Digital disruption – a better, stronger, faster version of disruption driven by rapid technology changes and fueled by consumer desire – will cause a fundamental transition and upheaval of products in nearly every industry. Already we see devices as diverse as refrigerators and rice cookers being app-enabled from manufacturers such as Panasonic and Samsung. Forrester has described its vision of this upheaval in the form of the “Magic Mirror”, where the humble bathroom mirror is transformed via Internet connectivity, apps, and motion sensors into an interactive connected hub in the homes of consumers. This example serves to illustrate the new challenges faced by product development and sourcing teams where rapid technology change and demanding consumers are transforming even traditional product categories.

But why is this important for sourcing and vendor management professionals? Because, resulting from these dynamics, product development and engineering teams will be driven to engage to an ever greater extent with third-party product development services (PDS) providers. And when they do so, sourcing needs to not only be prepared to facilitate and manage these relationships, but also to proactively reach out and support product development.

The PDS market is comprised of a broad range of companies that can assist clients from conceptualization to produce sustenance for end- of-life products. However, the market is highly fragmented and includes a combination of staff augmentation providers such as Kelly Services, Randstad, and Vault.com; local, specialized contractors and boutique firms such as Tikford; and multinational service providers such as Accenture, Symbio, and Wipro.

In a new Forrester report, “SVM’s New Stakeholder: Product Development”, my colleagues and I maintain that in order to navigate the Rubik’s cube of PDS companies, firms must leverage sourcing best practices and encourage sourcing teams to play a pivotal role in orchestrating and maintaining a relationship with PDS providers. The report provides the following recommendations through the key stages of the sourcing lifecycle:

1) Sourcing Strategy: Identify Product Development Needs and Goals

In the initial stages of engaging with a PDS provider, the stage needs to be set as with any traditional outsourcing relationship. But for product development teams, this is likely to be a new experience. Therefore, sourcing professionals must:

• Leverage experience from IT. In ideal situations, knowledge, experience, and governance understanding can be transferred both from IT, and sourcing’s experience in working with service providers. This can help generate the overall strategy and road map for bringing in third parties. Understanding what work can be outsourced, and dividing up tasks dependent upon the maturity level of the organization will be critical. It will also help ease product development through the process of engaging with third parties while identifying and mitigating potential risk.
• Help product development get its house in order. For example, what processes can you modify and improve for product development? Does the product development team already have established and proven document processes? If not, sourcing professionals must try to help the product development team first put its own house in order before engaging with possible outsiders.
• Show product development leaders how different providers match up to their needs. Too often, executives who are unfamiliar with sourcing will simply select a provider based on name recognition or the recommendation of another well-intentioned colleague. Sourcing leaders must get ahead of this haphazard decision process by illustrating the myriad of options in the PDS space, and facilitating a structured decision process to determine which providers are the best fit.

2) Sourcing Execution: Help Product Development Select Providers With Five Questions

In the selection, procurement, and execution stage of engaging with PDS providers, sourcing leaders should consider five paramount questions throughout the process:

• Does the provider offer vertical and segment-specific service offerings?

• Help product development get its house in order. For example, what processes can you modify and improve for product development? Does the product development team already have established and proven document processes? If not, sourcing professionals must try to help the product development team first put its own house in order before engaging with possible outsiders.

• Show product development leaders how different providers match up to their needs. Too often, executives who are unfamiliar with sourcing will simply select a provider based on name recognition or the recommendation of another well-intentioned colleague. Sourcing leaders must get ahead of this haphazard decision process by illustrating the myriad of options in the PDS space, and facilitating a structured decision process to determine which providers are the best fit.

2) Sourcing Execution: Help Product Development Select Providers With Five Questions

In the selection, procurement, and execution stage of engaging with PDS providers, sourcing leaders should consider five paramount questions throughout the process:

• Does the provider offer vertical and segment-specific service offerings?
• Is the provider making investments in IP, process, and domain expertise?
• How clear is the value proposition of the provider?
• Can the provider help you with your governance efforts?
• In the case of offshore players, can the provider offer onshore domain capabilities?

And above all, don’t forget cultural fit. While the vendor selection process depends on a multitude of factors, it is important for firms to remember cultural fit and the willingness of the vendor to enter into a long-term relationship. For example, some providers may already have a relationship on the IT side of the business, so it may be possible to leverage some of these existing relationships.

3) Vendor Management: Teach Product Development to Govern Relationships Effectively

Forming a relationship with a PDS provider needs to be considered a journey — one that sourcing leaders will play a central role in. As the complexity of new products and services increases, there will eventually be a move to engage with a broader ecosystem of best-of-breed partners. While this can help accelerate the speed of development and bring in specific expertise, it can also increase complexity and potential problems. A classic example of this is the German and Spanish engineers who used an incompatible CAD system from their French and British counterparts in the development of Airbus’ A380, leading to budget overruns and delays. Sourcing leaders can help product development teams in maintaining an overview of various suppliers and ensuring compatibility between different parties.

Open a Dialogue With Product Development – Now

The first step in this journey must be a meaningful, honest dialogue with product development teams. In reality, product strategists value different things than sourcing professionals, and taking the time to understand their difficulties, priorities, and reasons for looking to third parties will pay dividends — ultimately leading to sustained business innovation and a successful relationship with PDS providers.