Outsourcing is a business strategy that can increase efficiency, gain competitive advantage, and help achieve market goals faster. No surprise it is becoming an increasingly popular approach and more and more software-based businesses are deciding to outsource some or all of their development to external companies. It is estimated that the demand-supply gap for software developers will grow by 22% between 2020 and 2030, making it more difficult for companies to recruit skilled programmers and build in-house teams. Needless to say, it is time to recognize outsourcing software development as a valid strategy and fully understand its pros and cons.
Software development outsourcing is the hiring of a third party to handle the responsibility of developing software. It is one of the fastest growing business practices of recent years and it depends on finding people from outside the company that have the necessary skills, resources and experience to handle tasks concerning software development.
Even though there are major benefits to this arrangement, such as being more efficient with money and time, some businesses still are not fully convinced if this is the direction they want to go in.
Let’s dive in and break down the pros and cons of outsourcing software development.
There are three main models of outsourcing software development and it is essential to understand them to be able to choose the best option for your company. Of course there will be plenty of technological partners to choose from but these three models can be used to narrow down the options and decide on the outsourcing mode that will best support your project.
- Onshore software outsourcing
Onshoring refers to the process of outsourcing software development to a company/specialist that is located in the same country. The benefits here are speaking the same language, working in the same time zone, and being close to one another. It is usually the most expensive model out of the three.
- Offshore software outsourcing
Offshoring means outsourcing the development to distant countries, for example the most popular regions are Asia or Central and Eastern Europe. The major benefits are usually lower costs, especially for companies from countries like the USA. Things to consider here are mainly the time zone and language differences, so it’s important to choose a company that you can trust (it helps to check out any reviews or references the company has) and that has the right experience and resources.
- Nearshore software outsourcing
Outsourcing nearshore is defined by the use of a development team from a country that is relatively close to the hiring company’s own country, meaning it is easily accessible. In this model, both countries usually have the same or similar time zones, and may have the same language as well as currency.
All three of these have their pros and cons and choosing each of them will impact the project. It is important to know the priorities and main goals of the arrangement. Having a clear vision of the project’s outcomes will help determine in which direction it is best to go.
Software development outsourcing is a major growing market, worth $109 billion in 2021, and expected to grow to $141 billion by 2026. That in itself shows that there are many in-demand advantages of using outsourcing as a business strategy.
Let’s go through the main pros to understand why so many business owners are choosing this process and how it benefits their projects.
One of the main advantages of outsourcing projects to an external company is undoubtedly the cost element. Finding an amazing technology partner that is skilled and experienced in what you need, and the costs less than doing the work in-house, makes outsourcing an attractive proposition.
Financial efficiency also depends on the external team being sufficiently skilled, with the necessary training, and there being no additional costs due to benefits, insurance or paid leave - that should all be covered by the other company. Cost-saving and easy budget control are definitely major reasons for companies to look into outsourcing software development.
Outsourcing some or all project tasks to another company allows you to work with the most skilled and professional team out there. There are many aspects and stages of developing a software product, and it is natural that you might not have people in-house with all the necessary expertise and experience.
When hiring a dedicated team of professionals with domain know-how you don’t have to spend money and time to train people who may gain knowledge but not experience. And that is a huge advantage of outsourcing.
As mentioned above, working with a team of specialists is a major benefit of outsourcing. You will not only save time on training but your employees can focus on the core tasks and projects inside the company. They can put all their energy and focus into their main jobs, and by hiring an IT partner you can delegate responsibilities according to people’s skills and areas of expertise.
Finding an external partner with specific domain knowledge and advanced technology stack can give you a competitive advantage. Outsourcing can enable access to the latest solutions and technological tools that you may be lacking in-house. Moreover, all the essential programs, tools and resources will be most likely taken care of by the outsourcing company that is hired. Access to those resources is not only money-wise but also can give your project technology a boost, together with a faster time to market.
As with any major decision, there are both pros and cons to consider. Let’s take a look at some potential risks that you might face while outsourcing software development to another company.
Knowing what they are, you can take a few easy steps to avoid them.
One of the hardest things to do while working with an external partner is to divide the responsibilities so that everyone knows precisely what they are doing. Distributing responsibilities might be a long process, however it is crucial to spend some time and do it correctly so everyone is clear on what their exact tasks are, who they report to and the overall work order.
People can often be scared of losing control over the project and having clear expectations and boundaries for each partner’s role is essential to making the whole process of outsourcing work beneficial for everyone.
The potential risk of losing confidential information is one of the biggest cons of working with anyone outside the organization. So, how can you avoid such a threat?
Finding a company that has a good reputation, references and experience in this field is definitely helpful and a good start. Nevertheless, it is essential to discuss in detail the steps you and the outsourcing partner are going to take in relation to data security, legal responsibilities, intellectual property rights, and any other privacy and security issues that could arise as you work together. To mitigate those risks you may consider signing an NDA (non-disclosure agreement) with your external partner.
It’s essential to acknowledge potential security risks and take the necessary steps to avoid them to be able to enjoy all the benefits of outsourcing. You can do that alongside your chosen partner to make sure that all sides of the collaboration are on the same page.
While working with a company from another part of the world can be very cost and time- efficient, it can also bring a few challenges. One of them could be communication issues, due to language, time zone and cultural differences. As outsourcing offshore becomes more popular, those risks can be easily overcome if managed properly.
It is critical to establish a solid schedule with frequent online meetings to monitor progress as you go. Keeping the communication flow open and uncomplicated is necessary to success and to avoid wasting time. Choosing a technological partner that is experienced in this line of work is extremely helpful because they know all the necessary practices and methods to make the whole process work.
At CodiLime, we offer you custom software development services that will boost your technology-driven business. Since 2011, we have been partnering with industry leaders and we work across all phases of the software development life cycle. We provide you with carefully selected tools combined with the skills of exceptional software engineers to ensure nothing less than code excellence.
To best meet our partners’ needs we offer four cooperation models. They provide maximum freedom and flexibility so both companies can benefit from the arrangement.
Models of software outsourcing services:
- ‘Team augmentation’ - suitable for companies that are working on a solution and need tech specialists.
- ‘Tailored team’ - mainly for companies that are looking to outsource specific tasks to a team of professionals.
- ‘End-to-end-services’ - best suited to companies that need a technology partner that will turn their ideas into solutions.
- ‘Consulting & expertise’- perfect for when a company needs experts on a temporary basis to help foster in-house growth or transformation.
Outsourcing software development has been a growing trend in recent years and it is predicted to grow even further in the near future. The demand for software developers and outsourcing experts is increasing daily as more and more business owners realize how beneficial outsourcing can be.
Considering all the benefits of a software development outsourcing and knowing the potential risks and ways to mitigate them, then finding an external partner with good industry and technology knowledge and experience can be a strategic move towards winning the market.