Outsourced Software Development Partner Due Diligence Best Practices

When it comes to choosing an outsourced software development partner, there’s a lot to consider. Capabilities, culture, experience, location and cost are just a few of the variables at play. With such an extensive list of factors that can all have a significant impact on the success of a technical project, it’s essential companies conduct proper due diligence to find a partner that’s right for them. 

Many outsourced software development engagements fail as a result of poor due diligence. Companies commit to working with partners who are not the right fit, don’t work in the same ways and in some cases, have totally contrasting beliefs that can undermine the relationship before it’s even begun. This is why due diligence is so important, companies need to know who and what they’re working with before any paperwork is signed. 

The very best due diligence processes explore every detail of an outsourced software development team, looking at the individuals who manage the project, the tools they use, the organisational and time management infrastructures in place and the culture of the organisation. Of course, to evaluate all of these areas effectively is time consuming and requires experts who know exactly what to look for. In addition, these experts also need a defined process that dictates what data points are collected and how. This is critical to allow for comparison of the evaluation results between development partners. Reviewing a wide selection of criteria ensures companies understand who they’re building a relationship with and helps them to identify threats to success early.

With a detailed due diligence process in place, companies can be sure their outsourced software development partner is capable and willing to develop high quality and effective working relationships that naturally drive successful project delivery.

In this blog, we detail the best practices your due diligence process should follow in order to effectively evaluate potential outsourced software development partners.  

Your Due Diligence Should Be Holistic, Organizational and Company Wide

 

For your due diligence process to properly evaluate a partner’s capabilities and fit, it must review key areas of the business to a good level of depth. For example, when reviewing HR, it’s important to take a top level perspective while also looking at the details of how the internal decision-making process works. This balance extends to the technical review as well, it’s essential developers are evaluated based on client references, technical interviews and performance in monitored practical tasks. This way, developers can be fully vetted up-front and trusting relationships can be built quickly, based on solid evidence. 

What Due Diligence Should Cover 

 

A good due diligence process involves qualitative and quantitative data collection in order to identify any potential problems, weaknesses or challenges that may arise from working with a technical partner. Your due diligence process should evaluate:

Customer Journey

 

The customer journey review should evaluate a partner’s client onboarding approach, reporting capabilities, check-in processes and how they define when a project is complete. 

Technical Expertise 

 

The technical expertise review should evaluate a partner’s technical capabilities, covering everything from problem solving and ‘Agile’ working experience, to auditing code quality (through practical tests) and tech stack knowledge. 

Client Satisfaction

 

The client satisfaction review should evaluate a partner’s past and current clients to ensure the teams operate as a single customer-centric organization; they need to be able to showcase their skills while focusing on client alignment and business values for a long-term partnership. In this area, it’s important to check for key qualities including professionalism, integrity and thoroughness.

Project Management 

 

The project management review should evaluate a partner’s project managers, auditing their approach, and how they ensure all stakeholders are aligned with the client's product and business goals through a clearly documented process, guidelines and KPIs.

Business and Process Maturity

 

The business and process maturity review should evaluate a team’s core processes, ensuring they have the ability to grow and adapt over time to deliver on quality, core values and performance through stellar documentation and clear tools to track key metrics.

Company Culture

 

The company culture review should evaluate the company vision and identify the values and norms that impact day-to-day delivery and worker satisfaction. Team members within a development partner need to regularly feel incentivised and take pride in their work. This is critical to finding a team with passion and genuine care for their output. 

Why the Due Diligence Process MUST Be Consistent 

 

Consistency is absolutely key in an effective due diligence process. All potential partners must go through the same evaluation with a focus on data and science. Facts and figures must be collected in an unbiased way to limit variation at every opportunity. This ensures the results are accurate, fair and most importantly, comparable. If the output of a due diligence process makes it difficult to evaluate two partners side by side, then there is a problem.

Due Diligence Should Involve a Mixture of Primary, Secondary, Quantitative and Qualitative Research

 

Effective due diligence requires both primary and secondary information to create a full picture. In terms of primary research, developer interviews are critical to evaluating technical knowledge within the business at both an individual and organisational level. These interviews should also provide insight into how the organisation validates quality procedures and offer additional transparency on internal processes. 

Beyond internal interviews, it’s also essential previous clients are asked about their experiences working with the partner, this helps to shine a spotlight on any potential weaknesses or risks, before making a decision. To reinforce the primary data collected, secondary information should be sourced around the company’s wider reputation and performance in the sector. These dual information sources will help to build an accurate picture of the partner’s strengths, weaknesses, capabilities and overall ability to deliver high quality technical output. 

Why the Due Diligence Process Must Be Clear and Easy to Explain

 

In order for partners to understand how they’re being evaluated, it’s important the due diligence process is simple to explain. As a multi-phase process conducted over several weeks, potential partners need to understand where their focus should be, what matters to the client in question and have full transparency on the factors that will have the greatest influence on the final decision. With days to weeks of data collection and analysis required, it’s important the process is detailed and thorough, anything less increases the chances of producing inaccurate results.

By ensuring partners have a good appreciation for each stage of the due diligence process, a strong foundation can be built which will help develop a relationship in the future, should they be the chosen partner. When it comes to due diligence, it’s in everyone’s best interest to understand what is happening and why, sooner rather than later. If communication is poor and data is not collected in the right way, the due diligence process can quickly become a massive time sink for all involved. 

The Output From the Due Diligence Process Should Help Partners Improve

 

Regardless of the result, a good due diligence process will provide insight into a partner’s strengths and weaknesses. This will create opportunities for improvement and enhance their chances of success with a different client in the future. The outcome of a due diligence review should not just be a simple yes or no, but also include a selection of recommendations to help the partner improve and understand why they were not selected. If this is not the case, then it’s likely the review process isn’t detailed enough. 

The due diligence process plays a major role in the sourcing of a high quality outsourced software development partner. Helping companies effectively evaluate teams across a wide variety of criteria, the process ensures organisations can identify the best from the rest, come to understand each partner’s strengths and weaknesses, and conduct reviews in a consistent and comparable way. 

Companies that have a good due diligence process will be able to effectively identify the outsourced software development partners that can deliver what they need, to the standard they need it. As a committed and significant financial outlay, having the evidence to support the choosing of an outsource software development partner is absolutely critical. 

However, it’s easier said than done, the difficulty in conducting proper due diligence is often why companies turn to us at Digital Knights. Built from bad past experiences, we developed a proprietary due diligence process to filter out the ‘good’ from the ‘bad’. We set out to ensure nobody failed and struggled with outsourcing, the same way we did.

Our due diligence process is proprietary and was co-developed with several industry leaders in due diligence for VC and M&A. We pooled together key experts that helped us assess engineering partners in the right way, digging into every facet of a business.

Our due diligence takes several weeks to complete and engineering partners pay to go through our extensive certification. Only the top 7% make it into the network and we are very selective when it comes to certifying a partner  to engage with our clients from around the world.

We collect thousands of data points on each vendor, then standardise it all to make it easy for our clients to have all the data they need at their fingertips, with clear partner comparisons, making it easy to compare "apples and apples".

Get in touch today, and we’ll be happy to help you find the best outsourced software partner for your needs.

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