Hiring third-party service providers to handle software development projects is called outsourcing software development. According to Shortlister, The global business process outsourcing market was estimated at $245.9 billion in 2021 and is predicted to increase at a 9.1% compound annual growth rate (CAGR) from 2022 to 2030.
Outsourcing is a popular practice as many companies contact a third-party service provider company or outsource software developers to develop specific software development projects. Organizations opt for this mode of hiring for several reasons and one of the most common reasons is the lack of trained and competent employees.
If you’re a startup then outsourcing is the most feasible alternative to ensure adherence to financial constraints. In the present business landscape, both large and small-scale organizations have increasingly adopted the practice of outsourcing. Startup outsourcing software development is an excellent way to develop software solutions while you can focus on the other core functions of the company.
According to Forbes, there are signs within your business that will show that it could be time to outsource your teams.
“When it starts to overwhelm you and your teams and becomes too much of a burden, there are two routes that you might take — expand your team, which can lead to more costs and more difficulties, or outsource the teams, which can lighten your workload and bring more structure to your company.”
– Forbes
General Outsourcing Insights
- The worldwide business process outsourcing market is predicted to increase at a 9.1% compound annual growth rate (CAGR) from 2022 to 2030 (Shortlister).
- Every year, around 300,000 jobs are outsourced from the United States alone (Shortlister).
- 92% of G2000 companies use IT outsourcing (Exploding Topics).
- 90% of companies consider cloud computing as a key enabler of their outsourcing efforts (Exploding Topics).
- 59% of G2000 companies have a contract for business process outsourcing (Exploding Topics).
- IT services are outsourced by 34% of small businesses (Enterprise Apps Today).
- Revenue in the Application Outsourcing market is projected to reach US$121.60bn in 2024.
- The outsourcing market is expected to grow 9.4% annually through the end of the decade, according to a report from Grand View Research
From the above statistics, we can conclude that there is a rising demand for outsourcing software development. So, let’s dig deeper to understand the process of outsourcing software development step-by-step.
Steps to Outsource Software Development
The process of outsourcing software development comprises 7 major steps which are as follows:
- Determine your needs and goals
- Decide the location of the outsourcing vendor
- Choose outsourcing models
- Research Vendors
- Evaluate Agencies
- Choose the outsourcing software development company
- Test the developers
- Making a final decision
- Choose a communication tech-stack
- Let’s now discuss each step in detail
1. Determine Your Needs And Goals
First, you need to determine your needs and goals as it is wise that you outsource software development to a team or agency whose work is under your company’s business and the project’s specific goals. Therefore, you must first establish your software development goals.
2. Decide the Location of the Outsourcing Vendor
The location of an outsourcing vendor is an important factor of outsourcing that affects price, communication, efficiency, and overall quality of the end product. There are three major categories of outsourcing based on location: onshore, offshore, and nearshore outsourcing.
- Onshore Outsourcing: Choosing an outsourcing partner residing in your country.
- Offshore Outsourcing: Choosing an outsourcing partner residing in a faraway country.
- Nearshore Outsourcing: Choosing an outsourcing partner residing in a nearby country.
3. Choose a Relationship Based Outsourcing Model
Your goals will determine the outsourcing model that is perfect for you. Usually, outsourcing is classified into 2 models: project-based outsourcing, managed teams, and staff augmentation. Project-based outsourcing is the most common one and occurs when a company lacks technical expertise and hires a team of developers to carry out a project.
- Project-based Outsourcing: In the project-based outsourcing model, you can hand over the team’s project management to your outsourcing partner. The project manager of your outsourcing partner will work with you, create timelines, and communicate your requirements to their team.
- Staff Augmentation: In the staff augmentation model, you can outsource the staff from an outside organization temporarily to complete any project. In this model, the outsourced staff works under your supervision and helps your team complete the project.
- Managed Teams: In this outsourcing model, you hire a whole team of expert developers responsible for the development of your project from start to end. They are also obliged to follow your company’s guidelines.
4. Research Vendors
Afterward, you are required to determine the outsourcing location based on the goals you have already decided. Then you must research and discover the companies and freelance professionals that best fit your plans and budget. You can use the following tools to carry out your research.
- Software Development Review Websites: There are multiple websites available that give a list of companies for software development including GoodFirms, Clutch, G2 Crowd, Agency Spotter, and Crowd Reviews. You can explore various software development companies and choose the best by filtering them according to the reviews, location, hourly rate, talent pool, and more.
- Freelancing Portals: You can also use freelancing portals to hire software developers such as Upwork, Toptal, freelancer, fiver, or People per Hour.
- Ask For Referrals: Ask for references from your friends, colleagues, or family who have experience in outsourcing developers. Their experience can help you reach out a agencies they have already worked with.
5. Evaluate Agencies
Once you find agencies that match your goals and budget for your software development project. The next step in outsourcing is to evaluate each agency that you have shortlisted according to your goals. Things that you must consider while evaluating our company size if they have enough developers to deliver what you need or not. How long have they been in business? Assess their experience with the technology your software product will employ. The in-depth knowledge of agency in the software development life cycle ( SDLC) process. Which software development methodologies they can use based on your requirements? Have they completed projects using the DevOps model in the past? English proficiency, time-zone flexibility, pricing structure, experience, work portfolio, and compliance certifications.
6. Choose the Outsourcing Development Company
After researching and evaluating the agencies you prefer, reach out to them and discuss your business, its goals, and your project requirements. Talk to their experts, and ask for work portfolios, case studies, their software development process, programming languages, technology implementation, etc. This could be done in a physical meeting or via video conferencing. You can consider it as you are interviewing a job applicant.
7. Test the Developers
At this stage, you need to assess individuals. Are the developers experienced and skilled as claimed? Only testing would reveal them, so test them by taking their assessment or giving them a small task.
8. Make a Final Decision
When you are making a final decision, explain the important documents to be signed such as a non-disclosure agreement (NDA), service level agreement (SLA), master services agreement (MSA), statement of work (SOW), and software requirements specifications.
9. Choose A Communication Tech Stack
After finalizing everything, you need to choose the communication channel to track the development process such as Trello for project management, Zoom, Google Meet, Microsoft Teams, slack for chat-based communication, and emails for managing formal communication.
Advantages and Disadvantages of Outsourcing Software Development
Advantages Of Outsourcing Software Development
- Cost Saving
- Dedicated Team
- Close Skills Gap
- Reduce time to market
- Fresh Perspective
- Less Infrastructure
- Access to a large talent pool
1. Cost-Saving
Adding the cost of recruiting, training, and the salaries of permanent in-house developers makes in-house hiring expensive. It is much cheaper to hire freelance staff who would be paid by project or hourly.
2. Close Skill Gap
If there is a skill gap in your company then you can opt for outsourcing. It allows you to easily overcome your team’s shortcomings in terms of talent availability.
3. Reduce Time To Market
When you outsource software development, the project is often ready to begin as soon as an agreement has been reached.
4. Fresh Perspective
Innovation is the foundation of the IT. Outsourcing helps you to gain insights from the unique perspectives of your hired team based on their distant outlook.
5. Less Infrastructure
Companies that outsource software development have access to the required tools and other resources from the outstaffed team, thus reducing expenses on new infrastructure if otherwise.
6. Access To a Large Talent Pool
Outsourcing gives you access to a huge talent pool across the globe. It allows you to hire experienced and skilled developers from every corner of the world without geographical limitations.
Disadvantages of Outsourcing Software Development
There are several disadvantages of outsourcing software development as well which are as follows:
- Communication Gap
- Lack of control
- Security Risk
- Time zone differences
- Hidden Fees
1. Communication Gap
The most common concern that arises in outsourcing is the communication gap created due to language and cultural differences between in-house and outsourcing teams. This communication gap can create many misunderstandings in the briefing of the project leading to delays in project delivery, and an increase in cost leaving behind the actual cause for which you opt for outsourcing which is quick project delivery at an economical cost.
2. Lack of Control
When you hire an outsourcing team, you don’t have full control over them and have to rely entirely on them for your project.
3. Security Risks
One of the major concerns in outsourcing software development is cyber theft. When you are outsourcing software development, you have to hand in the system and server access to your vendor which can generate security risks such as malware, data theft, and phishing.
4. Time Zone Differences
When you outsource your project to a vendor residing in a different continent, you may have to face time zone differences creating hurdles in communication and holding important meetings or discussions affecting development and submission deadlines.
5. Hidden Fees
In outsourcing, cost efficiency is the key benefit but sometimes the outsourcing firms hit you with a surprise of hidden charges for tasks such as project management, administrative help, support & maintenance, and even power use. This may cause additional charges.
Challenges to Expect When Outsourcing Software Development
Apart from the pros and cons of outsourcing software development, below are some potential challenges that you may face during outsourcing.
1. Finding a Trustworthy Partner
Finding a trustworthy partner is time-consuming and challenging as well. It may occur due to the failure to thoroughly assess the outsourcing agency’s background check. So, make sure to evaluate your chosen outsourcing agency in-depth to protect yourself from getting scammed.
2. Security And Privacy Concerns
When you outsource software development, you need to give access to your assets to your outsourcing partner. So, it’s important to keep check on data encryption, privacy settings, and protection against unauthorized disclosure of trade secrets, patents, or copyrights relating to intellectual property. You must outsource vendors who follow strict security procedures.
3. Language And Cultural Differences
The biggest challenge that most businesses face is language and cultural differences. These differences can significantly affect the outsourcing process. So, make sure to communicate with the outsourcing staff by knowing if they speak your preferred language or not.
Conclusion
Outsourcing is an effective strategy for establishing and growing businesses. You can select your outsourcing model according to your goals and requirements. There are multiple benefits of outsourcing, but there are several challenges as well. You just need to follow all the steps of outsourcing effectively and make sure to opt for a trustworthy outsourcing partner. With software development outsourcing you have access to a large pool of talent worldwide.
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Frequently Asked Questions (FAQs)
1. How do I choose the right outsourcing partner?
You must consider some factors when choosing the right outsourcing partner like, experience, skills, portfolio, references, communication, price, and security.
2. What are the pros and cons of software development?
Pros of Software Development
- Cost saving
- Fast time to market
- Flexibility
- Access to talent worldwide
- Specialized skills
Cons of Software Development
- Communication issues
- Less control
- Security Risks
- Cultural differences
3. What are the future trends in outsourcing software development?
The future trends in outsourcing software development include increased use of artificial intelligence and machine learning, focus on security, demand for agile development, and Use of cloud computing.
4. What are the challenges of outsourcing software development?
The challenges in outsourcing software development include communication, security, quality control, compliance, and managing the relationship.
5. How to manage offshore software development teams?
For managing offshore software development you need to have easy and quick online communication, an accessible location for file storage, and a workable system for easy collaboration with remote teams.
6. What are the different types of outsourcing models?
- Location-based outsourcing ( onshore, offshore, nearshore)
- Relationship-based outsourcing ( staff augmentation, managed teams, project-based models)
7. How to choose the best-fitting outsourcing model?
For choosing the best-fit outsourcing model, you need to consider your project, tech, and business requirements.
8. Is outsourcing software development a good idea?
Yes, it is a good idea as its benefits go beyond cost-cutting. Businesses sometimes outsource software development to save the time of their internal team. By assigning additional tasks to outside teams, you allow your in-house to focus on long-term goals, customer service, and business growth.
9. How to protect intellectual property when outsourcing?
To protect intellectual property when outsourcing, you must take a few necessary steps. You can limit server and data access to vendors, and review past outsourcing agreements. You must strategically approach future outsourcing agreements or arrangements by asking key questions from vendors.
10. How do I find companies willing to outsource?
Follow the below steps to find companies willing to outsource:
Internet Research
Industry networks and associations
Referrals and recommendations
Outsourcing consultants
Industry publications and reports
Social media and professional network
