A complete Guidebook to IT and Software Development Outsourcing Models

Our opinion on outsourcing

Businesses around the globe are adapting to the constantly changing dynamics of technological trends.

The COVID era has impelled companies from all industries to switch from traditional streamlined practices to newly invented unconventional alternatives to run their companies.  

Outsourcing a service is one of many other recent trends. The same is the case with Software Development Agencies around the world.

Why So?

The ability to swiftly adapt to market demands, with a focus on data security, cloud-based solutions, and efficient software maintenance, makes outsourcing an invaluable strategy for companies aiming to stay competitive and innovative in today's dynamic business environment.

Beyond Cost-Saving to Strategic Advantage Post-COVID

Gone are the days when outsourcing was viewed merely as a cost cutting tool.

Today, it stands at the forefront of strategic innovation, enabling companies to navigate the post pandemic world with agility and foresight.

Embracing the New Paradigm

• As companies around the globe scrambled to adapt to the new normal brought on by COVID-19, the resilience and flexibility offered by outsourcing became more apparent than ever.
• But it's not just about keeping the lights on; it's about turning adversity into opportunity.
• Outsourcing partners are no longer seen as external entities but as integral collaborators in the quest for innovation.

How can we leverage outsourcing not just to save costs but to drive our business towards unprecedented innovation?

The answer lies in forging partnerships that are built on trust, mutual respect, and a shared vision for achieving the extraordinary.

What do you mean by Outsourcing a software development service?

Often, ranging from specialized agencies to independent contractors with expertise in software engineering to execute specific tasks or projects hired by a third-party company. This external engagement is leveraged for a variety of purposes, including but not limited to, the development of web applications, mobile applications, and e-commerce solutions using software development technologies and frameworks.

What are the different types of Outsourcing Models?

1. In House hiring for Software Development

• Internal Recruitment process undertaken by an organisation based on internal KPI's of hiring employees for the company
• These employees under the contract based conditions work as the official representatives of the software development division of that company and they are accountable to the company's management and work according to the terms and conditions outlined in their employment contracts, contributing to the organisation's technological advancements and strategic objectives.

Who prefers In house hiring ?

• These are typically companies for whom software development is a core component of their business strategy and who value the benefits of direct collaboration, control, and alignment with their internal processes and culture.
• Companies operating in technology-driven sectors, such as tech startups, software companies, and businesses whose operations heavily rely on custom software solutions, often opt for in-house teams.
• Organisations that require tight control over their software development projects, from security-sensitive industries to those needing deep integration with existing internal systems, often choose in-house development. 

Advantages of in house Software developers

Direct Control and Oversight

• With an in-house team, companies have direct control over the development process, timelines, and project priorities.  This level of control enables more agile responses to changing business needs and ensures that the development aligns closely with the company's strategic objectives.

Enhanced Collaboration and Communication

• In-house developers work within the same organisational structure and culture, which can lead to more efficient communication and collaboration across different departments. 
• Being physically present or readily accessible in the same time zone facilitates spontaneous meetings, quick decision-making, and easier problem-solving.

Better Alignment with Business Goals

• Employees who are part of the company can develop a deeper understanding of the business's goals, values, and practices. 

• This alignment helps ensure that the software developed not only meets technical specifications but also supports the company's overall strategic direction.

Long-term Commitment

• In house teams are generally more invested in the company's long-term success.

• Their ongoing relationship with the business allows them to contribute to projects with a perspective that considers future scalability, maintenance, and the product life cycle.

2. Staff Augmented Model

A company adds an extension to the existing in house team of software developers from a third party software development service provider. This outsourced service provider could be just one person or an entire team depending on the company's requirements. 

Let’s take an example ,

Imagine a scenario where a company is tasked with developing a bespoke user interface for a client's website.

Despite having a competent in-house team, they might lack the niche expertise or the bandwidth to tackle this project efficiently.

This is where staff augmentation comes into play. The company can bring in external specialists who slot seamlessly into the existing team, bringing with them the specific skills and fresh perspectives needed to nail the project.

On site outsourcing is one of the types of the augmentation model, where in the externally outsourced team of software developers , work closely with the internal team preferably by being present in the corporate workplace of the organisation depending on where and how the company authorities want them to be placed. 

3. Offshore outsourcing

Outsourcing a service from an entirely different corner of the world means hiring an offshore service.

Considered as one of the most efficient models offshore outsourcing has become convenient for majority companies since the time of COVID. It has expanded the lengths of both service providers as well as hiring experts.

When do you hire an offshore service?

• When you're looking to expand your team without breaking the bank, offshore services come to the rescue. They offer access to a global talent pool at a fraction of the cost of local hires, making it possible to scale up swiftly and efficiently.
• Offshore teams often bring specialized expertise to the table, enabling you to add those rare skills to your project without the long-term commitment of a full-time hire.
• Imagine handing off work at the end of your day, only to have progress made while you sleep, thanks to time zone differences. Offshore teams can keep your project moving forward 24/7, turning time into your ally.
• Offshoring allows you to delegate tasks that are outside your primary expertise, enabling you to stay laser-focused on your core mission. 

What’s the best possible way to figure out the offshore process on boarding?

• To know what exactly you want help with is the key to most of the conversations between you and the outsourced team. 

• Ask for the specific people responsible for the project. Make sure you go through all the previous work they’ve done.

• Invest time in sensitising both teams to each other's cultural norms, communication styles, and work practices to foster mutual understanding and collaboration.

• Establish a continuous feedback loop to solicit feedback from both your team and the offshore developers. 

• Encourage constructive feedback, listen to their input, and implement any necessary improvements to enhance collaboration and project outcomes.

  Hardest thing to find when Outsourcing a Software Development

  Many times , very talented and experienced software developers tend to work on multiple projects via an offshore team and might leave the team for a direct employment for a big Multi National Corporation.

  It may affect your individual project .What you're left with, often times, are inexperienced developers without a lot of talent or drive.

  Of course, every now and then you'll come across an amazing developer or two, but the vast majority is average to below average, especially if the business is budget conscious and went with cheaper providers.

  Best possible way to tackle this problem is to introduce a 'hybrid' approach.

  You have an internal team, with offshore teams to supplement. The onshore team who you hire directly, will be responsible for architecture and business-critical components whil on the other hand the offshore team will be responsible for main coding tasks .

4. Nearshore outsourcing

In this model , you hire an outsourced service within the domestic boundaries of your region. There's an intrinsic value in working with a team that operates within the same social, economic, and legal landscape. 

This shared context fosters a deeper understanding of your business objectives, market challenges, and customer expectations, ensuring that the outsourced service aligns closely with your project's ethos and goals.

Additionally, for companies in a financial bind, the domestic market can still offer competitive options.

The key is to engage in transparent negotiations, where both the service provider and the client can align expectations with financial capabilities, ensuring a partnership that delivers value without straining resources.

Why Nearshore Outsourcing is most viable option for outsourcing?

Main reasons are proximity and efficiency .

So, what's the deal with proximity? When you outsource to a team that's geographically close to you, you're cutting down on all the headaches that come with different time zone and cultural barriers. You can hop on a call or send in an email without worrying about whether it's too early or too late for the other side. Plus, being in the same or a similar time zone means you can collaborate more seamlessly in real-time, which is a game-changer for efficiency.

Now, let's talk efficiency. Nearshore outsourcing is like having an extension of your own team right around the corner. You're tapping into a pool of talent that's not only skilled but also understands your market and your business environment. These local people are often familiar with the same regulations, trends, and challenges you face, which means they can hit the ground running without needing a crash course in your industry. That saves you time, money, and a whole lot of frustration.

So, whether you're a startup looking to scale up or a seasoned company aiming to streamline operations, nearshore outsourcing could be the secret sauce you've been looking for. It's all about bringing together the best of both worlds: proximity and efficiency, wrapped up in a neat little package that's tailor-made for your success.

5. Fixed price model

This model sets the stage for a predetermined budget for the entire project, where the scope, timelines, and costs are agreed upon before the commencement of work.

It offers a straightforward financial blueprint, ensuring that both the outsourcing partner and the client have clear expectations about the project's costs from the outset.

This approach simplifies decision-making regarding the allocation of perks or sponsorships for work-related travel, as all expenses are considered within the predefined budget.

Companies can choose to include specific provisions for covering travel costs or providing additional benefits, but these must be negotiated and clearly outlined in the contract to avoid any ambiguity.

Benefits of the Fixed Price Model:

Companies can allocate a specific budget to the project without worrying about escalating costs, making it an ideal choice for projects with well-defined scopes and deliverables.

Since the agreement specifies deliverables and deadlines, the need for constant oversight is diminished, allowing companies to focus on other strategic areas while the outsourced team works towards the predefined objectives.

The fixed price model shifts the responsibility of managing project risks to the service provider, as they are obligated to deliver the project within the agreed budget, safeguarding the hiring company from unexpected expenditures.

Learn more about Outsourcing :

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6. Project Based

A highly structured approach where service providers are engaged for a specific project within a defined time frame, based on a mutually agreed-upon commission.

Unlike open-ended engagements, this model provides a clear start and end date, making it an attractive option for projects with well-defined objectives and outcomes. It's ideal for tasks that require a specialized skill set or for supplementing a company's existing capabilities on a per-project basis

Considerations

While the Project-Based Model offers distinct advantages in terms of specialization, cost control, and flexibility, it requires thorough planning and clear communication. 

The initial agreement must precisely define the project's scope, deliverables, and timelines to avoid scope creep or misunderstandings. 

Moreover, any changes or additional requirements introduced during the project may necessitate contract revisions, potentially impacting timelines and costs.

Conclusion

The rapid increase in outsourcing is undeniable. It's evident from our observations that numerous companies are strategically establishing offices in countries with lower operational costs, enabling them to function independently and effectively neutralizing communication barriers commonly associated with outsourcing.

The outsourcing landscape has evolved to encompass a broader range of services and industries. Initially focused on IT and customer service, outsourcing now spans functions such as finance, human resources, and even research and development.

In addition to cost savings and access to talent, setting up offices in cheaper locations offers companies strategic advantages such as diversification of risk and access to new markets. By establishing a presence in different regions, businesses can mitigate risks associated with economic instability or political unrest in their home countries, while also tapping into emerging markets with growing consumer demand.

Overall, the trend towards outsourcing and the establishment of offshore offices is likely to continue as businesses seek to remain competitive in an increasingly globalized economy. However, it's essential for companies to carefully consider the cultural, legal, and logistical challenges associated with offshore operations to ensure successful implementation and long-term sustainability