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The Complete Guide to Software Development Outsourcing

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The Complete Guide to Software Development Outsourcing

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.

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.

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.

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.

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.

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.

Step-by-step Guide for Successful Outsourcing

You must have been hearing about the horror stories of how outsourcing went wrong and there are valid reasons behind it. In order to gain all the great benefits of software development outsourcing, you must follow the right process. Here are the steps that would increase the probability of enjoying outsourcing success.

Step 1: Know the Trends

You must spend some time knowing the most popular software development trends to ensure that you invest in cutting-edge technology. Some of the popular trends at present include:

  • Cloud computing and cloud software development
  • Artificial intelligence-driven software development
  • Progressive web applications
  • Mobile-first development
  • Internet of Things
  • Virtual reality and augmented reality and so on

Apart from these trends, it would be a good idea to know which software development languages and platforms are in fashion. It would not only help you choose a software development company with the right expertise but the end product would be developed as more competitive.

Step 2: Identify Your Needs

The second step is to know exactly what type of software you wish to develop. Only then you would be able to invest in custom software development that would ultimately result in a unique, robust and quality product. Moreover, identifying your needs would also let you make the best section out of the outsourcing companies coming your way.

Step 3: Start with the Research

Finally, start searching for companies offering software development outsourcing. Here’s how you can do it:

  • Find out the companies located in the top outsourcing destinations, some of them being India, Ukraine, Latin America, China and Belarus. The advantage of searching in these markets is the chance of getting the best talent that would most probably meet your budgets.
  • Take help from the search engines, review websites and online ratings to shortlist some of the most popular companies. You may also take recommendations from the enterprises in and out of your niche to prepare the list.
  • Check the credentials, portfolios, expertise, past references and other possible aspects that would help you know the reputation of each company.
  • Don’t mind reaching out to the previous clients of these companies and learn about their experiences.

Step 4: Communicate to Adjudge the First Impression

As they say that the first impression is the last impression, you can conclude a lot about a company and its software development outsourcing services from the very first contact. Here are some things that you need to watch for:

  • Was the company easy to contact? It would say a lot about its responsiveness and communication.

  • At what time was the company available to talk? It would help you address the concern about time zone differences.

  • Did they listen to you? A good development team would listen to your idea and needs to obtain a clear understanding of your needs.

  • Did they understand you? If the team responds back with several inputs and suggestions on how the idea can be developed in a short period of time, it means that they are quick at understanding, researching and responding.

  • What technologies do they suggest? A good software development outsourcing company would come up with the best suggestions in terms of tools and technologies to develop your product. Here, your own homework about the attest trends would be useful in evaluation.

Based on these evaluations, you can finally choose a software development company.

Step 5: Set the Right Targets

Once you select an outsourcing company, the next step should be to make the right decisions. For example, choose the most appropriate outsourcing model and reach a mutual understanding in terms of development costs and time. It would be great to get the entire thing documented so that any deviation from any of the two sides can be sorted out later.

Next, you must discuss with the company how regularly would you be updated about the project’s progress and through what medium. Make sure to decide on the channel or platform to securely share, access and update the documents. You may also think of investing in a project management tool that would keep you aligned with the progress.

Step 6: Post-development Support

A good software development outsourcing company promises continuous post-development support for 6 months or more to help the clients deal with the possible issues. From your side, you must keep in touch with the company to maintain a good relationship as it would be useful for your future needs of updating or maintaining the software.

Software development outsourcing should be considered as collaboration meant for the ultimate goal of developing high-quality software solutions. Irrespective of the criticism it receives, the process would continue to attract enterprises that recognize the associated benefits and are able to overcome their fears. The purpose of this guide was to introduce you to the basic concepts of outsourcing in the IT sector. For the real deal, you need to use these concepts to establish a long-term and successful association with the right kind of company.

Final Take Away

As you have been through our comprehensive guide- it would have answered many of your doubts on Software Development Outsourcing. However, there would be another phase of questions hitting your brains like- Whether to Outsource or not, whom to choose, how to outsource, what will be the process and ultimately- how to select the right software development company
that is apt to help you achieve your business goals and increase your ROI?

Though evolving technologies present ample opportunities but are tagged with bigger challenges. Well – a certain ‘jack’ cannot master all and few things are best left for the experts.

To be successful, you need to select highly experienced and stable software outsourcing partner to make your business goals reachable with industry best practices and time-test processes.

Radixweb has an excellent blend of in-depth domain insights, smart people, and technology capabilities to help your business gain top-line growth with agility and speed. Contact us to help you define THE RIGHT PROCESS to achieve your defined business goals.

Along with that you can read our customer stories how we made their outsourcing journey value driven

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