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In the last few years, IT has become an essential ally of many industries. Regardless if it’s banking or retail, software has skyrocketed customer satisfaction and transformed the way businesses operate.
Currently, it’s hard to imagine a bank account that can’t be accessed online or a flight that doesn’t offer mobile check-ins. Even ordering a meal is completely different than in the last decade – a study shows that from 2015 to 2018, the percentage of people ordering food through a mobile app has tripled, rising from 11% to a staggering 39%; calling in is becoming passé.
Yet, developing tailor-made solutions is not always easy. Only a handful of companies possess the capabilities to do it in-house. Even technologically advanced organization sometimes prefer to rely on outside help; hiring and keeping an internal IT team is often expensive and doesn’t offer much flexibility.
That’s why many businesses lean towards outsourcing.
In this blog entry, we’ll summarize the different types of outsourcing and their benefits. If you’re in need of custom-made software solutions, this guide will help you choose the option best suited to your situation.
Types of IT Outsourcing
Tech partners usually offer three basic cooperation models. None of them is per se better than another. Picking the right one depends mainly on your needs, resources and the project.
Extended Teams
In this model, the tech partner delivers you manpower – usually software developers of a given programming language who become part of your team and work on your project. In this type of cooperation, you are managing the production, and the developers are responsible for embodying your vision under your direct guidance.
Extended teams are useful if you already possess an in-house development team but are short on workforce or lack expertise in a certain technology. This model is also especially handy if you have a temporary need for more technological experts; obviously, it’s not easy (or beneficial) to hire a new employee just for a short time.
The main benefits of extended teams include the final cost and overall flexibility.
Depending on the region, partnering up with an external software partner is usually cheaper than hiring your own team, since recruitment costs time and money. Moreover, extended teams allows you to freely decide how many developers you need – and for how many hours. That’s not possible with an internal team.
Consulting
In this model, the tech partner teams up with you to advise you on the best course of action based on your resources and requirements.
If you already have a sufficient in-house team (or are relying on extended teams), this cooperation will help you to make the right technological and strategic choices. Tech partners are usually very experienced in many types of specific IT areas – like, e.g., the Cloud or UX design – which can add value to your projects.
Managed Delivery
The crème de la crème of software house services. In this model, the tech partner designs, develops and delivers a software solution from scratch, fully tailored to your needs.
Managed delivery is often the optimal choice.
Firstly, you don’t need any in-house IT capabilities (or even any technical experience at all). The tech partner does all the work for you – you only need to describe your business goal (which a software house can also help to define). Finally, the software partner translates your vision into a technical perspective.
Secondly, you minimize the risks of failure. Often, developing a software solution in-house within a predefined deadline fails. With managed delivery, the tech partner takes full responsibility for delivering your solution on time – ready and working.
Where Should You Outsource?
Apart from choosing the optimal model (if you have any doubts – don’t hesitate to contact a software house for a more detailed perspective), you also need to decide where you want to outsource.
Depending on where your company is seated, you can take one of three directions. This choice, however, is not only about distance. Every location has some specific pros and cons you should consider.
Nearshoring
Outsourcing to a tech partner located close to your company’s location is called nearshoring.
This model is considered very productive and convenient; no time zone issues, easier communication, and usually no serious language barriers or cultural differences. For example, for a company from the UK, Poland, or Romania is still culturally aligned, but Vietnam – not so much. Moreover, Asian or African countries often have a low English Proficiency Index.
On the other hand, nearshoring can sometimes cost more than partnering up with a software house from far away.
Offshoring
Outsourcing to a tech partner from a different continent is called offshoring.
Even though it’s less flexible – mainly due to the time difference – it often remains an attractive option, usually thanks to the price. Offshoring destinations are regularly chosen to develop common IT solutions, like AI-driven digitalization, automation technologies or advanced analytics-based processes. From the perspective of Europe and the US, one of the most popular offshoring destinations is India.
A significant downside, however, is the likely need for detailed control. Due to the cultural differences, time zone issues and distance, you can't regularly meet face-to-face, even on calls, which can make communication worse than at a nearshoring location. All of this can force you to constantly be on your toes.
Onshoring
Onshoring is a quite specific form of outsourcing: it means teaming up with a tech partner from another city in your country.
This is a very safe option, especially for inexperienced companies – no cultural differences or legal issues, no foreign taxing policies, a close proximity to regularly meet in person and be up to date. Not even to mention supporting your local economy.
But all of this comes at a price – literally. Depending on the location, onshoring is usually expensive. Moreover, the number of software houses to pick from is limited.
When Should You Outsource?
We already mentioned some of the major benefits of outsourcing. Now, we’re going to explore three key situations when teaming up with a tech partner may prove invaluable.
You Need Your Software Fast
If you’re operating on a tight deadline and don’t have a sufficient development department, partnering up with a software house can be a lifeline. Major software houses employ hundreds (or even thousands) of technical experts and, as a result, can set up a dedicated team instantly. Additionally, you’re able to set a specific finish date in the contract, which will guarantee timely delivery. Alternatively, if you’d still prefer to develop the solution yourself, you can establish your own department with extended teams. To support development, you can also rely on consulting to additionally save time.
Or, if you don’t have a strict deadline, but need to operate swiftly due to other business reasons, outsourcing can reduce the time to market and outperform the competition.
You Need High Quality and Can’t Afford Mistakes
Software development – especially in times of agile methodologies – is mainly an iterative process. Depending on the industry, the first public version will usually be an MVP that needs to get significant improvements later on. Yet, such a situation is not always desirable. Certain industries, like mobile health or banking, will require high-quality products from day one, otherwise users may be at jeopardy (for example, due to personal data leaks).
Additionally, if you’re developing your solution in-house, outsourcing manpower – a guarantee of a well-written, safe code – or relying on consulting – an additional in-depth technical perspective – will also enable you to go live with a more advanced version of your product.
You Have a Strict (or Limited) Budget
Foreseeing the costs of in-house software development is challenging. Finishing the project on time is never guaranteed – and prolonging production generates additional costs.
Moreover, if you’re hiring and keeping your own team, you have limited control over employee rotation. Currently, the times when somebody worked at one company their entire career are long gone. Furthermore, employees who switch jobs every year are not viewed as job hoppers anymore.
Working with a software house solves this issue and enables you to keep control over your spending. You know the entire cost right after planning. If a project has any risk of going over budget, you’ll be informed before that's going to happen.
What's more, outsourcing is generally cost-effective. Working with a tech partner is cheaper mainly because of the greater economies of scale (not even mentioning the complexity of HR costs and recruitment processes).
Doubts?
Companies unexperienced with outsourcing may have several concerns. Those points are not surprising, yet, luckily, they’re usually not valid.
Let’s look into the three main doubts.
Communication Issues
A clear, precise information flow is one of the main fundaments of success. Even with a competent, experienced team, the final result may be disappointing when communication fails.
Companies are often concerned that the information flow with an outside organization will be flawed, especially if the partner is from a different country; after all, in theory, unaligned time zones or cultural and language differences may pose a threat.
However, most organization (even from seemingly exotic places) make sure to hire specialists who can speak English proficiently. Moreover, tech partners use multiple remote communication tools – such as Slack, Miro, Jira or Loom – to make communication clear and easy, even when two entities operate in different time zones. And these are not just empty words; the COVID-19 pandemic proved that both big and small enterprises can operate entirely remotely without losing efficiency.
Legal Safety and Security Risks
Safety is an important factor for all organizations. It's especially vital for certain industries, like finance or banking. You need to be confident that the sensitive data you’re processing is safe. You also should be certain that your partner is trustworthy (and even if so, you should be legally covered in case your cooperation hits a bump).
To ensure all of that, you should partner up with a software house that follows strict security practices, and, ideally, has its seat in a country with a stable political and legal situation.
For instance, in the European Union, all companies have to abide by the same data protection legislation – the General Data Protection Regulation (GDPR) – which defines how personal data must be handled. Moreover, EU law also ensures an overall, high level of universal legal protection in every member state.
Quality of Delivery
A widespread concern also includes the quality of the final solution. Companies sometimes have doubts if they’ll be able to keep control over the delivery process and actually benefit from the collaboration.
To avoid disappointment, there are two aspects you should consider.
Firstly, you should look out for poor contracting practices. This includes mainly untransparent, ambiguous pricing clauses, and a general lack of agreement on addressing changes in business requirements that may happen over the lifecycle of the project.
Secondly, you should always make certain there’s a dedicated contact person at your tech partner’s side who’ll fully understand your business needs. Such a person navigates the software house through all the phases of the project and monitors progress. That way, you’ll be able to share your concerns with somebody who understands your position from day one and can spot production discrepancies early on.
How Are These Issues in Poland?
As you may have noticed, many of the aforementioned issues are characteristic for specific offshoring locations. Problems may especially arise in countries with a non-customer centric legal framework or with a very low English Proficiency Index. Another issue may be an extremely inconvenient time difference which makes regular team calls challenging.
In one of our previous entries – This Report Explains Why You Should Develop Your Software in Poland – we presented why Poland is such a convenient country to work with. To quickly summarize:
- HackerRank listed Polish software developers as one of the best in the world; in 2016, Poles came in as the 3rd best in the World with a score index of 98/100. In the same ranking, UK and US software experts scored only 78 points. Moreover, Polish java developers were even named the best in the world. As a result, Polish software houses became more and more associated with technological craftsmanship and are praised for the quality of their work.
- Poland is part of the European Union. This implies a strong, safe legal framework. Companies that decide to develop their software in Poland will enjoy similar protection like in Germany or France. A great example of that is the previously mentioned General Data Protection Regulation.
- Regarding communication, Poland is located in a convenient time zone for all European, African and some Asian countries; it’s also a decent place from the perspective of both Americas, and multiple successful cooperation examples confirm that. Additionally, Poland is also easily accessible from nearly all over the globe. Across Europe, there are hundreds of quick direct flights to Poland that take less than 2 hours. Flying in from the USA or Asia is also convenient thanks to several direct flights to major Polish cities. Poles are also ranked 11# in the world in the EF English Proficiency Index, which means "very high proficiency".
Final Thoughts Regarding IT Outsourcing
According to Deloitte's 2016 Global Outsourcing Survey, 72% of IT business functions are already being outsourced.
As this guide explained, it's not without reason. Outsourcing is an excellent alternative to in-house software development. For companies without internal IT departments, it’s an optimal way to get cost-effective, tailor-made IT solutions. And for organizations with their own development departments, it’s an efficient supporting measure.
This applies not only to extended teams and consulting but also to managed delivery. Further studies show that institutions from the banking industry frequently rely on external software development even when they have their own (and competent) IT structures. At those companies, the ration between outsourcing and in-house production is currently around 50-50 – and it’s expected to change in the coming years in favour of external development.
If you have any questions, visit our dedicated outsourcing webpage!