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R&D versus Outsource in Ukraine

DNA325 decided to interview two prominent IT CEOs – Alex Lutskiy from Innovecs and Andrew Britt from iSG2 Technologies, Inc. – in order to find out the take on the future of R&D and outsource in Ukraine from the seasoned experts that are always ‘in the know’ and shed some light on how businesses approach these aspects currently.

For me, it is of utmost importance to build professional relationships that would last for years. It’s not all about the development, it’s more about the expert growth of an employee during his career of dedicating him/herself to honest work on the product.”

Andrew Britt, President, iSG2

Together Andrew Britt and his partner Richard Fredrick have solved problems in Supply Chain Management for Steel and Metals for many “Gold Star” organizations such as Toyota, ArcelorMittal Steel, Tenaris, Ternium, IPSCO, Mitsubishi, and many others.

  • DNA325: When the company wants to find an outsourcing partner, what factors do you usually recommend to consider apart from cost saving?

    Andrew Britt: At iSG2, the main concerns are retention of experience, a desirable location to work, a healthy and happy team dynamic, and the ability to attract young talent that is interested in growing their career over time.  All of these are necessary for the quality of our team.

  • DNA325: What was the key factor that made you to move from the outsourcing model to the organization of your own R&D?

    Andrew Britt: iSG2 provides very deep domain expertise and consulting to our customers. This experience is expressed through our technology services and software.  

    Our team, of course, works in technology.  But iSG2 needs more than that. Our team must play an important role in the creative process and engage in business discussions with our customers.  This provides the maximum benefit of knowledge to our customers, better utilizes the talents of our Ukrainian team members, and deepens the relationship for all.

    Another key factor is flexibility.  Now we can directly provide policies and choices to our team, for floating holidays, as an example.

  • DNA325: What are the top risks a company faces when opening own R&D and how to lower them?

    Andrew Britt: First of all I would recommend a planning period of 90 – 180 days, to make sure that financial, HR, work environment, and staffing plan are completely understood.

    Additionally, decisions for a good office environment take some time and financial transactions require attention to detail.  Developing benefits that work well for new hires and experienced professionals is a bit of a challenge, but can be done with a flexible, creative approach.

    Setting up the business requires a good plan and some time.  There are many administrative decisions to be made. Having a clear goal helps with these challenges, and, we hope, leads to a strong and happy team environment.

  • DNA325: When did you decide to move from outsourcing?

    Andrew Britt: When our business needed to scale up in size, but also retain talent, we decided to move from the classical outsourcing model.  We interviewed many companies and reviewed the “do it yourself” model. We analyzed, risks, benefits, costs, to make our decision.

  • DNA325: What do you think is visiting the outsourcing and R&D locations necessary? If yes, how often should a client visit their locations?

    Andrew Britt: Personally, I believe it is absolutely critical to visit the office and team.  Remote management is ok for some things. Building a team and setting up an office require attention to details that require time on location.

  • DNA325: What factors should a company consider when deciding whether to go onshore, nearshore or offshore?

    Andrew Britt, President: Definitely you should keep “on shore” sysadmin, network, data center, customer relations (accounting billing, office). There are advantages and disadvantages to each of these. Onshore for our hosted data center, commercial activities, projects requiring on site meetings with large teams,  and administrative functions. Near shore is good for user support and help desk hours. Off shore we use for project management, development, support, maintenance, and most technology directed activities.

Right now, we can safely say that many CEOs and company owners from the West are concerned with the ability to closely, efficiently connect with employees both inside and outside of projects. For Ukrainian outsourcers, this means the necessity to put a big emphasis on the enhancement of management, centralization and communication systems. 

According to the field expert Alex Lutskiy, Co-Founder and CEO at Innovecs, despite the fact that there is a huge number of outsourcing companies available for hire right now, with time, their influence on the global market will be reducing. Many players will be merging and focusing their business models on selling a particular field of expertise.

 

I have an experience of working with programmers from many different countries. And I have always admired the level of quality Ukrainian developers provide – always top-notch and competitive.

Alex Lutskiy, Co-Founder and CEO at Innovecs

 

  • DNA325: How do you see the overall state of the Ukrainian IT outsourcing field – what prospects does it have? Why is it worth developing IT outsourcing in Ukraine at all, or, perhaps, it isn’t?

    Alex Lutskiy: During the 2-3 years, the local IT market has been organically growing by 20-20% and I believe that such a tendency for growth will keep at the same level further on. Investors recognize a good potential in this field, which is additionally confirmed by ratings and multipliers of public companies on share markets.

    As for the local Ukrainian IT outsourcing market, it will definitely develop and, probably, face many changes in the future. Firstly, it will certainly consolidate, as any other industry does. I presume that a list of leaders covering 80% of the market will eventually form. And the current hype around dozens of new companies appearing in the arena will gradually die out. Secondly, companies that provide outstaffing exclusively will be shifting their focus. There’s a fierce competition in the segment. And marginality will cease to be as attractive from the business management perspective. That’s why companies will probably be shifting towards the professional service model and start offering a particular expertise to be sold via specialized services.

    I am confident that this is how the next step for the outsourcing business in Ukraine will look like. The ones prepared for such changes will continue on with their operation in the arena, while others will be consumed by more flexible players.

  • DNA325: Having returned to Ukraine after spending so many years living in the US, what are some things that disappointed/excited you the most in the Ukrainian entrepreneurs’ and programmers’ business approach?

    Alex Lutskiy: I have an experience of working with programmers from many different countries. And I have always admired the level of quality Ukrainian developers provide – always top-notch and competitive. Managing tendencies and skills in this aspect, however, still need to be enhanced and changed in a better way.

    Managers from India, for instance, are more progressive in the matter because they have more expatriots with good experience of working in the USA. The lack of skills here comprises a gap that can be critical for global clients. Our task is to fix things up – build and grow truly professional management that will pose a competition for the best practices of the US managers.

  • DNA325: How can the Ukrainian IT outsourcing field separate itself from neighboring competitors – Poland, Belarus, Romania – without losing the war on rates with Latin America and Asia?

    Alex Lutskiy: I think that we shouldn’t separate. We need to learn how to be a prominent competitor. And there are two routes here. The first is to lead the pricing competition. But outsourcing gradually shifts away from perceiving cheap workforce as a prevalence. And in this case, it is pretty difficult for Ukraine to compete with regions like Asia.

    The second route is to lead the expertise and service distribution competition. Previously, we were among the leaders at prices, but rates are growing and the line of pricing tendencies between Ukraine, Poland, Belarus, and Romania disappears. I think that, currently, it must be all about the quality of leading business, level of expertise, and prominent management models. These are the aspects we should compete in during the nearest 5-10 years.

  • DNA325: What is the prevalent geolocation of your clients?

    Alex Lutskiy: The major geolocation of Innovecs’ clients is North America, Europe, including the Great Britain, as well as Israel and Australia.

Summary

At DNA325, we clearly see and realize the need of companies to establish in-house R&D departments and separate offices to provide opportunities for self-guided work and self-development of employees. That will enable workers to personally choose tasks to work on, allocate positions, use education opportunities, and pick vacation dates in a manner that isn’t fully dictated by the management while staying under adequate supervision of the tops.