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Software development outsourcing has been around for decades helping companies cut costs and deliver projects quickly. It has evolved, but some of the core aspects remain. We’ll take a closer look at Software development outsourcing benefits and challenges.
What Is Software Development Outsourcing?
As the name suggests, outsourcing software development means handing part or whole of the development project to a third party. Either a freelancer, a software house, or an industry giant.
Outsourcing comes in many forms and shapes. It is primarily divided into onshore, nearshore, and offshore, based on the geographical distance between your company and the provider.
Providers are able to take over multiple parts of a software project. For example, development, code refactoring, maintenance, design, and much more.
With this quick recap done, let’s talk about some of the benefits and challenges of outsourcing.
Benefits and Challenges of Software Development Outsourcing
1. Outsourcing Saves Money
Saving is the main motivator behind outsourcing and with good reason. As a rule of thumb, providers offer competitive costs. Mainly because they are located in countries or cities with lower wages and cost of living.
As an extreme example, think about a company from San Francisco outsourcing a project to a startup in Mumbai. The expected hourly rate is drastically inferior, also due to the exchange rate between currencies.
It’s important to note that saving costs is not the only reason why companies outsource, as we discussed in 6 IT Outsourcing Myths Debunked.
Challenge: Cheaper is not always Better
It’s important not to take the quotes from providers at face value. No matter where they are located, an extremely cheap offer likely masks low quality.
Even if the project is delivered on the schedule, you might spend more time reviewing and fixing issues. Because of that, it’s important to choose a reliable partner.
2. Outsourcing Allows You to Focus on Business Strategy
Handing a project to an experienced provider means you can focus on high-level, more impactful decisions.
When working with internal teams, there is red tape at every corner. Paperwork, hiring, management, training, and so on are a daily reality.
What’s more, this gets compounded in big companies. Relationships between departments, for one, enter the fray. Internal struggles corrode the performance of every team, which has to be addressed by management.
In the end, there’s little time to optimize and update internal tools, which soon become time hoggers. Software houses can provide the expertise and focus to review, improve and combine multiple software.
Challenge: Clear Process
Most software houses are ready and eager to take care of the nitty-gritty details and assist companies to focus on their vision. Good communication is fundamental, however, to align expectations.
When the provider doesn’t have enough information to kick off the project properly, adjustments will soon pile up. A seasoned software house proactively solves the communication gap and looks for ways to optimize the process. It will give more time to plan and implement big ideas.
3. Outsourcing Offers Talent Pool
Finding and maintaining excellent professionals in IT is hard, let alone forming cohesive teams.
Additionally, when the market shifts to a new paradigm or technology, even the best talents need time to catch up.
That’s where the benefits of software development outsourcing come in.
The core concern of outsourcing providers is to maintain a pool of talents that are up-to-date with the newest practices. Certified developers, knowledgeable designers, and accomplished project managers are their foundation. When this foundation is solid, it is ready to spearhead projects with the latest approaches and technologies.
The IT Outsourcing 2020/2021 Statistics study by Computer Economics points to an interesting case. In the areas of IT security and disaster recovery it often makes more sense to contract risk management specialists than to train them.
“The motivation to outsource has less to do with saving money and more to do with having the job done better than it can be done in-house,” the study argues.
It’s also worth mentioning that software houses also have agile methodologies scripted in their DNAs. Their teams are used to a dynamic environment, which is not often the case in big corporations.
Challenge: Preventing Bottlenecks
Excellent communication between the project owner and the project manager should be a given. No discussion.
Service providers can go the extra mile with communicative members. Example: a senior designer approves a wireframe directly with the PO while keeping the PM in the loop. The task has a quicker turnaround time, and the PM doesn’t spend time liaisoning.
4. The Cost is Clearer
Factoring overhead, employee benefits, equipment, among other factors, is hard to do with precision. If there was a single value for “project cost”, calculating the ROI would be that much easier.
A software house can do just that: calculate the value. They know their infrastructure and human effort costs.
Challenge: Clear Specifications
Even a perfect quote can only cover what has been discussed. Changes in scope and deliverables that are predicted before the project starts should be accounted for.
When forming a partnership, it’s essential to work closely to make sure the quote represents exactly what should be delivered.
5. More Flexibility
For 40% of the companies, flexibility is one of the main objectives in outsourcing, according to a study by Deloitte report. It’s that important, and scalable teams are a core factor.
Great IT outsourcing providers are used to scale teams up and down at any time to suit their customers. They have great project leaders who know their staff really well and can rearrange the personnel based on skills and required hours as necessary. The focus is on delivering.
It can be much harder to perform these readjustments internally. If the internal team is large enough, reshuffling is possible, but we go back to the red tape. If there is a technological gap and it’s necessary to hire or train employees, the cost can rise exponentially.
Challenge: Fostering Relationships
Internal teams are more likely to identify with their company values since they work with exclusivity. The resulting synergy and commitment are difficult to replace.
The relationship between outsourced talents and the customer is different. Even if a professional has cutting-edge skills, it’s not possible to gauge their commitment directly. And, even if it were, that is actually a burden for the provider to take on.
Hence it’s important to partner with an IT service provider that has healthy work ethics and internal culture. Their talents will be willing to commit to your project.
6. Access to New Markets
Working with geographically distant providers can open the door to different markets and even industries.
Established software houses know their territory and have extensive portfolios with local or regional contacts. By working with them you might uncover leads and projects.
Smaller providers also tend to have a more diverse set of experiences across different industries. Their condensed and agile structure allows them to assimilate projects very quickly.
Giants, on the other hand, are more conservative in sticking only to domains in which they have extensive experience.
Challenge: Minding Cultural Differences
The IT outsourcing market has matured in the last decade, resulting in a more homogeneous experience across the board. Both parties know what to expect.
However, it’s still an evolving scenario, and no wonder the big names rely on outsourcing managers. Long-distance partnerships might face language barriers and cultural differences. In turn, these can become part of the hidden costs mentioned earlier.
Conclusion
Mature as it is, the IT outsourcing landscape can be daunting. There are many outsourcing providers to choose from, which makes it difficult to pick the right one.
That’s why it’s important to weigh the pros and cons of outsourcing for your particular project. There are many benefits to software development outsourcing, but it’s essential to keep the lookout for pitfalls.
Finding the right fit will not only save you time and money but will also open the doors for new opportunities.
