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software outsourcing
Anthony Suddia

Understand the Anatomy of Software Outsourcing and How It Can Help You

Software outsourcing has been the new normal for a long time.

No wonder. Tech talent shortage is one of the biggest risks for all industries where successful competition depends on how well software is built, developed, and maintained.

Tech giants have established a firm foothold. Many tech giants and smaller tech companies occupy the top charts on the lists of the companies offering the best working conditions. For example, seven out of ten of the world’s best employers in 2019 are IT companies. Hiring and retaining local experts becomes a challenge.

Rather than trying to compete directly, companies use software outsourcing to level the chances to win the competition.

Still, concerns remain. Especially, for those who have not tried software outsourcing before.

It is easy to get lost when choosing the correct next step towards fruitful cooperation. Types of teams and software outsourcing models vary greatly. Costs of custom software development range radically. Benefits seem elusive, so it is not always clear which team suits you best.

In this article, we address businesses’ concerns by giving you a big picture of how software outsourcing works. Questions and answers include:

  • what is software outsourcing
    What is software outsourcing?
  • q
    How does software outsourcing work?
  • q
    What are the various types of software outsourcing services?
  • q
    How do businesses benefit from outsourcing software development? What distinctions do software development models hide?
  • q
    What should you consider when evaluating a software development company.

Let’s look together for insights!

What is software outsourcing?

The term “software outsourcing” is broad. At a glance, it signifies that one company hires an independent contractor (company, team, or freelancer) to handle software development and maintenance activities instead of getting the job done internally.

As an effective model, software development outsourcing makes cutting operational costs possible and helps the client company with long-term improvement.

Disruptive software outsourcing makes a difference. According to Deloitte, disruptive outsourcing includes Cloud Computing, Robotic Process Automation, and Artificial Intelligence (AI). To some, AI might sound like something in the future, but 93% of organizations are considering or have already adopted cloud services. The future has arrived.

What makes choosing the right company for software outsourcing so complex?

There are at least three reasons:

  • 0 1
    Specific company requirements Company requirements vary greatly. Companies can outsource everything from simple repetitive tasks to complex processes. As a result, software outsourcing companies and their clients need to invest time and effort figuring out the right type of service and finding the right balance between cost, timeline, and quality.
  • 0 2
    scope of work Project scope can vary from simple 20-hour projects to a 10-year-long project on back-end development and maintenance with 65 engineers working simultaneously at the project’s height. Moreover, complex projects require effort on building the right workflow for effective software development outsourcing.
  • 0 3
    Required level of expertise A company needs to make sure that the outsourcing company it chooses is able to handle the required level of complexity and difficulty. When the company values long-term sustainability, projects should not be outsourced to an inexperienced team.

The above-mentioned factors give an overview of the range of software development services.

Software outsourcing services

When searching for software outsourcing companies through a directory, e.g., Clutch or GoodFirms, businesses can easily become overwhelmed by the variety of available software outsourcing services.

Still, they can be divided into two big groups. The two major groups of software outsourcing services are project based and operational. The division depends on where the “end line” is.

Project-based outsourcing means the scope has a beginning and an end. The list includes:

  • full-cycle, software development outsourcing
  • single activities within software development cycle
  • integrations and tuning

Operational software outsourcing services focus on “endless” activities:

  • software maintenance
  • security monitoring

And others—the list of operational software outsourcing services is long.

Can software outsourcing companies do both project-based and operational activities?

Yes. Businesses only need to know in advance who is going to maintain software after its launch: an in-house team, the current software outsourcing company, or a new provider.

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Software outsourcing models

Software outsourcing models rarely specify details of software development on a certain project. But they do build a bigger picture of desired destination, type and length of cooperation, and pricing.

Based on distance

The main division is based on the geographic principle. There are three software development outsourcing types depending on a company’s location.

map
  • pin
    Onshoring provider resides in the same country as client
  • pin
    Nearshoring provider is located in a neighboring country
  • pin
    Offshoring provider works in a distant land

What points should be considered?

  • Pricing – company’s location directly affects hourly rates. South-Eastern Asia and India provide the cheapest prices. Rates in Eastern Europe and Latin America are slightly higher. The US, Australian, and EU companies are the most expensive.
  • Time difference – logically, onshore and nearshore companies work from the same or similar time zone while there is often a considerable time difference working with offshore companies.
  • Cultural competence – workers from distant countries often share different cultural views and values. Still, it is possible to find people with a Western or Western-like mindset. Conduct a thorough interview and ask for references when choosing a provider.

Therefore, choose the USA or Western Europe if response time and cultural similarity are crucial for project survival. If you have a simple project and limited budget, look for an Asian company. However, if you need a fine balance, you should hire a company from Eastern Europe for software outsourcing.

Based on team engagement

It all depends on project scope and business needs. A product owner can hire a specialist, a team, or even an entire department. Let’s discuss the questions what, where, and how.

The two principal ways of software outsourcing:

  • Complete outsourcing the development team takes over the entire software outsourcing.
  • Team extension the development team performs selected software outsourcing activities and coordinates its effort with client’s in-house team.

The former model works for the businesses who have no team.

The latter suits businesses with two types of projects:

  • need a short-term help to complete a project
  • seek certain missing expertise to strengthen the in-house team
Based on finishing line

A software development team can be engaged with project-based or operational software outsourcing activities. Or a combination of both.

  • Delivery team team develops software, delivers it to the product owner, and helps during the guarantee period. No maintenance included.
  • Dedicated team team helps with app maintenance. It also works on updates and adding new features.
Pricing-based software outsourcing

A software development team can be engaged with project-based or operational software outsourcing activities. Or a combination of both.

  • Fixed price client and provider decide on a firm price for the defined, preliminary scope of work.
  • Time and material client pays hourly—total of the amount of time the team has spent working on his or her project.

The choice depends on the clarity of requirements.

Here is a short recap. These points affect the choice of software outsourcing models:

  • budget range
  • desired timeline
  • importance of immediate response
  • elaborated requirements
  • scope of work on a development project and its maintenance

Pros and cons of software outsourcing

In short, many companies opt for software outsourcing hoping to cut costs of software delivery.

But this is not the only reason. In the vast majority of software outsourcing examples, clients search for expertise.

Reliable software outsourcing companies bring value to a project rather than lower expenses directly through low hourly wages.

Pros of software outsourcing include
  • Cost reduction — a software outsourcing company usually resides in a cost-effective location which lowers expenses. Directly by handling maintenance of old projects where spending internal team’s time would never pay off. Indirectly—and more importantly—when an experienced outsourcing development team lowers costs by introducing technical innovations into business processes.
  • Access to tech experts — another important reason for software outsourcing is accessing tech experts best suited for the project. When applying for software outsourcing, businesses can find outside software developers who have mastered the exact skill set required. They have done this before; they will do it for your business.
  • Adding missing expertise — there are hundreds of software development technologies. One person or a small team cannot master them all. In case of a growing workload, software outsourcing will help the in-house team optimize efforts. For example, outsourcing team can help seamlessly migrate from one to another third-party service.
  • Optimized resource management — software outsourcing can help with optimization of resources. A development team will produce source code that does not excessively consume resources. When there is a better option, developers will offer it. This makes it possible to save on hardware, licenses, and subscriptions while substantially improving the entire infrastructure.
  • Overall process improvement — with more hands available, an IT department can deliver improvements regularly making company’s processes more effective. Moreover, an outsourcing team helps make workflow more effective with its outsider’s look. Also, when the team has more experts, it can better focus on the needs of the end user, thus keeping them in mind when building software. This helps overcome resistance to innovations.

According to Deloitte’s study on software development outsourcing, a software outsourcing company creates value the following ways:

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But the flip side of software outsourcing includes both short-term cons, such as lack of experience and unachievable promises, and long-term business challenges. Below is a list of common pitfalls

cons of software outsourcing include
  • Lack of business knowledge by the supplier — features might take longer to develop than expected or software might lack essential features.
  • Overpromises and underdelivers — the chosen software outsourcing teams lacks the required level of technical competence and delivers low-quality code.
  • Hidden costs of software development outsourcing — a development company strives to charge for the things that would be included in cost estimates anyway.
  • Loss of internal skills and competences — company employees become less motivated in learning particular technologies.
  • Loss of control over fundamental processes — there is no one remaining in-house who knows how software corresponds to business processes.
  • Growing dependence on software outsourcing — a company becomes incapable of hiring and retaining a strong core in-house team.
  • Risks of supplier’s instability — a provider might not be able to retain its engineers resulting in low-quality code.
  • Decreased quality with time — a development team or individual members might lose their motivation when working on maintaining the same codebase for years.

Short-term risks include a software outsourcing company failing to deliver source code on time and on budget or the source code is unusable.

Long-term risks? A business might become too dependent on a software outsourcing company. In its turn, this can end up in unjustified costs of outsourcing services. Or the client might face losses in case if the chosen provider experiences any challenges. Is there any solution? Yes, always demand to deliver a structured, well-documented project. In this case, transitioning project to another team will never become a nightmare.

Software outsourcing examples

This section encompasses four common software outsourcing cases based on IT Craft’s experience. Here you find the context of software outsourcing examples and a short description of activities.

Case one
Starting from scratch

A client wanted a large, web-based management system where end users had many options to track and manage their activities. Because he had previous experience in software outsourcing, details were quickly finalized.

The team had daily meetings with the client when they discussed that day’s deliverables and plans for the next day. This made it possible to keep pace with a tight deadline.

Case two
Old software redevelopment

A company had amazing desktop software. But it was losing its clients.

IT Craft team initially started with small support tasks. It soon became evident that the company needed to go with SaaS to remain competitive in the market. The team redeveloped the software completely to a cloud solution with the Web and mobile apps.

Case three
Taking over existing project

A client had demonstrated a prototype of its web system to an investor. He needed a team to launch an MVP. Cooperation started with analysis of requirements and code inspection. The team advised starting the project anew because existing source code raised security concerns. The team determined estimated scope and continued working on its maintenance.

Case four
Project rescue

The client faced a situation when its then-current team lost momentum. He approached IT Craft with the request to improve and launch its iOS app. After a code inspection, it became clear that it was possible. The team started working on improving the existing source code and adding missing features. It delivered on time.

Do you want more real-life examples on how software outsourcing works?

Check out case studies from IT Craft’s portfolio!

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How to outsource software development

Check out this simple but valuable, short eight-step guide on software development outsourcing.

  • r Find a reliable company
  • r Discuss requirements
  • r Develop together a roadmap
  • r Have all details clarified
  • r Get the work started
  • r test the results after each iteration
  • r Get software launched
  • r Start software maintenance

Follow these steps to receive working source code.

Here is a short recap of the most important recommendations when planning to outsource software development:

  • Stay realistic.
  • Communicate regularly with the team.
  • Opt for responsibility.
  • Ensure knowledge transfer.
  • Eliminate dependency.

Follow recommendations to eliminate risks of outsourcing software development for your business.

Software development outsourcing at IT Craft

Since 2001, IT Craft has successfully completed over 2250+ development projects, from small websites to large SaaS solutions adjusted to specific industry requirements.

A general software development company with several strong areas of expertise, IT Craft provides several types of software outsourcing services. As a result, the company satisfies various needs for software outsourcing throughout the software life cycle.

The main areas of expertise include:

Software consulting
q
When?

Sometimes, a company needs advice on which direction to go with its software. In this case, IT Craft can help with a software audit by one or more company experts. Based on its outcome, IT Craft’s experts suggest a possible roadmap with detailed steps on its implementation. The company receives a detailed report with practical recommendations.

The client company uses this report to reflect on the current state of its software and decide on the further development direction.

q
What?
  1. making an interview with stakeholder(s) or product owner
  2. doing code inspection
  3. comparing source code and requirements
  4. identifying strong and weak points of the provided solutions
  5. making a list of recommendations
  6. providing the client with a detailed report
Prototype development
q
When?

This option is best-suited for startups. Startups need to start as soon as possible. They must be active and dynamic to survive. Startups need prototypes to illustrate their idea and get funding.

IT Craft can help with rapid prototyping. A development team helps launch a working proof-of-concept. Startups can explain their hypothesis best.

q
What?
  1. discussing the app idea and startup’s plans
  2. determining what is possible within the desired timeline and budget
  3. elaborating the set of requirements
  4. developing source code
  5. launching the prototype
Full-cycle software development
q
When?

Both startups and established businesses need teams able to take on the entire software development project. This can be a CMS-based, e-commerce website. It also can be mobile or a Web app or even also custom, internal software available only within a company’s intranet.

IT Craft teams can do different project types. Startups can benefit from MVP development. Bigger companies often need fully featured apps. Everyone benefits from Agile.

q
What?
  1. discussing a list of requirements
  2. providing an estimate
  3. elaborating on scope and timeline
  4. working in iteration-wise mode on project activities
  5. launching software
  6. starting post-launch guarantee period
Reengineering
q
When?

A company launched its software long ago. Over time, updates become increasingly more painful. Certain features are even impossible. However, the company is stuck with its outdated software. On one hand, they need a new maintainable solution. On the other, software development can take several months in an optimistic estimate. They cannot stop the company’s workflow even for a second!

In this case, IT Craft offers a gradual, step-by-step migration. The old software is replaced with new models without paralyzing the company’s workflow.

q
What?
  1. discussing stakeholders plans and desired features
  2. discovering company’s workflow and software in-use
  3. decomposing the project into digestible modules
  4. redesigning software architecture keeping stakeholders’ plans in mind
  5. migrating onto new modules one after another
  6. replacing old source code with new
  7. maintaining and updating new codebase
Project rescue
q
When?

It is quite possible that the deadline is approaching and it becomes evident that the current team is not able to keep its promises. There can be various reasons, from lack of competence and too-optimistic estimates to high churn rates on the outsourcing company’s side and lack of required competence level.

IT Craft can help based on the condition the code is workable. Unfortunately, it sometimes makes more sense for a project to start anew rather than trying to save what has been already done.

q
What?
  1. discovering a company’s plans, requirements, and deadlines
  2. doing code inspection
  3. offering roadmap
  4. elaborating requirements and starting development
  5. developing and testing source code
  6. launching the app
  7. providing documentation to the client
Team extension
q
When?

The company lacks specific expertise to complete the launch of a project. Or, the team’s workload keeps growing while the budget does not. The vacancy cannot be filled immediately due to timeline or budget limits. Software outsourcing can help.

In this case, IT Craft assigns a team specialized in the desired area of expertise (e.g., test automation, back-end development, VR development, DevOps, etc.) who works as a part of the client’s team.

q
What?
  1. determining scope of work
  2. determining outsourcing team squad and size
  3. completing a pilot task
  4. measuring team performance
  5. deciding on future cooperation
  6. working in iteration-wise mode on project activities
  7. maintaining constant communication with the other team(s)
  8. providing detailed plans before and delivering reports after each iteration
Support and maintenance
q
When?

Keeping an in-house team working day and night can be too expensive. Still, many companies need a reliable, proactive team to maintain its software solutions 24/7/365 ensuring 99.8 % uptime. They also need professionals who can update servers according to security standards, monitor suspicious activities, perform data migration activities, and more.

There is a special department at IT Craft that focuses on support and administration.

q
What?
  1. determining scope of work
  2. agreeing upon SLA (service-level agreement)
  3. starting activities
  4. providing detailed reports

Remember. When outsourcing software development to IT Craft, you can always be assured the job will be done on time, on budget.

Promises made. Promises kept.

FAQs

To sum up, outsourcing software development enables quick access to specific technical expertise.

What is the greatest value software outsourcing provides? Thousands of businesses have the opportunity to launch long-awaited improvements rather than postponing them or bloating their budget.

Software outsourcing makes it possible to get technical implementation for accumulated business knowledge at a reasonable price.

FAQs

  • q What do you mean by outsourcing of software?

    Outsourcing software development means that your company delegates certain (or all) activities on a software project to another company, team, or an independent contractor. Software outsourcing can be complete or partial, depending on whether a company outsources all software development / maintenance activities or only some of them.

  • q What are the two main types of outsourcing?

    There are more than two types of software outsourcing. But let’s focus on these two most important ones.

    These two types of outsourcing are project-based and operational. The former means that the team delivers a certain scope of scope of work. The latter means that project activities have no hard stop.

  • q What are the advantages of outsourcing?

    Most companies seek outstanding quality for the price they pay. Companies outsource to get access to world-class expertise, enable technological flexibility, and optimize software development / maintenance costs.

    Of course, this is possible when you outsource work to a reliable software development company.

  • q What are the risks of outsourcing?

    There are two groups of risk factors.

    The first group affects the quality of delivered solutions. When a company focuses on money only and hires inexperienced an team, they face broken deadlines and low-quality source code. As a result, it is impossible to improve, maintain, and expand the software.

    The second group is related to the loss of a company’s competences. When outsourcing all and any software development activities, a company might lose its key engineers soon and become dependent on an outsourcing company that will become the knowledge holder.

Do you want to know how much your project could cost you? How fast will it be launched? Contact us. It is free!
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