Valtech Takes On Offshore Software Developers

Only three short years ago, big companies' mantra to VARs seemed to be: "We want it cheap, cheap, cheap." Today, notes Brad Murphy, Senior Vice President, of North American Business/Product Development, Marketing and Sales at Valtech (VARBusiness 500 rank #197), companies don't want to overspend, but they are far more sensitive to getting what they pay for. And sometimes, they want to pay just a bit more for something they need quickly.

Valtech is offering those customers a "something" that is an alternative to offshoring. Its "proximity centers" focus on building software for clients nearby, using a collaborative approach and eliminating unnecessary elements from the process. The secret, Murphy says, is in designing the project with speed in mind from the beginning, and not just engineering speed, but with urgency in the business process end as well. The result is often 40 to 50 percent more expensive than using workers in emerging nations, but the project is completed in half the time.

Murphy recently discussed how $133 million Valtech is meeting the ever-increasing needs of its customers, and to explain its "just-in-time" approach to software development.

You're not a typical outsourcing company.

The DNA of our culture is a little different than our competitors'. We started not as outsourcer or traditional consultant. We started as company with a passion for collaboration. We took technically skilled people and equipped them with skills to be an engineer in a big company. Even today, when we do work for customers the ideas we advocate are borne out of business transformation in terms of business and technical partnerships.

Valtech is about 15 years old. A lot has changed since the early 1990s.

The landscape has changed massively. Our typical customer is global, they're on the Fortune 200, as a general rule. They've expanded to using emerging markets, like Central and Latin America, China, etc. They were driven by the perception of cost and gaining operational efficiencies by having software projects done offshore.

Now we're seeing the pendulum shift. If cost savings is what's driving you, you're going to have slow growth and not innovation. That fact drove us 18 months ago to reflect on our business strategy. What is the customer's passion and do we have the right vision? We determined that our vision was not big enough. So we took our capabilities, knowledge and applied and configured them differently so we could offer more value for our company and our customers.

What was the big "a-ha"?

A statement like the one we made has to include what our constraints are. We build stuff that's important for the customer. So that doesn't mean we go and configure SAP.

What are we great at? Building really cool .Net and Java software. We almost never get to build brand-new stuff. We build software that enables new ideas. Customers are recognizing that innovation is necessary. And it all has to collaborate and integrate with existing stuff.

Sounds like some companies are realizing that they moved some parts of their business offshore, but are paying a price in innovation.

Yes. Also, customers are seeing biz cycles collapse. Ironically, that's partly because of technology. Competitors can move faster, so the amount of time a company has to capitalize on an idea has collapsed. They need agility.

If not outsourcing, then what?

Clients don't think in terms of big projects, but rather as a stream of incremental but strategic changes. It's not a neat, tidy project. How do you outsource that? You might rent smart people. But they are expensive, and there aren't enough of them.

We came up with a two-pronged approach: What if we could build a configuration model that's software on demand. If the customer needs more software, you can buy it incrementally over a period of time. Not paying for hours it takes to develop it, you're only paying when you get it. The second prong is to build domestic engineering software "factories." Each has between 50 to 200 engineers in a center that can deploy software domestically.

Doesn't sound inexpensive.

We hire really smart people, pay them a good salary. But it provides a company with flexibility, it can change direction. It only buys software that it receives, not a whole large project. Some people criticize this "agile software development movement" as a nave view of the world. We have high-performance people in there. Lean software development as it's also called is borrowing a tremendous amount of know-how first developed by Toyota and the just-in-time manufacturing.

The proximity center is close to the customer, but the front end of our team is embedded at the customer. I can objectively show that these centers can out produce -- by 200 and 300 times -- more work than a client can with same resource size. And a key ingredient is that the team becomes dedicated to a line of business for a customer.

How much more expensive, roughly?

For 20 to 40 percent more I can deliver the right result at half the time. It's up to the client to determine which projects fit this mold, and we teach them how to determine that. If a project has strategic impact, if it impacts innovation, your brand, then it's worthwhile. If it's more important to just get it done, we're not the solution. We are not relying on offering the cheapest solution.

Traditionally, consultants have teams work with a client for a defined period of time, say 90 days.

Say you're working on a project, and you realize that if you dedicated three weeks to creating a way to solve a particular problem, any time that the problem was encountered in the future, it would be immediately resolved. But say you only had 90 days at that client, and then you'd be gone. The motivation isn't there to prevent future problems.

How can you provide quality and speed?

The lean movement taught us if we go into engineering framework and speed that up, but don't speed up the business end, there's no great savings. You need to accelerate how to get the business people to articulate goals so engineering can digest them and get them through the queue more quickly. You need the right ideas; the best ideas that will produce benefits to customer and our business in the quickest amount of time. If you can demonstrate a focus on value and outcomes, you are different from competitors. Most outsourcing firms have an order taking mentality. No one's ever said to them, "are you sure that's what you want to do?"

In addition, there have been studies done that say on average, 40 percent of the features that companies build and deploy in the interest of doing something useful, never, or rarely, get used. I can show how to avoid building those things. It's about eliminating 40 percent of what they are spending money on, and avoiding those things before they get into the engineering cue.