OTTO-Sourcing: The New Alternative to Outsourcing?
High employee turnover, labour costs, and training are some of the many factors holding companies back from delivering high-quality digital amenities. Some companies get around this through outsourcing to foreign companies. Outsourcing, while popular, is a practice that can come with great risks and issues. OTTO-sourcing is a strategy that helps businesses achieve their goals while keeping costs low and eliminating the problems of outsourcing.
Software development outsourcing was popular in the early 2000s. Companies desired to offshore development to places with lower living costs to achieve cost-saving goals. The most popular offshore IT outsourcing regions are Eastern Europe, Asia, and the Middle East. Each region has its advantages and disadvantages. With Eastern Europe, companies can receive high-quality services and benefit from a smaller -but still significant - time difference. However, these outsourcing opportunities can remain relatively expensive. Asia and the Middle East, particularly countries like India, Pakistan, Vietnam, and Iran offer much cheaper rates but at a higher risk. The political and economic situations of such countries can be uncertain and negatively impact business negotiations.
Canadian companies soon realized there are hidden costs and the inherent risks of offshoring core technologies. As a result, companies started to hire in house development resources to work on core and essential tasks and only use offshore resources for non-essential tasks such as call centers or remote first-level support.
Over the last few years, Canada has become a key player in the world of software development, attracting companies that specialize in Artificial Intelligence (AI), Internet of Things (IoT), Autonomous vehicles, Telco, e-Commerce and many other prominent technologies, creating high paying IT positions. Companies such as Google, Microsoft, Amazon, IBM, Shopify or Apple invest heavily in Canada and started to hire more and more software developers causing a high demand for skilled developers.
The Canadian government is working hard to create highly skilled workers in Science Technology Engineering Mathematics (STEM) areas, with heavy government investment for STEM education. The Youth STEM program is a $30M initiative that looks to increase the number of young people planning to pursue a career in one of the fields of STEM. However, the demand still exceeds the supply causing a huge business impact on new start-ups or traditional, non-IT industries (which still need occasional IT development support). Those companies are unable to attract and retain employees which prohibits them from focusing on their core business.
As a business leader, you want to focus on growing your company not continually hiring, training and shortly after, losing them to big companies like Google or Microsoft. In some other cases, your company will only occasionally need software development, web development, and graphic design. In this instance, a full-time member of staff is not required. However, the unknowns of hiring freelance presents another risk that no wise business leader would dare to venture in to.
What if there is a solution that can balance the best of both worlds? What if there is a way companies can readily access a wide range of skill sets without hiring a small team of specialists?
Walvis Technologies presents a unique to Ottawa, “OTTO-Sourcing” strategy that looks to provide businesses with the best of both worlds.
With the risks and complications associated with outsourcing overseas, companies are enthusiastic to work with businesses closer to home. A recent study by PricewaterhouseCoopers Canada estimated that 15,000 to 20,000 Canadians develop software for foreign companies. The Canadian subsidiary of E.D.S. alone has about 1,400 workers developing software.
What is OTTO-Sourcing?
OTTO-Sourcing offers the same local qualified resources at the cost of in-house employees without the hassle of hiring and rehiring. Due to the high cost of living in big cities like Toronto and Vancouver (particularly in housing costs), many people fled to Ottawa to achieve a high quality of life while working in the high demand IT sector. This creates a harmonized supply and demand balance where people are not looking to jump to the next higher-paid positions in return keeping the cost at the manageable pace.
Let’s talk about a day in a life scenario of a struggling business visionary with a great idea but unable to achieve it due to a lack of qualified resources. Like any good business leader, they hired a team of local software engineers, developers and project managers to manage the team.
The average salary of an intermediate-level software engineer and project manager in Toronto is about $120,000. The cost does not include job training, payroll taxes, perks and employee benefits. Factor in those costs, it will cost an average of $140,000 per employee. That might sound like a lot of money, but with average home price just over $700,000 in Toronto or average rent cost of a 1 BR condo in downtown Toronto closing in on $2000, suddenly everyone is actively seeking the next higher paid job.
In terms of employee management, each employee is hired based on a predefined job description and mandate. With the dynamic and complex nature of the IT world we live in, soon you may find you need another resource with supplementary skills to deliver the project requirements. You can offer training and mentorship to supplement the needs or hire another resource. Soon you have two full-time resources working on something that does not need full-time hours. A few months have gone by, the resources have gained enough experience for higher-paid positions and leave the company. You are right back where you were a few months ago, meanwhile, yet you have deliverables that cannot be delayed. It’s a circle of never-ending hiring, training and rehiring. Don’t forget the added HR costs of hiring and rehiring staff typically amounts to 1 month of salary per new hire, that if you can compete with Amazon or Apple scooping up developers by offering perks like gourmet chefs, dog walking services and working in downtown Toronto.
Ottawa offers a unique advantage over any other nearshore locations. It has one of the lowest costs of living than any other major North American cities; the average home and rent costs are 50% lower than Toronto. National Capital Region has 5 of the world-class universities within 2 hours from the Ottawa center. As of 2011, 15% of Ottawa residents had a certificate, diploma, or degree in a field related to science, technology, engineering and math (STEM). Tied with Calgary, this is the highest percentage out of Canada's six largest cities. (Source: Statistics Canada. National Household Survey 2011. Retrieved using the Data Consortium)
Through this unique situation, Walvis can offer nearshore development services at a competitive rate equal or even less than hiring an in-house developer.
OTTO-Sourcing Cost-Benefit #1: Cost of multi-resources
“No one person can do it all” – the projects today are so complex that you need a team with a wide range of skills and specialties. Another advantage of OTTO-Sourcing is it offers the client a multidisciplinary team of specialists with complementary skills at a blended rate. It’s like you are getting a “swiss army knife” at the cost of a blade. Our team could include any specialist you need — from software developers, architects, designers, UX/ UI specialists, business analysts, project managers, quality assurance engineers etc.
At the project discovery phase, we will assess the client’s needs and propose a suitable team, consisting of a combination of different skilled resources to maximizes the value for the client. For example, at the beginning of the project, you might need a full-time business analyst to gather and finalize requirements and a full-time designer to work on mockup models and a 50% dedicated engineer to vet the design until development phase starts. During the development phase, a client can lower the business analyst’s utilization rate and increase the engineers to two full-time resources. All of which can be achieved without hiring and rehiring or hiring full-time staff to perform part-time tasks.
OTTO-Sourcing Cost-Benefit #2: Cost of risks
Intellectual Property of your design and product is the most important part of your company asset. You wouldn’t invite a stranger into your house and show them your secret meatloaf recipes why would you inviting someone half-way around the world to see your code? As for in-house developers, when an employee jumps from one job to another, they tend to go to competitors or someone in a similar industry as yours. It also creates a potential risk of leaking your secret recipes to others. NDAs and non-compete clauses in contract help. however, they can be difficult to prove and costly to pursue. The better way to preserve your IP is to take away the catalyst that might’ve caused it to leak in the first place. That is done through the development of a long-term working relationship and minimizing staff turnaround.
Walvis’s OTTO-Source team is government cleared up to Top Secret level and works with some clients with the highest security clearance to protect the Intellectual Property and trade secrets. The Walvis company has received the Government of Canada Department of Defense Controlled Goods certification. Rest assured, we have the expertise, knowledge and integrity to protect your most valuable IP.
OTTO-Sourcing Cost-Benefit #3: Cost of distance
Ottawa is only a one-hour flight from Toronto and 4 hours from Vancouver, which makes it possible to do a fly-in, fly-out meeting. The distance between you and the software development team can lead to unexpected increases in the cost of management. Two major factors that affect the costs of management is the distance traveled and the quality of communication. For C-level executives and directors, the travel time can be avoided easily to manage other priorities; resulting in cost savings for the client.
OTTO-Sourcing Cost-Benefit #4: Cost of time zone
Time overlap is the main factor between a successful outsourcing project and a very costly failure. Being closer to the client time-zone leads to more effective interaction at a lower cost, which in turn leads to greater productivity. Time zone proximity erases the need to work extra hours – which was commonly seen in Offshoring. This means the overall or loaded hourly rate with nearshoring is lower and thus lowers overall cost as well. When outsourcing, it is imperative to have high-quality communication between the distant-team and your business. The further away your software development team is from your business, the more likely it is that time zones will negatively affect your opportunities to communicate. Ottawa is in the same time zone as Toronto and 3 hours ahead of Vancouver. This essentially adds no additional costs to managing offsite team members.
With these four unique advantages, Ottawa is well-positioned to help business visionaries achieve their goals.
Some facts about Ottawa (National Capital Region)
the largest proportion of adults with a university degree at 38.2%
more STEM graduated per capita than any other Canadian cities
7th highest family income while amongst lower
Sources: Statistics Canada
Ottawa cost of living compare to Toronto
CPI index is 27.63% lower in Ottawa
Rent is 52.98% lower in Ottawa
Home prices are 50% lower in Ottawa