Do you want to outsource IT services but have doubts and questions about this business model? Don’t let them influence your decision. Read on to understand the key concepts of outsourcing once and for all.
What is a software outsourcing company?
An outsourcing company is the one that clients hire to delegate their software development needs to. Instead of engaging in-house developers, they partner with a third-party service provider to handle the project’s tasks remotely. By trusting that kind, companies can focus on their core competencies and keep strategic priorities on the right track.
Outsourcing companies offer a comprehensive portfolio of software development services. Their work’s typical results include, though not limited to, web and mobile solutions, Big Data analysis, Cloud computing, AI- and ML-based products. They can handle the project at any stage of its lifecycle and provide the necessary resources and expertise.
External contractors should be qualified and capable of meeting a wide range of business needs. They need to comply with quality standards, budget, and timeline. It is also crucial to have a compatible working culture and high ethics.
What are the types of outsourcing?
Once we’ve defined an outsourcing company, it is time to shift to how businesses outsource their projects, and which types of vendors are out there.
There are three types of outsourcing based on where IT service providers are located:
- Offshore outsourcing is delegating project operations to an external team in a distant location without a heavy focus on remote team management. At first glance, the remoteness of the development team can seem like a problem for the client. Differences in time zones, cultural features, and transparency issues can put off some of them. Luckily, there are numerous collaboration tools and other instruments in the hands of offshore vendors. They also rely heavily on communication and nurture their reputation. All the project development work can be handled efficiently.
Moreover, offshoring helps expand the existing talent pool with IT professionals not available locally. It also stands for lower development costs with the same or higher software quality.
- Nearshore outsourcing implies cooperation with an external service provider from a neighboring country. In practice, this type of outsourcing is associated with minimal time zone differences and almost full cultural compatibility between the client and the vendor. When compared to offshoring, nearshoring is associated with higher rates per developer.
- Onshoring, or domestic outsourcing, is delegating tasks to a company located in the same country as your in-house team. This type of service is generally more expensive than nearshore and offshore ones. However, local partnership offers may look unattractive from the point of view of talent shortage and high development costs. Conversely, onshore companies are located in the same time zone and can be easily accessible for a physical meeting. Seamless communication and transparent internal processes are also in place, which is a great benefit.
What are the examples of outsourcing?
There are typical examples of outsourcing that unite the majority of companies. Relying on the expertise of external specialists, they can push forward the following aspects of business.
- IT: development of websites, web and mobile apps, custom software development, legacy platform upgrade, integration, maintenance, support, etc.
- Finances: quarterly financial checkups, documentation management, payment fulfillment, etc.
- HR: remote recruiting, personnel management or coaching, etc.
- Marketing: content management, PR, SMM, SEO, etc.
- Retail: administration, warehousing, packing of goods, and order fulfillment.
Why do companies outsource software development?
Here are the reasons for outsourcing:
- You need niche skills or rare expertise but want to keep the costs down.
- You don’t want to be limited to local partnership offers.
- Your company wants to avoid overtime for a time-consuming project.
- The management team doesn’t want to start an IT department in the company as it increases expenses.
- You want to improve time-to-market.
- Your in-house teams don’t specialize in IT and can’t ensure data protection.
- You need to free up the internal team for other crucial goals.
- You don’t want to deal with staffing or any other challenges that slow down time-to-market.
How do you successfully outsource software development?
There are countries outside the US with less developed economies and lower salary expectations. However, there are a lot of developers with a high level of education and tech expertise. They can quickly develop programs with a high level of quality. To make it happen, clients should know how to find an outsourcing partner and establish an efficient collaboration with them. When companies choose to outsource software development, there are many ways to get it wrong. Here are the best practices to avoid mistakes and make the work successful.
- Look for indicators of skills and experience to be fully aware of the capabilities of the vendor. It is a good idea to check out their previous projects, see which clients they previously worked with, and read their reviews.
- Start with a test project to understand how they handle communication, security issues, time management.
- Provide precise specifications and requirements.
- Find a vendor that strives for transparency and the ultimate quality of software products.
- Adopt Agile methodologies to gain maximum flexibility and streamlined project delivery.
- Use software tools for remote project management and collaboration.
What IT services should be kept inside, and what services can be outsourced?
The decision to outsource a certain part of in-house activities should be made, taking into account several factors:
- Company type. If you are a product company, your software solution makes up your core expertise. Keep in-house the activities that make your product unique: focus interviews, UX wireframe development, UI behavior design and user interaction, researching third-party APIs and data sources, working out integrations, and developing the know-how.
At the same time, you can outsource code-writing for the product to a third-party contractor under any of the existing engagement models. If you are a service provider, it is obvious that you can’t outsource the service itself because it is your core expertise. However, you can bring on subcontractors to scale the resources engaged in project implementation. A simple example is when one outsourcing company attracts another under the outstaffing model (staff augmentation).
- Industry type. This one is pretty simple. If your company works in AdTech, it is evident that you should keep expertise in the field in-house. You can’t but be well-versed in the inner workings of OpenRTB. Nevertheless, it allows you to enhance the team both internally and with the help of staff augmentation partners. You can also hire contractors for tasks outside your core expertise. Take integration of the platform with an external one to achieve a specific goal. An outside contractor can cope with the task by providing their expert resources.
Undoubtedly, the above list of factors to consider is not exhaustive. If you doubt whether it is worth engaging an outside contractor for your specific problem, leave us a request. We will provide a free consultation to get you on the right track.
What are the advantages of outsourcing software projects?
There are many reasons to hire an outside IT service provider to develop competitive digital products. Only a few companies can afford to hire in-house specialists with relevant skill sets or employ the latest technologies to deliver on time and budget. In this case, outsourcing becomes a preferable option. Here are some crucial advantages to outsourcing software projects:
- Lower costs. Outsourcing cooperation implies cost reduction as a typical outcome. It is well-known that there are much lower rates per developer outside the US. Besides, it is possible to save up to 70% of the company’s revenue according to our recent article’s calculations.
- More diverse talent. The lack of developers with specific skill sets in the US makes companies seek remote talents. With outsourcing partners, it is easier to find qualified teams with relevant expertise and experience.
- Speed. With outsourcing, there is no need to invest time in recruiting. Direct access to remote development teams with the necessary knowledge and domain expertise will allow your company to streamline time-to-market for digital products.
- Flexibility. You will be spared from training, scaling, and keeping employees on payroll upon the project completion. Since there is no necessity to invest in these tasks, executive teams can focus on business-critical ones.
How outsourcing software development can save your business money?
When outsourcing, your business can save on the following costs of in-house development:
- recruiting, hiring, training, and managing software teams;
- various perks such as paid sick leaves;
- rent and bills associated with setting up the office space;
- compensation for work, insurance, benefits, and related taxation expenditures;
- workplace equipment, miscellaneous ongoing office costs such as electricity; bills, snacks, tea, coffee, and incurred bank fees.
One of the previous articles was dedicated to how in-house and outsourcing development compare in terms of cost. We calculated how much it would take to set up and manage a 12-strong team in New York. It turned out that decision-makers should prepare to spend almost $1.5 mln per year. We also evaluated how much the same team would cost when outsourcing to Minsk, Belarus. One of the takeaways is that it is possible to save up to 70% of your budget yearly when you opt for outsourcing.
How to determine the cost of outsourcing a software development project?
The simplest way to decide on the cost of outsourcing software development projects is to evaluate the sum of involved specialists and their respective hourly rates. US companies that outsource need to consider two factors in this regard.
- The scope of the project. It determines the team’s overall size, the number of specialists, and their roles in the project. A software development team typically consists of back-end, front-end developers, QA engineers, and project managers. Indeed, the choice of particular roles depends on your project’s nature and is varied from task to task.
- The hourly rate per specialist. This variable is different for each particular role, seniority level, and location of the chosen outsourcing provider.
We calculated the expenses for developers’ salaries in case of partnering with our company in this article. It turned out that outsourcing to Geomotiv will total about $474,000 of expenditures for a 12-member development team.
By the way, if you struggle to fix the scope to be implemented in the project, contact us right away. Our experienced BA or PM will guide you through a discovery phase and provide you with all the necessary information.
What factors should be considered when making the outsourcing decision?
- Costs of setting up a development team. It is worth remembering that the amount of money spent on hiring and managing your team, organizing a workplace, and providing infrastructure can overload your budget. In this case, outsourcing becomes the only way to develop a project and ensure profitability at the same time.
- Skills and experience relevance. It is necessary to match the skills and knowledge of remote developers with your project’s particular needs. Check if the prospective outsourcing vendor has a case history of delivering similar solutions.
- Competence of the team. Your prospective partner must have a general understanding of business processes and understand the assigned tasks correctly. Make sure the vendor provides expert specialists with solid knowledge in their fields. Their working ethics and conscientiousness are essential, as well.
- Technology inspection. Ask your partner what technologies and tools they are going to use on your project. Make sure they are using the latest software versions. It's also worth finding out if their technical capabilities can match your specific tasks.
Bonus Question: I want to outsource software development to Geomotiv. Where should I start?
Give us a call at +15717487688 or just fill out the contact form. We will get back shortly for a free consultation.
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