. The four trends identified are:

  • Contextual, Social and Modern User Interfaces
  • Mobile-Centric User Applications
  • Cloud Computing: IaaS, PaaS, SaaS
  • Big Data and Next Generation Analytics

This is a time that highlights not only the change from a reactive attitude to a pro-active one in local outsourcing, but also the implementation of a vision that presents a clear and functional alternative to the current model, and which already has behind it a series of successful case studies.

Conclusions

On November 11th, 1843, Hans Christian Andersen published a story about a transformation for the good, about trust and perseverance. Romania, as an outsourcing destination, is similar to the story by the Danish author, but, unlike the duckling in the story, which has benefitted from its genetic inheritance and witnessed a fatalist transformation process, Romanian outsourcing must determine its own phenotype in order to go to the next level of maturity.

In the same way in which the software companies need innovation in order to remain relevant on long term, we can speak of local outsourcing companies where adoption of a vision and of a strategy based on added value will make the difference à la longue.

References

1. tss-yonder.com/vision

2. innovation.tss-yonder.com

3. www.youtube.com/watch?v=c1AsihGwuxU)

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