When Agile meets Outsourcing

While working with a client recently, I was approached by one of the client leaders. He was very excited about the recent decision to implement agile practices across the organization. He was especially pleased, he said, because we’d be in-sourcing all the previously outsourced functions. In other words, he simply assumed that outsourcing and agile could not co-exist. Even more surprising, he didn’t seem concerned about the implications of giving up on the business’s successful outsourcing efforts. How would we get the talent the company needed if we were to suddenly in-source everything? And what would happen to overall costs? 

As my colleagues and I explain in our new BCG.com article, When Agile Meets Outsourcing (January 2019), not only can agile and outsourcing co-exist, but when managed effectively, they can do much more—transforming IT development, reducing costs, and providing access to a large pool of technology-savvy talent. 

In a traditional outsourcing relationship, we know that the IT team “throws a project over the wall” to the vendor; the vendor, in turn, completes its tasks and throws the project back. This arrangement works well in a waterfall development model, which dictates that work cascade from one step to the next. But when this setup runs into the agile work process, it fails. Perhaps it’s no wonder the IT leader who approached me was skeptical. After all, agile asks an interdisciplinary team to work side-by-side during agile sprints—sharing information, solving problems, creating minimum viable products, and failing fast. It asks that team members work as equals and be able to change direction quickly. For this agile model to succeed, one team can’t punt to another; the members of both must execute together.

So, is it really possible for teams to work side-by-side in an outsourcing relationship? Yes. I’ve seen companies create strong agile partnerships with their vendors, tearing down the walls and enabling agile team members to work closely together, whether virtually or physically, to achieve their goals. This approach, which we call distributed agile, creates squads made up of company and vendor staff members. All team members participate as equals, working with a one-team mind-set to understand the end user’s needs and find solutions. These organizations have formed productive and enthusiastic distributed agile teams by taking this approach, while sustaining the cost savings originally generated by outsourcing.

If you implement distributed agile, you’ll have several outsourcing models to choose from, each with variations in where the different team members sit and whom they report to. While project owners are typically company employees and remain close to the primary business, for example, scrum masters and business analysts can be employees of either the company or the vendor and may sit in either location. Developers and testers, in turn, are typically employed by the vendor and sit at the vendor location.

Within these models, you can choose to physically collocate company and vendor employees or not, depending on the project. But you’ll want to collocate most of the team members for two to three sprint cycles before moving core team members to their ultimate location full-time, given that teams need time to adapt to new collaborative practices.

After you’ve have agreed on an outsourcing model, you can set up your new partnership, which must have three interdependent parts:

• a well-written, legally binding contract;
• new team practices, including a shared culture, collocation at key moments, a full commitment to agile ceremonies, and the empowerment of vendor employees; and
• tools and technologies to enhance team communications and productivity—including tools for screen-sharing and messaging, agile life cycle management tools, and an integrated pipeline of work that allows team members in different time zones to continue to work on products after members in other time zones have finished their day.

Implementing agile ways of working throughout the IT organization is a journey. Recruiting a vendor as a partner on that journey will allow you to transform IT development while continuing to reap the benefits of outsourcing. For those that get it right, the rewards are large.