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A-Z Guide to Software Development Outsourcing
This article was updated on 26 March 2021.
Software development outsourcing has become a commonplace practice of hundreds of companies, from small family firms to huge international corporations. This approach to software development reflects the growing globalization of the workplace and the digitization of employment.
The benefits of outsourcing are numerous, including the absence of geographical limitations in the search of a coder with the required tech stack and greater price competitiveness of software development rates in some regions. You can also take advantage of CTO services as part of outsourcing.
However, outsourcing is also connected with some risks and trade-offs, such as a loss of full control over the workflow, time zone issues, and cultural differences, as well as some degree of uncertainty connected with working with distributed teams.
To outsource or not to outsource is for you to decide, depending on how much control you can forgo, how much money you want to save on the project, and how scarce the relevant tech stack is in your location.
We cover all ins and outs of outsourcing in this review, helping you learn the ropes of the concept, pros and cons it bears with it, examining the positive practices of large companies with outsourced projects, and reviewing the most popular outsourcing models you may pursue.
What is Software Outsourcing?
The review of outsourcing software development would be incomplete without its proper definition.
Software outsourcing is partnering with a third-party provider specializing in IT services and able to provide flexible software solutions in line with the client’s business needs. When you outsource software development activities, you typically save the time, money, and effort you would otherwise need to allocate to set up a full-time in-house IT department.
In the context of rapidly evolving tech trends, it’s much easier to find outsourced specialists with expertise specifically tailored to your current business requirements, e.g., developing a mobile app, migrating to a new web platform, utilizing cloud services, etc.
Which Is the Best Example of Outsourcing?
Imagine that you have a company that is looking for software development services. You don’t have your own IT department and don’t want or don’t have an opportunity to hire in-house programmers.
That’s why you address the third party to get the job done for you. You can find an outsourcing vendor in your country (onshore outsourcing), a neighbor country (nearshore outsourcing), or a distant country (offshore outsourcing). That’s the best example of outsourcing.
Let’s have a look at some industry’s top players to see how they benefited from software outsourcing.
Google has a decade-long track record of outsourcing that started back in 2011 with the outsourcing of AdWords operations. After a few years of successful operation, Google shifted more IT work to outsourcing vendors, partnering with third-party providers via Cognizant.
Today, Google continues the expansion of outsourcing, including such non-core operations as maintenance, IT management, and some chunks of software development work.
Slack’s case is one more example of outsourcing. They delegated their core strategic issues, such as logo design, website creation, and some critical app design aspects.
They worked on a nearshore outsourcing basis with a Canadian company and weren’t mistaken – the logo, design, and overall brand image the vendor created for Slack gave it a major business boost shortly.
TransferWise has taken a distinct approach to outsourcing – that of global talent search instead of cost-cutting. The engineers hired by this company have to pass multi-stage testing and interviewing processes, which ensure that they are the best in the field.
In this way, TransferWise weeds out only the top talent from across the globe and hires software developers for their qualification, at the same time achieving the cost-related benefits of outsourcing.
The globally known communication and collaboration app Skype was initially created by three Estonian developers to whom the company outsourced the entire back end development part.
They later became the company’s partners, but initially, they were simply outsourcers working on the project doomed to become one of the world’s best messengers of its time.
As you can see, even the largest tech giants of the world have tapped the value and potential of outsourcing and do this for many years. You can also take advantage of outsourcing to save costs, find the top talent in any area, and boost your company.
Let’s have a look at the list of outsourcing software development pros and cons.
24 Advantages and Disadvantages of Outsourcing
You may be wondering why firms outsource project work while others don’t resort to such practices. There must be some huge pros if the world-known enterprises choose to delegate some of their tasks.
Benefits of Outsourcing Software Development
- Larger talent pool
One of the most considerable advantages of outsourcing software development is universal access to the global talent pool. There are dozens of trending technologies, and if you’re still unsure which one to choose, you can review them all and select the most appropriate one for your project’s needs.
Select the technology in which it’s the easiest to write the code and which has the most plentiful labor supply. Freedom from geographical limitations adds flexibility.
- An easier search of the needed tech stack
If you have a project with specific tech requirements and are looking for specialists, it’s much easier to find them in outsourcing countries as locally, the lack of a specific tech stack is always more pronounced.
Once you decide to outsource, you have many more specialists qualified in the technology you need, and it’s hassle-free to find available workers due to the low unemployment rate among software developers, only 2%.
- Faster turnaround
While the traditional recruitment pipeline may take up to 2-3 months, with the multi-stage candidate interviewing process and all the legal documentation hassle, getting the outsourcing company to work is much quicker.
Thus, you won’t experience any project delays or bottlenecks, with coders ready to start working once the contract is signed or in 4-6 weeks in case of custom hiring.
- Cost reduction
Cost savings are among the most evident benefits of outsourcing, helping to save up to 60% of the in-house tech team’s budget, while at the same time not compromising the quality of work.
The savings are particularly evident for companies headquartered in countries such as the USA, the UK, and EU member states where the hourly rates of software developers are skyrocketing.
- Variety of engagement models
Outsourcing is very flexible, allowing you to choose between outsourcing, IT staffing, hiring a dedicated team, etc. We’ll cover all the existing alternatives in the following sections.
- Flexible payment models
Outsourcing also allows choosing comfortable payment terms depending on the amount of work, the number of staff you need, and the duration of the overall project.
If you only need some tiny aspects fixed or polished, you may opt for the hourly rate.
For lengthy projects with several employees, paying a full-time salary to the coders and a fixed vendor fee to the outsourcing vendor is an optimal approach.
Those who have small projects with clear staff and duration requirements may choose to follow the fixed-price arrangement as it will allow them to avoid mounting costs and hidden fees in the process.
- Reduced time-to-market
As compared to conventional recruitment stages, entrusting the project to an outsourcing vendor usually minimizes the product’s time-to-market.
In case your vendor already has all the needed staff to start working, your project will hit the market in record time.
- Opportunity to delegate project management
If you’re not a tech specialist and have other business tasks to manage, it’s convenient to pass on the project control to the vendor’s Project Manager.
Such experts will ensure compliance with deadlines, steady performance of your dedicated team, and regular updates to keep you informed about the key milestones.
- Focus on core business tasks
Though software development may be one of the central priorities in your company now, still there are other tasks to perform.
So, you can easily concentrate on the core business tasks while having your software needs met by the outsourcing vendor.
- Easier business scaling
Many business people are reluctant to scale their businesses because of the fear of growing office space, equipment needs, and taxation issues.
Transitioning from medium to large business may be a hassle instead of business progress, so some companies with great prospects get stuck in the SME status for years.
With software outsourcing support, you can scale business operations conveniently without the need to hire more full-time staff or grow into a multinational corporate machine.
Outsourcing delivers just-in-time solutions, which is its best side. You may need software developers for a short period of time, so hiring in-house staff for these short-term tasks is inappropriate and too costly.
Outsourced developers work for the vendor, not for you, so they may perform your task, no matter how small, and then go on to work on other projects.
- No need for the in-house team
Setting up your in-house software development team is the best solution for long-term, large-scale projects. But think of the hiring process and all the recruitment, interviewing, and official employment trouble you’ll go through.
Besides, an in-house team requires office space, specialized equipment and software, social packages, training and teambuilding activities – everything you may avoid by turning to a ready-made team of an outsourcing company.
Major Outsourcing Disadvantages
- Delegation troubles
Delegating may be hard, especially for those who are used to keeping all the core tasks and business activities under one roof.
It is the issue of trust; trusting some strategically important projects that may determine the destiny of your entire venture is a challenge.
- Distance management issues
Managing teams in one office, face to face, is a bit different from working in distributed teams or managing people who are far away.
It’s better to have a manager in-house with such experience to make sure that the process of outsourced team’s work integrates smoothly.
- Vendor selection
Vendors are numerous, with hundreds of companies across the globe offering their services and claiming to be the best in the field.
Thus, it’s critical to exercise discretion and to pick the vendor wisely based on some key quality criteria (we’ll discuss them in more detail below).
- Time zone differences
Needless to say, working with people living halfway around the world is difficult. When you wake up and start your working day, your outsourced team is already exhausted and tired, ending their work, or vice versa.
It’s hard to set overlapping working hours to discuss the project’s progress as someone will have to stay till late at night or come at dawn to the office for a face-to-face discussion to take place.
- Cultural disparities
Though many people underestimate the impact of culture on outsourcing. It is the underlying complex of values and ideals guiding people in all aspects of their lives, including work.
One of the outsourcing disadvantages is the risk of working with culturally distinct people holding different values in terms of punctuality, problem-solving, conflict resolution, open communication, etc.
In such cases, collaboration may get challenging and less productive.
- Language barriers
English has been considered an international language of business for a long time. But unfortunately, the overwhelming part of the global population still speaks it not as well as they think.
As a result, many business bottlenecks or confusions arise from misunderstandings, improper formulations, or wrong understanding of terminology.
- Data leakage
In the modern era of cyber threats and hackers, businesses take stringent measures to keep their staff under control and minimize data leakage.
It’s possible to attain in the company’s physical office with the help of passwords, firewalls, and the like. But how can you control the flow of your sensitive business data in an office that is miles away from you?
- Specialty outsourcing
It’s better to outsource peripheral tasks, not the ones that make up your core focus and specialization.
If you outsource core activities, the reputation of your brand becomes dependent on external contractors, making it hard to create a sustainable, stable business.
- Hidden costs
Some unfaithful outsourcing vendors create pricing plans in such a way that creates an illusion of a highly affordable, all-inclusive package.
But once you sign a contract and start working, numerous additional fees surface, increasing your bills by times.
Recommended reading: Software Cost Estimation: How To Plan Your Software Development Budget?
- Communication challenges
First, communication between in-house and outsourced teams takes much more time than usual face-to-face meetings in the main office do. C
oders have to master project management and task management tools, communicate with each other on numerous issues, and keep contact via different communication channels, which may slow down the progress of project completion.
- Employer branding risks
Large companies planning to outsource their activities should get ready for the opposition and resentment of locals.
The common association with outsourcing is that of job loss and massive unemployment. People don’t understand why corporations need to outsource if they have qualified human resources at hand, tending to explain the cost reduction strategies by corporate greed.
- Low quality
It happens that outsourcing companies deliver poor-quality work and fail their quality or deadline promises. It’s a commonplace practice for outsourcing firms to have only beautiful facades, while in fact, they represent small firms hiring coders on freelance platforms or outsourcing your projects further on to third-world countries.
Thus, it’s vital to check the portfolios of vendors you’re considering and to check whether they indeed employ the staff they claim to have.
Top 4 Outsourcing Models and How to Choose Between Them?
There are several software development outsourcing models to choose from, depending on what exactly you need from the outsourcing vendor, what your budget is, and how many workers you need. The most popular engagement models include:
If you pursue this model, it means that the developers (or designers, testers) work from the vendor’s office and are the vendor’s full-time employees.
They work on the client’s tasks. The client “rents” specialists part-time or for hourly-based assistance.
The vendor provides all the working conditions for staff, including the office space, equipment (hardware and software), and all the office perks.
The vendor also bears all the development-associated risks (e.g., delays, bottlenecks, lack of staff, poor quality of product).
Developers and teams can work on several projects at the same time. The model suits for both long-term and short-term projects.
IT staffing, or outstaffing, is a software development outsourcing model presupposing hiring developers from scratch, on the client’s demand and in line with their individual requirements.
The vendor doesn’t interfere with the development process, only providing the office space and equipment for the client’s developers.
Though the team is officially employed by the vendor, it works exclusively on one client’s project 8 hours a day, 5 days a week.
A dedicated team is usually compiled from the existing staff the vendor possesses based on the client’s specific project requirements. The team works exclusively on the client’s project 8 hours a day, 5 days a week, and is managed either by a Project Manager or by the client directly.
The model suits long-term projects the best.
Recommended reading: Dedicated Team Model Explained: How To Choose A Dedicated Team?
This outsourcing model is ideal for those who need some temporary workers to assist the client’s in-house team during the high season or to replace an in-house employee who left for some reason.
It presupposes allocating coders from the vendor’s staff, ideally fitting the short-term development projects or tasks.
Recommended reading: IT Staff Augmentation: All You Need To Know
Outsourcing vs. Insourcing
Outsourcing, as we’ve clarified above, relates to entrusting some external, thirty-party, provider with your software development tasks.
Insourcing, in turn, means working with an individual or team on a similar contractual basis but inside your company. This form of sourcing some tasks and projects presupposes hiring professionals you need, signing a contract with them, reserving separate properly equipped space for them in your office, and having them perform the tasks internally.
Obviously, insourcing is costlier than outsourcing because you need to organize the office space and equipment for your insourced team, as well as handle the whole recruitment and hiring process on your own.
However, it is safer than outsourcing, allowing you to keep the team under direct control in your office, and it is simpler in terms of management and communication.
Which Outsourcing Software Development Services Can I Get?
The most beneficial distinguishing trait of outsourcing is its flexibility. You can delegate the project to third-party experts at any stage of its development, be it a full-scale project from scratch or some fine-tuning of the existing one.
Thus, numerous outsourcing software development services have branched out to fit the needs of different clients with projects of various ripeness stages.
To date, you can consider the following outsourcing services depending on your project requirements.
- Web Development
If you’re not online, you don’t exist; that’s the philosophy of 21st-century business.
Hence, companies wishing to solidify their positions outsource their web development – front-end, back-end, or full-stack tasks – depending on the number and setup of their in-house coding teams.
- Mobile development
The world is getting increasingly mobile, and millions of users prefer performing all their activities on the go.
Thus, businesses wishing to keep pace with their customers’ needs haste to develop mobile apps and mobile-optimized web resources.
You can also launch a mobile app or order the optimization of your web resources for achieving perfect cross-platform compatibility with Android and/or iOS.
- UI/UX design
In the era of rapid technological development and progress, users are getting more demanding regarding the quality and usability of tech products and web resources they use.
UX/UI experts increase the popularity of your products by developing visually appealing and intuitive interfaces.
- DevOps consulting
If you’re a tech company, you’re doomed to endless efficiency improvements; otherwise, other tech newbies will beat you.
DevOps engineers specialize exactly in IT service improvements and efficiency optimization. The ultimate focus of DevOps is quicker service delivery, improved quality, consistent cost reduction, and sustainable operational advancements.
- Quality assurance
All tech products should be developed with rigorous quality criteria in mind and in line with technical requirements, overseeing which is the task of QA specialists.
After the product’s launch, QA also doesn’t lose its relevance as testers and QA experts conduct troubleshooting and quality improvements to help you deliver exceptional services to clients. You can outsource both manual and automation QA tasks depending on your project requirements.
software Development Outsourcing Process: How to Outsource Software Development in 8 Simple Steps?
Once you decide to deal with outsourcing, take into account that it’s a process requiring some time to turn into a fruitful, professional partnership. Here we have collected eight critical steps every client deciding to outsource software operations should take to minimize risks and find the best vendor:
Step 1. Determine your needs
Which tasks do you want to complete with the help of outsourcing? Which problems to solve? The most popular concerns with which clients turn to vendors are:
- Lack of staff
- The high cost of local labor
- Need for delegating a software development project not requiring your direct supervision
- Need for hiring developers whom you can manage independently.
Take these needs and tasks to transform them into the vendor’s search criteria.
Step 2. Find the target outsourcing location
Depending on your goals, choose the outsourcing location wisely.
If you plan to scale your business, then it’s better to pay attention to the talent pool available in that region.
If your primary target is cost reduction, then compare the hourly rates of coders to choose the most affordable ones.
In case you need expert coders with higher education, consider the number of higher educational establishments and the quality of education.
Maybe you’re looking for the maximum time overlap with the vendor for the outsourced and in-house teams to work synchronously? Then your choice should be for nearshore outsourcing.
It’s better to choose among experienced market players with a solid reputation and moderate pricing. If the price is too high, there’s no sense in outsourcing; if the price is too low, then it should cause suspicion about the quality of delivered work.
Finally, pay attention to the culture in the location you’re considering; the closer you are in terms of mentality, the better.
Recommended reading: Why IT Outsourcing In Ukraine Is A Must?
Step 3. Get to know outsource software companies
Once you have conducted thorough research and have analyzed the collected data, you can move on to the next level and look for an outsource software company.
You can use anything, from the classical Google search to more specialized search websites (Clutch.co). The most important aspects to check include:
- expertise (whether the vendor specializes in the technology you need)
These are the things you can check on your own before contacting the vendor or its clients.
#2. Initial contact
Get in touch with several selected companies. Briefly describe your project, ask about NDAs if your tasks imply some confidential corporate data. Pay attention to the speed of response and the vendor’s concern for the legal issues.
#3. Personal contact
Ideally, it’s necessary to set up a personal meeting (especially if the project is long-term and expensive). But if there is no chance to meet personally, always organize at least a phone conversation with the outsource software company before signing any documents and paying money. It will help you get to know the vendor’s management better and ask all the final questions.
#4. Project estimation
Ask your selected vendors to produce the estimate of cost and duration for your project. But keep in mind that the estimates are likely to be average.
#5. Vendor comparison
Compare several vendors. Some of them will tell you exactly what you want to hear – that the project will be completed quickly and cheaply. But can you trust such companies? In such cases, the quality will always be compromised. Comparing the cost estimates of several vendors will give you a more objective idea of the real cost of your project.
Step 4. Choose the partner
Even if you need an outsourcing vendor to complete a small, short-term task, keep long-term collaboration in mind. Business is networking, and the problem with most companies is that they want to get the maximum while giving a minimum in return. It relates to both sides – the client and the vendor.
So, it’s better to look for a partner with similar values and approaches, so that your collaboration represents a win-win situation. While at the initial stages of the search, you focused on the hard skills more (knowledge, expertise, etc.), finding a partner-vendor requires looking at the soft skills as well, as well as how comfortable it will be to have a common business.
Step 5. Select the collaboration model
Sign an NDA with the vendor and only after that, give all the details about your product. These details will determine the model of collaboration and pricing schemes. You can choose among the following partnership models:
- IT staffing
- Dedicated team
- Staff augmentation
- R&D center
As for the pricing plans, they may be as follows:
- Hourly rate
- Salary + fee
- Fixed price
Ask the vendor about all the services it provides, and choose among them. If you can’t decide, turn to Devox Software – we provide free consultation on outsourcing with our top managers.
Step 6. Test the employees
Checking the staff is absolutely normal if you want to make sure that your project will be done by adequately skilled professionals.
If you have chosen IT staffing, and the team is created from scratch for your project only, you can (and should) be present at all the interviews to see whether the candidate suits you, whether there’s chemistry between you. If it’s the outsourcing model of work, you can give the vendor’s staff a test task to check their skills and knowledge.
But don’t forget that a test task shouldn’t take months to complete; it should be short and concise, with clearly estimated results and deadlines.
Step 7. Make friends with your team
It’s critical to dedicate the first couple of days to your acquaintance with the team. Here are some ways of setting up positive working relationships:
- Give the staff access to systems they’ll need
- Tell the team about the company, its internal culture, and rules
- Set a clear schedule of conversations
- Inform the team about the management pipeline – to whom to turn regarding force majeure situations, vacations, sick leaves
- Choose communication channels – email, messengers, etc.
- Don’t forget that you’re working with people – organize a water cooler chat
- If that’s relevant, make the team acquainted with other members of your in-house team – your assistant, managers, etc.
Step 8. Start working
Remote work essentially has little difference from office work if you set up a convenient schedule for the team, choose practical task management systems, and invest in regular, healthy communication. If you like how your team works and want it to take more initiative, praise the workers and encourage them. If you don’t like something, also voice that. The longer it takes to give negative feedback, the harder it will be for the team to redo the work, which is time-, money-, and resource-consuming. Thus, it’s critical to react to everything on time.
As you can see, outsourcing is quite popular with small and large companies resorting to this hiring approach for many reasons. Concerns about remote workers, the quality of performance, and the intactness of sensitive data will persist in this area, but if you’re ready to take risks for the sake of accessing the global talent pool, we recommend taking some precautions.
Sign NDAs with both the vendor and the developers; conduct thorough research about the outsourcing vendor and check its reputation before signing a contract; make a personal acquaintance with the manager; mind the cultural barriers, language and culture issues, and time zones.
The software development outsourcing process will go much smoother if you have an in-house specialist with experience in remote team management; the rest will follow.
About Devox Software
Devox Software is a Ukrainian provider of outsourcing IT solutions for small businesses, startups, and enterprises. Our team is experienced in software development, UI/UX design, DevOps, and quality assurance.
We offer flexible employment and pricing terms to clients, aiding clients with the whole spectrum of staffing needs, from temporary one-person staffing needs to setting up entire dedicated teams and offshore development centers.