Since its inception- Outsourcing has been emphasized as a buzzword for various industries for over four decades now. The ‘outside resourcing’ – outsourcing has been undoubtedly accepted universally. And it doesn’t matter what software providers term it; it depends more how customers leverage it.
As enterprises from all industrial verticals began to acknowledge the importance of digitization, the big question was how to do it? Obviously, a company in a retail business or from the hospitality industry lacks the resources and the expertise to develop a software, a website or a mobile app or to operate a data center or to maintain IT infrastructure and so on. So, they were told that solutions like software development outsourcing exist and work big time.
With that, an industry was born which acquired the value in multi-billion within few years. In 2018, Statista reported the market size of information technology outsourcing amounting to $62 billion. Another report from the market insight leader suggests that software application development, with a share of about 64%, was at the top of the outsourced IT services.
If you have recognized the need to develop a software and you plan to hire a software development company, you qualify to read this comprehensive software development outsourcing guide which highlights every important aspect of the trend. Let’s start with it.
What Is Software Development Outsourcing?
In a layman language, it is the process to hire a software development outsourcing company that would take care of developing the required software using the resources that your enterprise lacks from its own location that might be several miles away from you (you might never meet the development team in person).
To understand it better, you need to know what these resources are:
1. Expertise
You have expertise in your own niche (retail or hospitality) but not in developing a software system
2. Infrastructure
You might have adequate IT infrastructure to support your enterprise’s operations but not the infrastructure (in terms of hardware, network, bandwidth, software development kits and technology) to develop a software solution
3. People
Most importantly, you don’t have the experts in software development in your staff, simply because you hired people with core competencies in your specific niche
Why Not Hire an In-house Development Team?
The first thing that might come to your mind is why not hire people to develop software at your own office rather than outsourcing it to a software development company? It is indeed one option but might not be an economical one, especially if you are a small-sized enterprise or a start-up. This can be easily understood from the fact that choosing the option would require you to arrange the resources mentioned above. For example:
- You would be required to buy the required software development kits and other technology tools for the in-house team to develop the required software. It is easy to find on the internet that the licensing costs of these tools are extremely high. In the long run, you might need to spend more money to maintain or upgrade these toolkits. On the other hand, software development outsourcing would cut short these expenses as the company you hire would have licensed development kits not just for your project but for various clients.
- The cost of recruiting a software development team can be daunting. Apart from the recruitment costs, salaries, compensations, training and perks may dramatically add to the cost of maintaining an in-house team. A report mentions that the cost of hiring and maintaining an in-house development team is 3.5 times more than outsourcing the project to a software development outsourcing company.
A report mentions that the cost of hiring and maintaining an in-house development team is 3.5 times more than outsourcing the project to a software development outsourcing company
It, however, doesn’t mean that there are no benefits associated with an in-house team of software developers. Direct access, better communication, increased involvement, complete control and ownership and cultural compatibility are the main aspects that are counted as the benefits of in-house team hiring and the drawbacks of outsourcing. However, the costs involved as well as the strategies to make these aspects work in favor of outsourcing trends still motivate enterprises to go for it (more about them later).
What Are Software Development Outsourcing Types?
Based on the location of the software development company, the outsourcing process can be classified as:
1. Local Outsourcing
It involves hiring a company in your own city. While it offers the advantage of conveniently visiting and meeting the team, it may prove to be extremely expensive.
2. Onshore Outsourcing
When you hire software developers in your own country, it is called onshore outsourcing. Its advantages include time zone and cultural compatibilities but it may also be an expensive option.
3. Nearshore Outsourcing
Hire a development team in a country near your own to have the same time zone advantages. It may be relatively cheaper than the above two.
4. Offshore Outsourcing
Selecting a company from a country that might be on some other continent and in a different time zone but offers a dramatic cost-saving advantage.
According to a survey conducted by Statistic Brain, nearly 38% of the chief financial officers (CFOs) of the responding companies advocated offshore outsourcing for meeting the budget requirements and some other advantages.
Advantages of Outsourcing Software Development
While cost-saving is definitely the biggest advantage of software development outsourcing, there are many more and it is the right stage of the discussion to unveil all of them.
1. How Cost-saving is Achieved?
Some of the top offshore outsourcing destinations like India and the Philippines boast of lower costs of living as compared to the western countries like the USA. It obviously influences the overall costs of software development if you plan to hire a software development company in one of these countries.
Also, outsourcing software development to these companies reduces the costs of IT infrastructure, licensed software toolkits, employee maintenance and more. So, the overall cost saving is indeed a benefit of outsourcing that can’t be denied.
2. Access to Amazing Talent Pool
The decision of outsourcing makes the global pool of qualified, experienced and really talented software developers available to an enterprise. Not only are these experts well-versed in the current technologies, but they keep on adding to their skill sets with the technological advancements. If you have a particular development platform or framework in your mind, you can choose the developers experienced in it for custom software development without indulging in the cumbersome process of recruiting them. India, for example, has become the leading IT outsourcing destination with a market share of 55% mainly because of the availability of qualified professionals.
India, has become the leading IT outsourcing destination with a market share of 55% mainly because of the availability of qualified professionals.
3. Better Focus on Core Business
With an in-house team working on the same premises, your attention is bound to be diverted from the core activities of your actual business. You would need to share resources with the team and it may also call for re-scheduling of business hours and adjustments in other administrative tasks. It would be nicer if a team is developing your software somewhere else without causing any such interruptions and outsourcing makes it possible.
4. Leverage Every Hour of the Day
Imagine the scenario in which your enterprise work for one half of the day and the software development teamwork for the other half of the day in some other part of the globe. It means that each hour of the day is leveraged to make your business grow. It leads to another benefit of outsourcing that is faster time to market which ultimately extracts the best returns out of the invested costs.
5. High Flexibility
Another advantage that software development outsourcing brings in is the flexibility of using the services of software developers as per your needs. In the case of an in-house team, you might need to spend unnecessarily on its maintenance after the development task is over. Or, according to a contract, you may terminate their services after the development is complete. But, what if you need their services to upgrade or maintain the software. Would you rehire them and spend a big chunk of money in the process.
Outsourcing addresses this concern by allowing enterprises to hire software developers and rehire them according to their own requirements. With the convenience of adding more developers to the project at any point of time, the faster time-to-market benefit becomes even more obvious.
Want to outsource software development? Get in touch with our team of experts.
Outsourcing Fears and How to Deal with Them?
Rather than calling them disadvantages, the issues associated with software development outsourcing can be better referred to as the fears as these are manageable. Let’s discuss some of them:
1. Communication
If you are worried about the huge distance between you and the offshore company you hire, you can easily address the concern. The software development management tools, as well as the popular communication tools, can deal with the communication challenge. A report by CodingSans acknowledges that nearly 86% of the startups use project management tools like Slack for communication while Google Hangouts and email are other tools used for the purpose.
2. Cultural Gap
One of the biggest fears of software development outsourcing to a company located on some other continent is cultural incompatibility. Many enterprises are concerned that possible language barriers may pose obstacles to the development process while others believe that the team they hire might not have a disciplined work culture. However, Deloitte’s 2016 Global Outsourcing Survey claims that nearly 78% of the enterprises felt positive about their relationship with the outsourcing company. The key is to choose the right kind of company which is a global software development player.
3. Security and Performance Risks
A number of enterprises are of concern that hiring a software development company might lead to a security compromise. Others are of the view that the company might not come out with an expected performance (poor quality software, extended deadlines and more). Again, there is a way to ensure that such incidents don’t happen by conducting a background check of the company. Reviews, feedbacks and portfolios can be used as the sources to choose among the most reliable development teams.
4. Control and Ownership
Well! It is one of the popular misconceptions that an enterprise would lose control of the software development process or ownership of the finished product. If you are working with a professional company, there are negligible chances of getting ditched. Find a company that promises complete transparency and full engagement throughout the development process.
Deloitte’s 2016 Global Outsourcing Survey claims that nearly 78% of the enterprises felt positive about their relationship with the outsourcing company.
Who Should Outsource and When?
Software development outsourcing is for everyone. Whether you own a startup or a small or medium-sized business and need a good software solution to be delivered at the right cost and within the desired time limit, you can rely on the outsourcing experts. It is evident that more numbers of enterprises are investing their interests and money in outsourcing companies. A report states that small enterprises increased their IT outsourcing budget from 6.7% in 2016 to 7.8% in 2017. During the same phase, the mid-sized enterprises increased the outsourcing budget from 4.7% to 6.5% while the big organizations increased their budget from 6.3% to 8.7%.
The report also acknowledges that two of the top outsourced IT functions include:
1. Application Development
Hiring a company offering software development outsourcing services for developing desktop software, enterprise software solutions, websites and web applications, mobile applications, custom software development and more.
2. Application Maintenance
In this category, an outsourcing company is hired to maintain a software application through constant value addition, modification, assessment and upgrading. The ultimate goal of this process is to improve the software’s performance and keep it current and relevant in the fast-changing technological landscape.
Types of Software Development Outsourcing Models
While choosing a company for software development outsourcing, you must be familiar with the popular outsourcing models and select the one you find matching your needs. The three types of models include:
1. Fixed-price Model
In this type, the enterprise and the development team agree upon a fixed cost and time within which the software must be developed. Any new requirement from the client side must be re-evaluated in terms of time and price. It is a suitable outsourcing model when both the parties are clear about the precise project requirements and there are least chances of any deviation in terms of requirements.
2. Time and Material Model
When the client is not able to clearly define the project requirements, a software development company would most probably prefer implementing this model. In this case, the client would pay as per the utilization of the resources (man-hours and materials). The mode is also suitable when the client needs to develop just a trial before a full-fledged software.
3. Dedicated Team and Resources Model
If a project would run for the long term and the client is interested in hiring the software development experts in a flexible manner (like for the purpose of post-development maintenance or for software with scalability scope), it is good to go for this model. In this, the outsourcing company assigns a team of development experts for the client who would treat them as his or her own employees working remotely.
Let’s discuss how we can deliver a hassle-free software development experience.
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