Why Game Developers Outsource
Typically outsourcing begins with a self-assessment of a company’s core identity that forms its unique competitive advantage, with the remainder of the work becoming candidates for vendors (or “service providers”) to perform cheaper or better. For game developers, core competencies can be found in any part of the game development cycle: concept development, pre-production, production, testing or distribution. Therefore, a game developer increases efficiency directly proportionally to its ability to minimize the resource use on non-core competencies.
Many independent studios have an internal team of about five people, who hire dozens of short-term contractors and engage outsourcing companies to make whatever can’t be done internally. The manpower required to produce games is varied and not trivial in amount, so outsourcing some part of work is always something game developers need to think about.
Forces Driving Game Developers to Outsource
Traditionally, game testing and production have been the most commonly outsourced, as they are least dependent on specialized skill and creativity. But that’s changing, as companies are becoming more prepared to work with external providers, growing their ability to outsource any task in which they face a disadvantage.
According to the Outsourcing World Summit, about half of all companies outsource to reduce costs. Motivations such as:
- internal focus improvement
- more variable cost structure
- access to talent
- revenue improvement
are typically only secondary. This is no surprise, as cost savings routinely reach 50-60% as compared to the fully insourced approach. Due to the initial cost focus, outsourcing has developed a less than stellar reputation, but over 40 years of the practice have proven that its benefits do outweighing the possible drawbacks.
Outsourcing as a Strategy for Game Developers
Today, many businesses across the entire industry spectrum routinely outsource 70% to 80% of the content of their products or services, think: IT operations, back office operations, human resource management, payroll and accounting. Outsourcing typically results in a combination of increases of consumer choice, decreases of product costs and changes to employee’ roles.
While the push for lean and efficient operations remains, outsourcing has also become a strategic competitive tool, allowing smaller studios to iterate quickly and to deliver new products faster than ever before. With the initial focus mostly on cost reduction, outsourcing initiatives in game development are likely to focus on activities that companies previously could not do at a world-class level.
The Outsourcing Challenges and Steps to Overcome Them
Outsourcing should not be treated as a magic wand: to be effective its use often requires a fundamentally different approach towards employees, managers, customers and executives.
Of course, outsourcing faces several obstacles. Common barriers include internal resistance from within the organization looking to outsource – and each needs to be a part of the outsourcing strategy.
Management may turn reluctant due to the fear of loss of control and flexibility.
Outsourcing relies on a contractual relationships with service providers. Whether managing contracts or internal processes is more complex varies on case-by-case basis, yet outsourcing can actually increase management’s control over certain operations and can simplify the task of maintaining a certain level of performance.
The process considered for outsourcing is perceived as too critical.
Again, a process may be deemed “critical” without being “core” – and the distinctions are important. Critical functions like payroll and benefits management are routinely outsourced, for example. Many similarly “critical” functions can be done more effectively elsewhere.
Customer backlash is anticipated due to an involvement of a third party.
Here it should be made clear that most customers evaluate the product and service experience and rarely proactively seek information about service providers being involved.
Employee resistance or even sabotage as every change can be perceived as a threat to the status quo.
Outsourcing often changes the organizational structures and job roles, with some employees requiring training for higher-level management responsibilities. Companies should plan for additional communication and training for a win-win solution between the company and its staff.
Companies with effectively structured service provider relationship typically spend about 2% of the value of their outsourcing contract to manage the vendor relationship. The following are the best practices on which such effective relationships can be based on:
1. Strategic Responsibility
Operational issues must be handled at various levels, but the alignment of a company’s interests with its service provider is the task for the top management that is not to be delegated.
2. Organizational Linkage
Siloed organizations are more prone to mismanage the relationship with the outsourcer. Establish clear processes with several points of contact and a decision maker for major areas of responsibility.
3. Regular Communication
Teams working with vendors need to have a meeting schedule to periodically discuss any issues with the management.
4. Explicit Escalation Process
Both the in-house and vendor staff need to know the processes for issues that need to be addressed at higher levels.
5. Performance Dashboard
Establish and apply simple metrics that determine the degree of success.
6. Carrots and Sticks
Motivate and recognize both the in-house and the vendor employees with fair incentives and penalties.
7. Change Process
Plan – and request your service provider to share their vision – on how both parties prepare and execute the change in processes and work relationships.
8. Vendors as Partners
Service providers are strategic assets that deserve to be treated just like any company assets and the company’s business reputation.
Change, including change in employment structure, has become a constant. Both companies and their employees need to anticipate growing competition, companies learning to do more with less and employees advancing their skills to seamlessly integrate their own work contribution and that of service providers, effectively and efficiently addressing the needs of the companies that hire them.
It is also important for top management to realize that their ability to use outsourcing effectively depends on the managers and executives shifting away from the internal functional or operational expertise and toward the integration skills. The “make or buy” debate broadens, as leadership tasks expand from managing people stationed in a single physical location to a potentially worldwide partner network that unite globally available resources and focus them to meet consumer needs.
Concerns About Exporting Jobs
Outsourcing has always attracted media attention and sometimes intense public debate about its effect on job markets. In the case of project-based businesses like the game industry, the primary issue is not the lack of domestic specialists, but the business cycle that demands Hollywood-style project work where the need to quickly staff up and then to staff down in a highly unpredictable fashion.
Opponents often overlook outsourcing’s benefits, such as allowing consumers to get access to more, better products and services for less money. Many startups and small businesses would not be able to market test their idea without outsourcing, which lowers their barriers to doing business.
With game development studios, costs avoided by outsourcing are routinely spent on more game content. Production of some of the games would not be possible at all without the service providers performing some part of the otherwise costly and often boring and monotonous work. For some game developers still, working with outsourcing partners may be the only viable option between riding out the competitive forces or an economic storm and closing shop.
Game Outsourcing Takeaways
Within the increasingly competitive world of game development, both cost considerations and the acceleration of delivery cycles are the key reasons why outsourcing is widespread. Accessing the required resources is still one of the very few business techniques that, when done with informed intent, transform companies fundamentally and increase their competitiveness.
Game development outsourcing will continue to be one of the forces powering the gaming industry in the near-term. The increasing internet broadband penetration globally and the replacement of feature phones with smartphones will continue to drive robust consumer demand worldwide.
Game Developers will be compelled to improve the existing development cycles to not only manage costs, but also to improve efficiency and increase output across all production stages regardless of platform, genre, distribution channel, core audience and language. In spite of all the challenges, companies of all types will be able to stay competitive by focusing on their core strengths, fulfilling the remainder of their needs with an educated approach to global sourcing.