A new research by the outsourcing advisory firm, neoIT is the latest to reiterate that time-to-market, and not cost, is the most significant factor behind the decision to outsource product development to offshore locations. In a study conducted by the firm, 25% of the respondents said time-to-market was the top priority for them, while 17% of the respondents felt that cost was the top priority.

Reducing time-to-market also emerged as a major driver of globalized delivery of R&D services, in a report by OutsourcingCenter and Indian IT-services provider, Wipro, released in May this year. A report by AMR Research, released in January 2006 also said that as many as 45% of the respondents in a survey of those outsourcing engineering and product development services believed that reduced time-to-market was a major gain accrued from outsourcing. In the Wipro-Outsourcing Center report, time-to-market was second to access to manpower and in the AMR report was second to cost saving.

Global from Day one

As is common knowledge now, startups in the Valley, Austin, Boston and the other centers of innovation are beginning with a model where offshoring is inherent in their business model.

More often than not, these entrepreneurs are in a race to get the product to market as fast as possible. It is not surprising that time-to-market features as the topmost priority for them.

Time-to-market is inversely related to revenue. When it is shorter, it leads to increase in revenue as the company gets additional time to sell the product. As the product lifecycle becomes shorter, reducing time-to-market becomes even more important. Sometimes this factor alone decides the success or failure of a product. In fact, the neoIT study shows that companies have reported a 40% increase in the new product revenue if time-to-market is reduced by 20%–30%. The neoIT research further shows that 55% of enterprises, which globalize see reduction in time-to-market as their primary objective in services globalization.

Myths and Realities

In the study, neoIT has also challenged certain myths, which are associated with time-to-market. They include:

To reduce time-to-market, neoIT has suggested process transformation as the solution. The study also emphasizes that services globalization will not automatically reduce time-to-market.

“A process that is not optimized in-house is unlikely to substantially improve if globally sourced,” says the report. To tackle these issues, neoIT has suggested some unique levers, which could help in successful transformation. These levers include:

The above levers can reduce time-to-market gradually. Like a time lag of 12 hours between the U.S.A. and India can give an American company 12 additional hours everyday over its competitors, which are not offshoring. Also, when a company outsources the noncore process to a service provider whose core activity is that, it automatically gets the best practices available for that process universally.

Technology also greatly impacts the timing, as adopting the best technologies available, with certain automation will reduce time.

Time-to-market is a crucial factor for technology-oriented companies, whose product lifecycle is becoming shorter by the day. With their need to adapt to the market dynamics with lightning speed, they have turned to offshoring.

This, however, does not imply that non-IT companies will not reduce their time-to-market by outsourcing. In fact, companies in as diverse areas as automobile parts and semiconductors have tried offshoring product design and have reduced the product-development cycle. According to a Tufts Center for the Study of Drug Development (Tufts CSDD) research, outsourcing drug development results in significant reduction in the product-development cycle for new drugs. Major pharma companies such as Eli Lilly, Merck, GSK, Pfizer, Novartis and Aventis have offshored significant parts of their drug-development process to India.

It is a matter of time before other segments latch on to this.