Software development outsourcing is usually a gray area that companies just go into, and it always turns out at either end of the spectrum.
It is either goes terribly wrong, or it is a massive success
The major reason is because companies go into it for the wrong reasons and without knowing what to expect or how to navigate this unknown territory.
In this guide, we shall tackle everything you absolutely need to know before you go out hiring an outsourcing firm to do any work for you.
Just some of the topics that we shall discuss:
- What is outsourcing? And why do companies outsource
- Software development outsourcing market size
- Benefits of outsourcing software development and why you should outsource your software development
- Disadvantages of outsourcing our software development
- How to keep outsourcing projects on track?
- Software outsourcing development trends.
- Choosing the right outsourcing partner
What is software outsourcing? (not to be confused with offshoring)
As companies struggle to remain innovative and technologically driven, while cutting costs, optimizing business processes and bringing products to market faster than their competition, outsourcing has slowly become the answer.
Outsourcing is the practice of entrusting software development projects and work to a third party vendor who has expertise in that particular needed domain
Outsourcing should not be confused with “offshoring” as they are two different terms, offshoring being a form of outsourcing that increased due to globalisation.
Recently, “outsourcing” was associated with companies that employ firms overseas to do their software development projects with the sole intention of cutting costs, yet that is not majorly true.
Software outsourcing is not a new concept and has been existent for several years in the IT industry.
How big is the software development outsourcing (IT Outsourcing) market?
According to reports by TechNavio, the global IT outsourcing market is an $80 billion industry and they expect it to grow at a CAGR of 4% from 2018 to 2022. In this report, it is also shown that digital transformation is a major key driver in the growth of the industry.
Digital transformation is not industry specific and companies that have shown tremendous returns by implementing innovative ways of operating have in a way made their counterparts to follow suit.
This has ultimately led to growth in the outsourcing market as many firms have cropped up to assist enterprises in this digital transformation.
What are the benefits of software outsourcing?
If you are probably wondering why companies continuously outsource their software development, it is not just about cost. I will exhaust all the benefits of outsourcing your software or web development projects and all the right reasons why you should do it too.
I had to start with the most obvious one, which means less hit on the bottom line. The cost reduction in software outsourcing is mainly brought about by the huge wage difference between engineers in the United States or the United Kingdom vs the engineers in India, Latin America or eastern Europe.
Otherwise, if you opted to outsource to an entirely domestic firm, you might not necessarily benefit from the cost savings, as it would otherwise cost you more or less the same as building your own team, although you would reap other benefits like efficiency etc.
Either way, most of the firms still have web development London firms offshore that work alongside their existing team in order to remain competitive.
The company also saves on hiring and training costs by automatically tapping into a pool of talent to develop its projects.
Although several people believe that with low cost, comes along low quality, that is not true.
You could actually get more experienced developers in India, that would work much better than the developers that you would pay 60% more for a junior developer in the UK.
Our own portfolio is a great example; we have a development team (that you can tap into as well) in India, they are people that we have handpicked, trained, and retained and our quality of work along with the clients that outsource to us is a huge testimony of this.
2. Faster time to market
Technology changes every day, and at a very fast pace. What is relevant today, might not be relevant tomorrow. For this same reason, the success of several software development projects relies on how fast the product gets to market.
Software development firms already have the expertise and are already familiar with agile development principles.
By the time you get the “right” team together, hiring them, training them and getting them to understand the product vision, your competitor that outsourced the software or web development is one step ahead.
The pressure to get to market as fast as possible is not only experienced by your sales and marketing team
The pressure is on with the development team as well, and occasionally bringing in an extra hand to assist them with tasks and technologies that they are not familiar with will help a bunch in finishing off products
If you would love to hire specialised developers for a specific period of time, you can drop us an email at firstname.lastname@example.org
3. Lack of internal experience
When companies lack experience in a particular domain that they would love to implement, it is much less risky for them to outsource the function to a third party vendor than trying to navigate the waters themselves.
Say, for instance, a fashion retailer that would love to implement a mobile application for their end consumers to increase mobile sales (Quick tip: Mobile apps have a 3 times higher conversion rate than desktop or mobile websites).
The fashion retailer could probably hire a Product Manager, mobile app developers, Project manager, UX designer, graphics designer etc. and it would make sense for them to do so.
But they probably don’t even have the expertise needed in building a software development team. (link to software development article) therefore that alone would be a logistical nightmare.
It, therefore, makes sense to just go out and hire a mobile app development company that would build and maintain the application for them.
4. No long-term commitment
Sometimes companies only need developers for the lifecycle of a project and it makes sense for them to hire out a dedicated developer or resource from a software development company. Without any long-term commitment.
It is much easier and faster to cut ties with a software development company that did not work out than it is easy to cut ties with an employee that you hired to fulfil the task that did not perform as expected.
5. Risk Mitigation
Software development firms will already have a tried and tested development methodology that will not only deliver products on time but will also stay within budget.
When enterprises outsource their software or web development, they have a much more increased certainty by transferring the risk going past the deadline or budget over to a third party vendor.
Since the trusted partner’s business model ultimately relies on delivering quality software projects within the set deadline, and budget and they have done it over and over again for other clients, the risk is reduced massively.
Reduce risk of project failure:
We have displayed more of the advantages in this infographic below:
What are the disadvantages of outsourcing software development?
Outsourcing when not done correctly has its mishaps, and I will go ahead and mention the most common risks of outsourcing software development.
We have displayed more of the disadvantages in this infographic below:
Communication can affect the project
Companies that outsource their projects usually face a problem of great streamlined communication because of the lack of proximity, or timezones for offshore or nearshore projects.
Sometimes language barrier bars them from communicating efficiently since they struggle to speak a similar language and fully understand project requirements and feedback.
With a web development team in India, we ensure that our staff are not only given extra English lessons but that they also communicate in English as much as they can during their day to day lives in the office.
This makes it a lot easier for them to communicate with our English speaking clients both while in India, and when they are asked to move on-site for a length of a project.
Loss of jobs internally which kills the other staff morale.
Because of the cost-effectiveness of software outsourcing, when companies find the perfect outsourcing partner, they lay off their existing staff and take on the cheaper on-demand alternative in software outsourcing.
This loss of jobs suddenly sends anxiety to other staff as they suddenly wonder whether they will have a job in the future or not. It eventually takes a huge hit on the productivity of the entire team.
The other argument is that cost-cutting instead leads to higher profits which are in turn re-invested to actually produce more jobs at a later stage in the company. And several companies have shown that it is actually a good thing.
At TechTIQ, we actually view outsourcing as a way to accelerate your software development and not necessarily replace employees that have worked hard and been loyal to you.
This actually increases productivity and overall morale for the company.
Less control of the software projects, or outsourced work
When companies outsource their software or web development, they lose control over those projects to a certain extent.
Since the team is not in-house, they cannot manage the team, track how many hours they are spending on the project, the experience of people being allocated to the project etc.
At TechTIQ Solutions, we are as transparent as possible both for remote augmented workers as well as projects.
We provide a project breakdown and full access to the resources that are working on the project to ensure that it is seamless and that you have full control of the team as though it is working in-house.
Risk of data misuse
When companies agree to share data with a third party provider, there is a risk that the data can be misused by the vendor.
It is therefore important to attach agreements to any non-public information or trade secrets and doing some background research on your outsourcing partner to identify any issues with data mishandling in the past.
How to keep outsourcing projects on track?
Set expectations straight and repeat yourself if you have to.
Setting expectations early on with your vendor is a really great way to make sure that you do not have any mistakes later on in the project’s lifecycle.
Let them know exactly what you are looking for as an end result and provide all the necessary information that they would need to carry on with the project.
If you feel something is not clear in the discussions, ask whether it is clear and repeat yourself if you have to.
Over-communicate (including using communication and collaboration tools)
Ensure that you regularly meet up or have Skype calls to go through any queries and the progress of the project.
This saves you a lot of potentially wasted time and resources in doing double work.
There is no such thing as over-communication, you can also use collaboration tools like slack for them to work alongside your team and make sure that the project is progressing.
Treat outsourced partner with respect, as a partner and not just a vendor
You have to forge a relationship with your outsourced partner, get to know and understand them since you are going to be working together for that length of time.
Loyalty is built after a period of great trust and respect. If you can have a bond with your outsourced partner, they will as well treat your projects as though it is one of their own (with a passion) which increases the chances of success.
Software outsourcing trends in 2018:
In terms of the technologies that will mostly be outsourced:
The increasing use of mobile smartphones in people’s daily lives has boosted the demand for mobile app development. Mobile only social networks like Snapchat and Instagram have also helped increase the consumers time spent on mobile phones.
Therefore companies that are not providing a great mobile experience are losing out to their competitors that are doing great in that arena.
The biggest problem is that companies lack experience in this field, or the relevant talent needed to develop great mobile applications and they are therefore turning to outsource companies to help them accomplish the task risk-free.
It is estimated that there are over 8000 companies in the UK alone involved in app development, a research that was commissioned by Google and carried out by VisionMobile, the market analysis company.
Companies are slowly starting to realise the importance of drawing patterns from the massive amounts of data they currently hold and using this analysis to fuel business decisions and customer experience.
Just a few examples of machine learning use cases:
- Companies like Amazon and Netflix have used machine learning to recommend purchases to their users based on their previous purchases and activities and that increases their conversion rates.
- Paypal has used machine learning to analyse millions of transactions and can now more accurately tell between fraudulent and legitimate transactions between their users through patterns.
- Google uses machine learning to understand how you interact with each of the search results, and ranking them in order of importance to your search term.
We could go on and on, but you get the idea. In summary, machine learning will help make business decisions more data-driven, improve conversion rates by giving users a more personalised customer experience at scale.
But the biggest issue is that there is a large shortage of experienced Machine learning, and since it is fairly a new concept, businesses are not willing to readily dive in and make huge investments to bring together an in-house machine learning stack.
They, therefore, turn to outsource.
Internet of Things:
According to a study done by Vodaphone, 76% of businesses agreed that Internet of things would be crucial to business success in the future and that they were allocating an even bigger budget to an internet of things than to cloud and analytics.
IOT is basically the combination of data from sensors combined with the hardware, to produce data that the businesses can then use to empower their business decisions.
Companies are now using these sensors on the hardware to not only improve their own efficiency and predict outcomes before they happen but also to improve their customers experience through tracking how they interact with their products or stores.
Although companies are in owe of this technology phenomenon, they still lack the skills and expertise to pull off the hardware needed as well as the software that is meant to run with the devices.
Since these require a huge investment to play, they then turn to outsource these projects to more specialised companies to help them with their internet of things projects.
Most companies are starting to recognise the potential of online threats as cybercrime increases but they hardly do anything about it until they get attacked.
Cybercriminals develop malware every single day, and it is increasingly becoming harder for companies to protect their IT assets.
What makes it worse is the fact that there is a massive shortage of IT security talent with Cybersecurity Ventures predicting that there will a shortage be 3.5 million unfilled cybersecurity jobs by 2021.
In fact, it is one of the only few industries with a 0% unemployment rate.
Due to this lack of security talent, companies are now turning to outsource their entire it security demands to keep up with the black hats.
5 Steps to choosing the right software outsourcing vendor?
- Clearly define what you are looking for
- Check experience
- Ask for reviews and references
- Ensure good communication and client references
- Check IT infrastructure
Chris Peter Kimera is the co-founder of TechTIQ Solutions, a software development agency in London. Chris is very passionate about building highly effective outsourced product development teams that build game-changing solutions