Why is IT outsourcing predicted to be in high demand in 2020?
There are many reasons why different companies worldwide delegate application development to third-party contractors, from raised efficiency and access to the pull of IT talents to significantly reduced costs. No wonder that software outsourcing services are becoming especially popular at the moment.
Various statistical reports only prove an increasing demand for IT outsourcing. According to We are Social, last year the number of internet users grew by over 1 million a day. To serve this audience, businesses are going online causing the number of digital projects to keep growing exponentially.
Prospective projects have their own requirements - technologies, specialists, time, and money.
Few companies can afford to maintain a staff of highly qualified specialists with varied skillsets to keep up with competitors.
In this case, outsourcing truly becomes the most cost-effective option.
In this article, we’ll explore the 12 main advantages of outsourcing and how it can help you reduce costs, save time, and deliver a great product.
Let’s not talk about the whole amount of time spent on completing the full product development cycle. Such calculations depend directly on the scale of the project itself, and this is unique in each case.
It may take several months to create a native or cross-platform mobile application, and up to several years to develop complex web platforms, for example, using AI and machine learning.
One of the important factors that affect the speed of work is specialists. If you want to staff your own team, you must deal with the hassle of recruiting and onboarding processes.
Getting the right candidate to your door takes skill, dedication, and experience.
According to Glassdoor, the average employer spends around $4,000 and 24 days to hire a new employee.
Moreover, 72.8% of employers are having a difficult time finding skilled candidates, and 45% of employers are concerned about finding employees with the necessary talents (ManpowerGroup).
Now add additional time for the distribution of duties, staff induction, training and networking within the team... All those hours begin to add up, and could have been better spent on furthering your project.
Instead, your outsourcing partners’ team of specialists helps you avoid all of these issues thanks to:
- an experienced, interchangeable staff
- established communication channels
- proven working methods
And you save time and money by avoiding:
- candidate prospecting and selection
- numerous interviews with potential employees
- staff onboarding
- a quick search for new employees in case of force majeure during an active project (dismissal, sick leave, etc.)
- staff training for missing skills
Taking into account all organizational aspects, planning stages, and development, with outsourcing you can save up to 50% of the necessary time on average compared to in-house development.
It may be necessary to contact the vendor and approve parts of the project at times but this is trivial compared to the number of labor hours you save as a result. Meanwhile, you can focus on the core business and pay attention to issues that are crucial but usually have to be deprioritized, such as brand promotion, researching or marketing investing.
There are 3 main factors that affect the cost of outsourcing a project:
- No cost on non-core tasks of your business
- Payment for working hours only
- Outsourcing company location
According to the first two points, you save money due to the following:
- equipment depreciation
- support and further software development
- education and training for employees
- hiring HR professionals
- regular employee benefits and taxes
Even with the most conservative estimates, all of these cost tens of thousands of dollars a year.
If we divide outsourcing by types, we will have: Homeshoring, Nearshoring, Offshoring, Onshoring.
Many companies that offer outsourcing services are based in countries that have significantly cheaper labor rates for skilled employees. Unfortunately, often too low a price is directly related to low quality.
A tip from us - do not chase the cheapest prices. The consequences often outweigh the savings. Many remember the sad example of Boeing, which crashed due to a mistake in the code made by developers. To avoid the pitfalls that result in an endless search for developers who can fix the mistakes of their predecessors, then get ready to pay for high quality.
Having analyzed this situation from a web development point of view, we described the main causes and alternative solutions here for your cost-effective collaboration strategy.
Transparency of pricing
Isn't it great when you know what you're paying for?
The costs of software development are clearly explained and predictable due to the transparent pricing of IT outsourcing services. Usually vendor sites either have special online forms for calculating the cost of the project, or price-lists with a description of the services and their cost.
or something like this:
Thanks to online forms, at the very initial stage you can:
- Understand the scope of projects the company works with.
- Familiarize yourself with what questions to ask during your first conversation with the contractor.
- Note the level of qualification of a potential partner as well as his interest in working with you. On average, obtaining an estimate on a project takes about 24 hours. Some highly competent software houses can do this in 12.
There are plenty of tools on the internet that allow you to enter some parameters of a software project, such as functional points, etc., and will produce an estimate of how long it will take to complete the project and how much it will cost. But such software is rarely accurate and the margin of error in the final amount can still be quite high.
You should keep in mind is that an experienced development company does not focus so much on a fixed price but rather on an individual approach to the client, taking into account the features of the project.
The key to getting the most accurate estimate of your project is having a descriptive software requirements document. With it, an outsourcing partner plans the distribution of resources correctly, sees possible risks and ways to avoid them, and optimizes approaches to work. All of this affects the final budget of your project.
In our practice, we often assist our clients in creating SRS. This helps us to understand the essence of the project, to plan the work most effectively, and avoid extra costs for our customers.
Due to ever-increasing competition in this business, development companies must continuously improve their quality of services to remain competitive.
The main characteristics that distinguish a high-quality outsourcing company are:
- the consistent improvement of technology stacks used
- internal optimization of processes
- a focus on using the newest methods and tools for solving problems
How can you tell the difference?
Be sure to pay attention to:
- the corporate site - as a rule, there is information about all achievements and awards in the field of development
- portfolio (no projects - no experience)
- customer reviews - use trusted platforms like Clutch or GoodFirms
To avoid a costly mistake when choosing a partner company, we suggest reading our post Ultimate guide on how to choose the right custom software development company for your project
It is also wise to investigate how the company is represented on social networks and other popular platforms used for exchanging professional experience (e.g., Quora). This will give you a better idea of the competence of the prospective partner.
Cut the risks in half
In 2015, Statista defined 8 leading reasons for software project failure. They are still relevant today.
The risks are an integral part of work on any project. The good news is that outsourcing significantly reduces most of them:
- Poor SRS - solved with active participation in its creation or the timely introduction of necessary changes
- Key employees quitting and lack of niche skills - remedied by having the necessary number of competent, interchangeable employees or the ability to find such replacements immediately.
- Poor management - Mitigated with proven methodologies tested on many projects
- Risk of project delays, time constraints, and underfunding - reduced with in-depth analysis of the project including the PoC and MVP stages
The costly expenses associated with in-house development, including mistakes by your own team, are avoided thanks to using an experienced and professional contractor who performs these types of tasks regularly.
Another comforting fact is that an outsourcer as a legal entity will cover the damages from any problems that may occur with their company’s assets and their required insurance.
Therefore it is arguably much safer, and possibly cheaper, to outsource your project and reduce the risk of failure.
Confidentiality is paramount
Worried about the data that the outsourcing company will have access to?
Oftentimes an outsourcer provides better security of confidential data than the company's own staff. According to the 2019 Thales Data Threat Report, this is one of the TOP 5 most common sources of a data leak.
For IT outsourcing services, confidentiality and protection of information are mandatory, and essentially guaranteed by non-disclosure agreements.
As for the contractor, in case of violation of the NDA, not only will relations with the client suffer but also his reputation in the outsourcing services market.
Thus, guaranteeing the security of sensitive information is paramount for a good vendor.
A successful project needs a good team composed of specialists who are well-versed in their niche disciplines.
The issue is that often companies simply cannot afford to hire highly skilled specialists.
To develop your product you’ll need a lot of them:
- web developers
- iOS developers
- server developers
- web designers
- project managers
- data processing specialists
- and more
All of them may be too expensive for onboarding, considering the costs:
- sick leave
- high skills development training
Furthermore, the process of screening and hiring qualified specialists is often not easy.
On the other hand, an outsourcing provider ensures that its certified specialists are highly qualified and interchangeable. As a rule, their certification is approved by diplomas of specialized educational institutions and certificates of training or advanced training.
For clarity, we have a staff of diverse specialists and can quickly source the necessary expertise at any stage of the project. For us, the cost of acquiring such talent is significantly lower than the cost of hiring the same employee full-time. Thus, our clients can be absolutely sure they have best specialists working on their project.
Experience - the outsourcing strong suit
“If you want to know the taste of a pear, you must change the pear by eating it yourself. If you want to know the theory and methods of revolution, you must take part in a revolution. All genuine knowledge originates in direct experience.” - Mao Zedong
Good outsourcing companies are considered as those with extensive experience in various projects of different sizes, complexities, and costs.
Specialists of such companies are well versed in solving problems and finding the best solutions for each specific case because they face these challenges on a routine basis, e.g:
- Optimization of frequently performed tasks when various activities are already described in certain algorithms
- Automation of routine processes, which saves significant amounts of time
- MVP approach to check the viability of an idea with minimal time and money
Using the experience of an outsourcing partner, you are basically guaranteed to get a successful result.
When the project is developed by an in-house team you have to deal with:
- team formation
- accounting (calculation of salaries and bonuses, vacations and sick leave, deductions to funds, taxes)
- equipment issues
- software licenses, etc.
When outsourced, these are no longer issues of yours!
For example, if someone gets sick or quits the company for any reason, the vendor can quickly onboard a replacement and ensure the project is completed on time.
The work with an outsourcing partner is structured to allow for greater efficiency in managing the project.
This is achieved by:
- the use of agile development methodologies that allow you to quickly respond to even the slightest changes in product requirements
- convenient communication channels, which make it possible to get all the necessary information from responsible persons in a timely manner and hold regular reporting conferences
- proven project management systems that allow you to monitor all stages of the project
In cases of time zone differences, professional outsourcing service providers are willing to tailor their work schedules to customer needs. This dramatically improves the interaction of all involved parties and makes the work on the project as transparent as possible.
Partnership at all stages
When starting the project with an outsourcing company, you don’t need to assemble a team, assign responsibilities, organize control over the work process, or concern yourself with other related tasks. Your vendor will take care of all this for you.
An experienced software house is not only writing code, but also has a clear system of interaction and communication with the client.
A reliable outsourcing partner is always ready:
- to discuss approaches to work and recommend the best options
- to provide a timely report on the next development sprint completion
- to make the necessary changes when needed
Here at YSBM Group, we take pride in building lasting partnerships with our customers upon a solid foundation of trust. We believe this is critical to not only achieving all project goals, but also exceeding our client’s expectations.
Focus on success
The main goal of any outsourcing provider is to create a product that will take its rightful place in the market. Therefore they are truly interested in achieving the best results at all stages of product development.
It’s possible to discover the intentions of an outsourcing partner early in the stages of negotiation.
Pay attention to whether or not they:
- have their own vision of developing your product
- offer improvements/additions to your project, demonstrating a strong desire to make your product as competitive as possible.
Frankly, it’s a win-win scenario for both the customer and the vendor. The client receives a high-quality product, and the contractor significantly increases its rating and reputation on the market.
Huge variety of outsourcing companies to choose from
According to Statista, the European IT-outsourcing market is expected to grow to approximately 103.9 billion U.S. Dollars by 2021. The same growth trend is observed worldwide.
The result is greater availability of quality services for reasonable prices as outsourcing companies compete with each other to acquire and please their customers.
Highly qualified outsourcing companies are always ready to consult with customers to determine their needs and offer ideal solutions. They gladly demonstrate their experience, portfolio, recommendations, and also perform free test tasks when appropriate. This helps the vendor prove their abilities to the client to show they are the ideal fit for their project.
Outsourcing is good for companies and startups especially when there is a lack of financial and human resources.
You will be spared from the time-consuming processes of searching for high-class specialists and building a winning work strategy.
To minimize mistakes when outsourcing software projects, learn more about “How to outsource software development to get good results, not pain”