Outsourcing is the collaboration between two companies from different locations. It is a way of delegating software development to a vendor that frees up client’s time to focus on the core operational processes. In this article, you will learn how to outsource software development in the most reliable and efficient way.
A more comprehensive software development outsourcing guide can be downloaded here for free.
The most popular types of outsourcing are offshore and nearshore outsourcing. The first type of collaboration is an agreement between the two companies that are located far from each other, very often, on different continents. The name of the second type of cooperation speaks for itself and means that the projects are delegated to the vendors from nearby countries or regions with similar time zones.
Here are the most popular services that can be outsourced in terms of software development:
- Custom software development
- Team extension services
- Mobile app development
- Web app development
- UI/UX design
- QA and Testing
- Cloud solutions
- And many more
When delegating your projects, you should know clearly what roles can and cannot be outsourced. If you consider this type of handling the project, responsibilities and roles should be defined in an SRS.
Four reasons for outsourcing software development projects
Competing in a global market requires regular improvements in business strategies. A good start may be resource allocation. Lack of resources and short project time pushes a lot of companies to seek assistance from off-site employees. Beyond the lack of specialists and urgent projects, other issues also lead to outsourcing. What are they? Have a look below.
Reason 1: Time to market (TTM)
The time between the start and the launch of the project is defined as the time to market. Overtaking your competitors is possible with improved TTM. Is it possible to speed up your software product launch to the market? Outsourcing is the thing that can truly help you with this — you get a great talent pool and the domain expertise you need.
Reason 2: Access to expertise
You get a chance to cooperate with qualified and experienced teams of developers, business analysts, designers, QAs, project managers and other team players.
Here at DICEUS, each person gains huge baggage of experience from the first day of working in one of our offices. This lets us stand out among other outsourcing companies and offer our partners access to the expertise.
It’s great if you can focus on your expertise and differentiation in order to make your business prosper. For example, if your company is a manufacturing enterprise, you can outsource software development to professionals and allocate your valuable assets to the projects and tasks that will generate the highest income.
Reason 3: Domain awareness
You can pick up the outsourcing company that will have experts in specific domains. For example, you can cooperate with a team of developers that have experience in building enterprise products for the insurance domain. DICEUS company has such team players that have already delivered the software solution for automating and improving everyday processes for insurance brokers.
You can have a look at the cases of the company you wish to work with. If you find your domain, you can be sure that this company is aware of the niche specs and what kind of business goals you may want to reach.
Reason 4: Cost-effectiveness
When you order software development services from a remote team, you don’t have to pay for the hardware and working environment for the team. You just pay for the project and nothing more – no taxes, no compliance, no administrative costs, sick leaves or vacations.
One more thing here to take into consideration is the difference in hourly fees and average salaries. You can have one and the same project delivered to you by the teams from various locations with a great difference in price. The cost of the project will be lower if you find a vendor in Eastern Europe or Asia.
Advantages of outsourcing software development
Low software development rates, penetration into new markets, and innovative technologies are probably the main things motivating company owners to seek assistance from foreign developers. Below are the most frequent advantages of outsourcing that make people consider this type of partnership with a remote company.
Outsourcing companies can typically scale the number of developers up or down in no time. Thus, businesses are able to outsource that portion of work which is hard to manage internally.
While cooperating with an outsourcing company, you pay only for the work that is done. This can reduce total operating costs, especially in cases when there is a high demand for additional costs for retirement, healthcare, other benefits, recruiting/HR, etc.
Knowledge, experience, and skills on demand
Usually, outsourcing teams have a diverse and extensive technical background. They may work on different projects using innovative technology stacks. This can be especially advantageous in situations where short-term integration work with third-party vendors calls for working with technology outside of the stack that is normally used by the company.
Software development is in high demand and finding qualified team members who are willing to stay with the company for a long time can be a challenge. An outsourcing company is encouraged to build and maintain long-term relationships with its clients.
Disadvantages of outsourcing software development
Drawbacks of working with remote teams may result in project failure. Among the key factors leading to the failure, there are communication problems, poor planning, lack of quality control, poor resources coordination, cost overruns, overall mismanagement.
Geographical and language barriers
When companies are located in different geographical regions, there may be language and communication barriers that may cause misinterpretation of some business processes or requirements.
Outsourcing services may blow up the budget
To avoid hidden costs, you should make sure what type of software solution you need. It’s important to choose the right pricing model (fixed price, dedicated team, time and material). Finally, you should cooperate with the outsourcing partner you trust.
Delegating your project tasks to remote teams increases security risks due to the access to sensitive information.
Lack of business domain experience
Developers from an outsourcing company are generally highly trained in programming, but they are not trained in the specific industry for which they are writing code. It’s important that product managers with industry experience define how the software should work and explain the business specifics to the developers.
Lists of advantages and disadvantages of in-house software development
- The company owns the final product completely as well as its source code and the knowledge gained while developing it.
- The development process fits all the business goals and the needs of the company.
- It gives you complete control over the system and its functionality.
- Allows you to stand out from the crowd as the system is developed in accordance with your specific needs.
- It can be costly to maintain and improve the system to continuously meet business needs.
- It requires more IT staff.
- High switching costs – it is expensive to learn, implement, and use the latest technologies.
- It is more time-consuming to develop an in-house IT system as opposed to a remote one.
- High development and maintenance costs.
Here’s is what you should know about software development outsourcing companies
You can consider these things when outsourcing:
- Check out the company’s experience – find out if the software development vendor has developers who are qualified in your domain.
- Analyze your business together with your vendor – share important information about your project, business needs, and requirements.
- Integrate your processes with the right tools – discuss what tools are better to use during the development process to communicate and track the progress.
- Consider the time zone difference when outsourcing. Manage time so that everybody could work effectively in their time zone.
- Interact with your team face-to-face – this can help you stay tuned and be aware of all changes made and the project progress.
When we are going to work with an external company, we think that new employees are committed, experienced, and ready to complete their tasks on time. It’s obvious that any vendor promises all that quality but in practice, we can get something quite the opposite.
However, you may ask yourself the following questions to make sure you choose the right team.
- Do your developers try to understand business goals?
The company of your choosing should not provide you only with high-quality code. They should conduct in-depth research on your business domain to understand how your product should work and interact with users, what benefits and services it should provide to users, etc.
- Is your team familiar with innovative technologies?
No one today is surprised by IoT, AR, VR, or other trends and technologies. Your team should move up with the times to deliver a state-of-the-art product that meets the requirements of modern users. Developers should be able to recommend what technology is better for your application, what modern frameworks could cut costs and speed up the development process.
- Are you satisfied with the skills and knowledge of your developers?
Outsourcing companies possess a wide variety of talents and skills and they have experience in different domains. Besides, they are familiar with a wide range of project management methodologies and know which one is better for your project.
- Do they provide scalability? You have probably chosen outsourcing to scale up your own team or to get the skills your project required. If you want to start asap, you expect your developers to be ready to start working at once.
- Can you trust developers? When people are looking for new employees to hire they want to find reliable partners. Unfortunately, it often happens that vendors deceive their customers about the seniority level of their developers, impose those services you actually don’t need, etc.
If you have any doubts after answering these questions, feel free to speak frankly with your team and tell them about the thoughts that bother you.
Software development outsourcing models
How to successfully outsource IT development? When outsourcing software engineering, three pricing models are distinguished: Fixed price / Dedicated team / Time and material. Let’s take a closer look at each of these engagement models.
Fixed Cost model features
- The scope of the project is defined precisely
- Any modifications in the project are estimated separately
- The timeline is set and the milestones are clearly defined
- Any changes in the budget are approved by the client
- Obligatory prepayment
- The choice of technology is predefined
Dedicated Team model features
- The scope of the project is not precisely defined
- Best for a long-term project
- Iterative development is required
- The team may be scaled up
- A customer pays a fixed price for the resources used within a month
- The choice of technology can be modified
Time and Material model features
- The scope is not always defined
- The requirements may be unclear or vague
- Customers pay for the time and resources spent by developers
Along with the above-mentioned models that are driven mostly by the scope and payment methods, there are also 3 tactical models.
Staff augmentation is a helpful outsourcing strategy aimed at identifying what existing skills the company already has and what skills are required to outsource off-site. The main objective of staff augmentation is to find qualified people that can complete the tasks that require specific skills or domain awareness.
Please find more information on our staff augmentation service page
Suitable pricing model: Time and Material
The project-based outsourcing model is a time-bound engagement model effective for clear requirements that are not likely to be updated during the development process. It leads to cost and time-to-market reduction by providing the outsourcing vendor with the required technical and domain expertise.
Suitable pricing model: Fixed price, Dedicated team
Tactical consultancy is a generic term for a number of value-add services that allow access to in-house expertise (UX design, technology advisory, security audit, etc.). It is usually provided by an outsourcing vendor as a fixed price time-bound activity.
Suitable pricing model: Fixed price, Time and Material
Along with tactical approaches to outsourcing, there are also strategic models that are characterized by the features described below.
Offshore and nearshore development centers are the ones providing IT services where product requirements are provided by the clients whereas staff is managed by an outsourced vendor. This model comprises a great variety of projects such as new app development, maintenance, testing services, etc. A suitable pricing model is a Dedicated team.
Product development services are considered to be an innovative model that maximizes outputs from outsourcing relationships. A vendor provides a full range of services by designing and co-creating a product with a client. After a product is delivered, the vendor pursues product optimization and sustainability. Suitable pricing models are fixed-price, outcome-based.
Strategic consultancy is a value-driven consulting engagement aimed to improve development efficiency and product quality of a client’s organization. Suitable pricing models are fixed price and outcome-based.
Software outsourcing companies in the USA
Here’s a list of top IT US firms ranked by Good Firms.
#1 IndiaNIC Infotech – located in Beverly Hills, founded in 1998. The company builds mobile apps, custom-designed software and IT solutions for enterprises. Besides, they offer mobile games, VR apps, and IoT. The company seems to move up with the times and give the customers what they want and need.
#2 DICEUS – based in Jacksonville, Florida, founded in 2007. It helps businesses improve and automate their processes with effective enterprise-grade solutions. The company can boast of a wide technology stack including modern frameworks and technologies used in software development. DICEUS serves various industries like finance, healthcare, insurance, etc.
#3 Intellectsoft – based in Palo Alto, founded in 2007. The company’s focus is on enterprises. It helps organizations transform their businesses digitally. Like the previous company, Intellectsoft leverages the latest technologies like blockchain, IoT, AI, AR, etc. They work with a wide range of industries including, insurance, healthcare, travel, sports, and others.
#4 Cyber Infrastructure – located in San Jose, founded in 2003. CIS develops mobile games and applications, web, crypto, AWS, BI, UI/UX, and CAD designs along with IoT apps. Besides, they provide SEO and marketing services to their clients. Like any other top software engineering firm, they deal with a wide range of industries the list of which is available on their website.
#5 Eleks – headquartered in Las Vegas, founded in 1991. It’s a huge company – there are around 10,000 employees. The company offers QA, R&D, consulting, UX, business analysis, etc. It works with such industries as retail, government, agriculture, fintech, healthcare, etc.
#6 Parangat – located in New Jersey, founded in 2010. The company cooperates with large enterprises as well as with startups. It has two different approaches for both. Parangat delivers UX/UI, prototyping, designs for websites and mobile apps. Among the technologies they use there are iOS, Android, React Native, Blockchain, etc.
Software outsourcing companies in India
Here’s a list of Indian companies ranked top this year by Clutch.
#1 Maven Wave Partners – located in Chandigarh, founded in 2008. 25% of the services offered by the company comprise cloud consulting, other 25% – IT strategy consulting. It is focused on manufacturing, financial services, and information technology.
#2 Marlabs – based in Bangalore, founded in 1996. The company offers a comprehensive framework for digital transformation that includes automation, engineering, analytics, security, cloud, user experience modules. It is focused on mid-market customers requiring CRM solutions.
#3 KPI Partners – located in Bangalore, founded in 2006. The firm offers business intelligence and Big Data consulting services. Some of the clients are Amazon, New York University, Entertainment Carnival Cox, etc.
#4 Kellton Tech Solutions – based in Gurgaon, founded in 1993. Kellton offers ERP solutions, custom development, CRM consulting, and a bunch of managed services.
#5 NGenious Solutions – located in Mumbai, founded in 2005. The company is focused on mid-market and enterprise customers. Industry focus: retail, healthcare, and media. Customers: Johnson and Johnson, Pfizer, HBO, AZ Electron Materials.
Technology partnership instead vs. traditional outsourcing
Note, that some companies offer technology partnerships instead of outsourcing. It’s quite a different approach that is more advantageous for you than outsourcing or outstaffing. Such an innovative approach is focused on the result and not on paying for hours.
You pay exactly for the results you get. With this approach, a technology partner conducts a deep business analysis of your business, both sides sign a legal agreement which is based on the SRS documentation, the provider guarantees the accuracy of estimated hours, and then starts the development life cycle. This approach allows you to save time, effort, and money.
At DICEUS, business analysts have a strong background in fintech and insurance domains, so they are able to exactly estimate your product development time and required resources. It helps to avoid overpaying and get an excellent final product. Based on their experience and a set of skills, business analysts integrate with your business, and learn about its specs.
We hope that this software outsourcing guide will help you successfully find a reliable vendor.