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We recently hosted a Viola CTO Forum session for our portfolio company CTOs and VPs R&D, about the challenges of recruiting developers to hi-tech companies in Israel, with a focus on outsourcing and distributed development. Leading up to the session, we ran a survey on the topic among the attendees, which generated some interesting insights we are happy to share with the wider tech ecosystem.
The session (held in December 2018) featured a mix of speakers from our portfolio as well as foreign and Israeli outsourcing companies, including: Yaki Luzon (VP R&D and Professional Services at LiveU), Einat Orr (CTO at SimilarWeb), Chen Salomon (VP R&D at PlayBuzz), Noam Oren (CTO at Payoneer). We also had presentations from foreign outsourcing companies Ciklum (Ukraine), Tellence (Romania), and KavaDev (Nepal), and from Israeli outsourcing company Herolo.
Here are some of the takeaways and tips resulting from the survey and session:
HOW BIG OF AN ISSUE IS IT?
36% find recruiting R&D talent in Israel “very hard”, and 56% find it “hard” for specific positions
44% already have an offshore or second R&D site (typically with less than 10 people), and an additional 32% are using outsourcing for certain tasks (same statistics also apply for R&D organizations below 50 people)
50% have a second site in the Ukraine, the rest all over the world (mainly in East Europe and India)
Nobody regrets opting to outsource, with 47% saying “it’s great” and 53% saying “it is not the best solution but they don’t have other choices”
WHY OUTSOURCE?
Most of the speakers noted that cost saving – while still an important decision factor, especially in the less popular outsourcing countries – is still a very relevant consideration, but it is no longer the primary motivation to recruit offshore as it has been in previous years.
Today the decision is influenced mostly by the speed and flexibility of recruiting talent, as well as access to relevant know-how (this applied both for developers and other positions, like DevOps).
Multinational teams also make it easier to provide 24×7 support and provide redundancy that reduces the risk of a single knowledge center.
Slide from Viola’s R&D Outsourcing and Distributed Development Survey Results (Jan 2019)
MAIN CONSIDERATIONS WHEN DECIDING TO OUTSOURCE
The major considerations affecting decisions around outsourcing include the employment model, team structuring, location, and cost.
EMPLOYMENT MODEL
Local outsourcing company:
This is the most common model, as it reduces a lot of the overhead to initiate and maintain an offshore site. It does, however, increase the dependency on the outsourcing company.
Direct employment:
More demanding (and very country-specific) but strengthens the bonding with the Israeli center.
Freelancers:
- Another way to create direct relationships, but not as employees of the company.
- Not necessarily working full time for the same company.
- More suitable for short-term tasks.
TEAM STRUCTURING
Turnkey solutions: Less relevant for product companies, certainly not for core products.
Organic outsourced teams:
- Each outsourced team gets full responsibility for a subject, same as the teams in Israel.
- Usually improves sense of ownership and quality, but increases the dependency on the outsourced team(s).
Mixed teams:
- Outsourced developers are joining existing teams in Israel.
- Improves redundancy and 24×7 capabilities, but can be challenging to manage on a daily basis (especially when there are big gaps in culture, language and time zone).
Ad hoc auxiliary workforce:
Little dependency on the outsourced developers, but usually significantly less effectiveness of using them.
LOCATION
Cultural fit, level of English and time zone differences are very significant success factors.
Accessibility from Israel should be considered (does it take a few hours or a full day to get there?)
Remember there is also the option of outsourcing in Israel, with pros and cons.
COST
This is always a consideration, and naturally it depends on all the above. In some places it can still get to 50% of even more, in others much less.
Even if cost saving is not the major motivation, remember that with the cost of offshore developers often amounting to 2/3 or 1/2 the cost of local developers, you could afford a larger team, i.e. 3-4 offshore developers instead of 2 locals (or 30-40 instead of 20).
RECOMMENDATIONS FOR DEALING WITH OUTSOURCING CHALLENGES
Choose the team structure and employment form that suits your current and expected needs (core vs. non-core products, existing products vs. new projects, etc.).
Visit your outsourcing location abroad before committing to it. Get a feel for the place, the atmosphere and the people. Verify if the flights are reasonable, considering there may be a need for regular travel.
Consider the level of managerial and professional support you get from the outsourcing companies. Will you get a full package, or just a quick recruitment channel? Consider also whether you want to have a site of you own (within or out of the outsourcing company).
Remember to be transparent to your native teams before launching the outsourcing. They might also have concerns, and their good will and cooperation are key success factors. Native managers should be trained in managing remote teams.
Even when most of the overhead is used up by outsourcing companies, you’ll need to invest in building and maintaining close relationships with your developers, in areas such as: Involvement in recruitment, ongoing communication, frequent visits and face-to-face meetings, involvement in the company’s life and making everyone feel part of the company, etc. Loyalty is a mutual relationship, and if the relationships are built correctly, attrition can be relatively low.
If you have organically outsourced teams offshore, consider sending an Israeli Product Manager (ideally – someone who came from that country). Don’t overlook the problems that might be caused by cultural and language differences (but also don’t overestimate them).
Do the math. Check the relative (total) cost of the various options before making a decision and weigh the cost reduction against all other considerations.
IP protection is an issue. It’s more complex when you depend on outsourced non-Israelis, and you should decide what your limits are and how to effectively control what’s going on. On the other hand, the issue also exists with “regular” Israeli employees, so don’t exaggerate the outsourcing effect. The track record and history of the outsourcing company should be a decision factor.
Viola’s R&D Outsourcing and Distributed Development Survey Results
(Download the PDF)
