Part 2...How To Safeguard Your Intellectual Property When Outsourcing Software Development

In my previous blog post I talked about the challenges clients face when picking an outsourcing vendor. (see here for the blog post Part 1)

The problem of how to ensure that the Intellectual Property is safeguarded is less of a problem for bigger companies dealing with bigger outsourcing providers. There is a certain advantage to be gained by going for size...and I vouch to say that bigger, in most cases, is better when it comes to the protection of a companies IP.

For smaller companies looking to get a limited project done though the bigger outsourcing vendors are not really an option. Most of the bigger and reputable BPO  vendors won't even enter into a relationship unless the annual revenue out of the contract exceeds at least 500 k.

As such a lot of domestic companies are usually stuck with one of two scenarios:

Either develop onshore and pay onshore pricing or develop offshore and take all the risks associated with it. Unfortunately either one of those options are not ideal.

There is though a third option available to flexible outsourcing vendors and their clients which offers the benefit of outsourced pricing while offering maximum legal protection and avenue for recourse to the company.

We offer our clients to contract our services through a domestic corporation. (US based). A jurisdiction is chosen which is satisfactory to the client. Additionally, and only if the client desires, we do offer arbitration instead of court litigation. (we ordinarily use JAMS).

The key point is that the US company our client  contracts with carries an errors and omissions policy with an insured value on every claim well in excess of any conceivable damages.

We find that clients who are concerned about the reach of law and the ability  to enforce a legal claim are more than happy to pay the small premium in rates over our offshore/Non Us pricing to gain the piece of mind needed.

No one buys insurance on a vehicle expecting it to be used. In the unfortunate event that is has to be used it will remove financial damages and offers a needed comfort level.

An outsourcing partner which offers a strong errors and omissions policy should be looked at the same way. No one expects it to be used (or wants it)...but in the unfortunate event that is needs to be used it offers a mechanism to get properly compensated.


Part 1...How To Safeguard Your Intellectual Property When Outsourcing...And Which Country Is The Best For Your Outsourced Software Development

It is often times an afterthought...but it really should be a huge part of your evaluation when you assess whether or not to outsource your next software development project.

I am talking about Intellectual Property Theft...and what you can do about it.

Anyone who has been in the outsourcing business as a vendor has seen it before.

A potential client has huge reservations because he had tried outsourcing before. He had some very bad experiences. The software application written on the client's behalf was reused or resold or simply not delivered. The potential client had simply been cheated.

Outsourcing Software development typically means dealing with a company located in countries like India, China, Malaysia, Mexico, Indonesia, Thailand, Philippines, Brazil, Bulgaria or Egypt,...just to name the most popular ones.

The question to ask is what safeguards can be put in place to make sure that no Intellectual Property Theft occurs.

The simple answer is that there is very little which can be done. A vendor who resides on the other side of the planet in a country where  intellectual property protection rights are either non existing, weak or simply not being enforced can steal from a client with relative impunity.

Of course..most vendors are reliable and can be trusted. yet...the question remains...what can a decision maker do to safeguard the Intellectual Property he is about to hand over or have developed ?

One good place to start is the United States TR Special 301 list. This list is annually compiled by the US congress and list all the countries which are known for Intellectual Property Theft. Inclusion on the list is because of  weak domestic laws  to safeguard such Intellectual Property and/or the failure of the judicial and executive branch to enforce such laws.

In short...the list shows all the countries known to be as potential cheaters, In those countries the theft of Intellectual Property is frequent and there is little or no  recourse available to the company.

What is perhaps most noteworthy about the list is what is not included. The only country among the traditional outsourcing countries which is not included are the Philippines.

The Philippines earned its exclusion from the list by having Intellectual Property laws modeled after US laws and a legal system which is independent enough that legal claims are fairly adjudicated.

Another key advantage the Philippines offer are that the general mindset of the population is as such that they are law abiding. Crime rates are low and there is a general respect for the other person's property.

I am obviously generalizing here...not every vendor located in China, India or Russia is bad..and not every vendor located in the Philippines should be trusted without exercising due diligence.

It is also worth while to note that bigger corporations who have the legal muscle to institute claims all over the world are less likely to get cheated than a smaller company (relatively speaking) which lacks the will and / or the money to go the litigation route.

How One Company Overspent On Its Outsourcing By 500 % ...The Dirty Truth Every CEO Should Know

Quite a while ago ago I talked to a company which was looking to kick off a bigger software project. They never went ahead with it and it was just another deal which did not bear fruit. Nothing unusual about it.

What makes it newsworthy though is that the CEO of the company reached out a few months ago and asked if we were to able to pick up the maintenance and service for the software they had developed.

Obviously a pretty easy thing to do. We priced it out, arranged for the delivery of the software (source code) and got to work. As is customary in those situations we  had a few developers read through the code with the goal to familiarize ourselves with the code and the functionality.

As part of the code review we found some developer comments (once again...nothing unusual). What made it a bit unusual was that burred in the code were clear references as to which company had actually written the code.

This is where things got interesting. Below is a quasi recap of the the conversation I had with the CEO, our client.

Steve: So....when XYZ (company name embedded in the code) developed the API they... 
CEO Interrupts me: Who is XYZ ?
Steve: The guys who developed the code
CEO: No..they aren't
Steve....(pause...does not say anything)
CEO: What makes you say that ?
Steve: Well..there are clear references in the code that they are the author of the software you delivered 
CEO: What ?...I don't understand...we had it written by XXX

The CEO (our client) then took it upon himself to get to the bottom of the issue. Did not take him to long to find out as to what had happened.

The company which he had contracted with to develop the software had outsourced the entire development to a provider in India.

The CEO was rather flabbergasted that this was possible. He had paid premium pricing (his words) assuming that the product was going to be developed onshore in the US. Doing the math by using our rates he figured he had spent about 250k more than what he should have paid.

Obviously 250k can be a lot or very little money for a corporation. In this case the company is privately owned and the CEO happens to be the majority shareholder. Company is doing money was (or is)  not the issue.

The issue for the CEO was simply that he felt he had been taken advantage off...led to believe that it was an onshore development when in reality all of the work (or vast majority) was done offshore.

And this brings us to the dirty truth every CEO should know.

A lot of software development billed at domestic developer pricing is parsed out to providers offshore.

Decision makers should be aware that not in every case what is sold as a domestic development is actually developed domestically.

There is obviously a certain added comfort level for a US company to deal with a US based software development company. The CEO/Decision Maker might feel more comfortable...but the truth of the matter is that the company  might not be exactly getting what it has paid for.


How The Business Of Law Will Outsource To An Artificial Intelligence Unit...Think Watson

It has been a long time in the making but it finally happened. A major US law firm (Bakeler & Hosteler, about 1000 attorneys) just signed up as the first customer for IBM's "artificial intelligence attorney".  The AI attorney is part of Watson...IBM's rather famous artificial intelligence engine.

A lot of people are wondering what the long term consequences society will suffer once knowledge can be disseminated via AI units in a coherent and meaningful way.

The business of law is one industry which might change more than any other business because of it. By outsourcing the legal research supporting or disproving a legal theory army's of lawyers might become irrelevant.

In the future all what it takes to build a case (or retort) is  a well written query to retrieve the information in a contextual relevant matter which might be assembled by an army of lawyer otherwise.

The implications over the long run are staggering. Theoretically a 3 lawyer law firm will be able to muster the same quality of legal work as a 100 attorney firm.

Of research is just the first step. Once the AI unit has been on the job for a certain period it should be able to output the requested information in a style which can be cut and paste into a legal motion. Rather than the attorney drafting the motion (at $ 500 or more the hour) it will be a cut and paste job..potentially done by a paralegal.

Of course...we are a bit away from that but anyone who believes it will be decades rather than a few short years might be in for a rude awakening.

The business of law has been fighting a need to reduce costs and an unwillingness by clients to pay more ever since the 2008 recession.

An outsourcing solution which produces equal or better quality at a greatly reduced cost has been the impetus of countless other industries to set up business processes in India or the Philippines. (or anywhere else for that matter).

You can bet that there will be countless other law firms who will follow the first one. If history is any indications once an industry starts outsourcing the process will not stop.

At the end  of the day outsourcing legal work to an AI engine might make the business of law more democratic and cheaper for the users ...and this would be good news for everyone apart from the individual attorney who might not be able to bill the same amount of hours.

India Is Still The 800 Pound Gorilla In IT Outsourcing...

India might have lost its leadership in call centers to the Philippines...but it certainly does not show any signs of slowing down when it comes to ITO (IT Outsourcing).

There is certainly strength in raw numbers. With a population of almost a Billion people India is basically the only place in the world where a major company can set up with the goal to hire a 1000 software engineers and not running into problems as to pricing and general availability of talent.

The building of technology centers where a few thousand engineers can be supervised  under one roof has always been the one advantage none of India' competitors in the global outsourcing world can match.

India's National Association of Software and Service Companies (Nasscom) just announced that the sector increased employment by about 230,000 in 2015. Total employment for the sector now stands at about 35 Million.

By their own estimate the Indian BPM sector (Business Process Management) has now captured approximately 56 % of the total global market for IT related outsourcing services.

These are huge numbers. If you consider that the entire population of the Philippines is only about 98 million and India employs just in ITO 35 really shows that there is strength in raw numbers.

Of course, only few companies really have a need to hire hundred's of developers and for most companies there are other places in the world to get their ITO done as good or perhaps even better than what India has to offer.

At the end of the day it only matters what your own outsourcing team is capable such there is really no strategic advantage outside of sheer numbers India can offer.

Never the less though...the  numbers are impressive.

India's Nasscom Releases 2015 Revenue And Market Share Numbers