Any business must be successful. It includes not only the awareness of the brand, or financial aspects, even if both are essential. Frankly speaking, success is a very general and abstract term, which varies, depending on personal opinion and business goals: if you revise one, the rest will also change.
So, before discussing the potential benefits and reasons to outsource IT, let’s explain some terms. For instance, probably the most accurate explanation for business success is that such a business is one that achieves its own goals and goes beyond them.
There is no doubt, that any successful enterprise should have a business strategy as well. Despite that, there are some exceptions when a company becomes successful just because of pure luck, without a strategy, this success will eventually fade.
In the context of the IT industry, one of the best successful business strategies is outsourcing, i.e. hiring dedicated teams or using team extension services. Actually, it is also true that these are common services that cover different software development processes and other aspects, which require extra hands. Yet, we would like to make a few additional steps and figure out if outsourcing is a good business strategy when switching from optional to the main software development approach.
The short answer is - yes, it is. Getting into the details, outsourcing is basically a software development service, that is used in multiple cases and aims to implement and develop new features or optimize the already existing ones. Additionally, it can be a helpful instrument in other processes, somehow related to software development. Plainly speaking, outsourcing is when you hire someone, to do the job, that must be done, but you either can’t do it yourself or don’t have enough time/expertise.
There are two different views on why outsourcing IT. Generally speaking, it depends on the nature of the software project. So, these approaches are usually used by product companies and startups.
The main reasons to outsource IT for product companies are the development and optimization of extra features, while the main software development process is held on-premises, i.e. with the use of in-house employees. As a result, major companies that outsource can pay more attention to more important app functionality, delegating other features to the dedicated team.
Additionally, outsourcing becomes an obvious solution in such a scenario, because larger companies avoid numerous steps in finding a development team, which takes a lot of resources and time. Instead, they are capable of choosing an outsourcing company, which will provide them with a core team in no time. As a great bonus, which shows that outsourcing is a good business strategy by allowing not only reducing the time, needed for talent research, candidate interviewing, and hiring processes, but also cost saving due to the specifics of various regions and local labor costs.
Finally, the outsourcing model allows finding niche-experienced, as well as gives access to a bigger development community and talent pool, being a much more global phenomenon. For instance, while your company is based in, let’s say, the United States, your outsourcing partner will most probably be a part of the Eastern Europe development community and be based in this region. Product companies usually outsource for limited tasks performance, they are also looking for a time-limited collaboration. So, it will be easier to hire a dedicated team for a specific period of time, instead of hiring and firing full-time employees.
At the same time, the startup outsources core processes, including the overall development. As a new business, which has limited resources and most likely has no huge premises and an in-house team at the moment, it is more flexible than other established companies. So, startups have the opportunity to concentrate on all processes except for management elsewhere.
Combined with the previously mentioned fact, that it is cheaper and faster to hire dedicated teams, outsourcing seems an ideal option for startups as a way to cut expenses without affecting the quality of the product. In other words, thanks to outsourcing, startups can find great experts in the field of software development for a lower salary and avoid various additional expenses.
Summing up all the above, startups outsource core processes related to development, considering outsourcing as the main way to develop an app, while product companies use it as a service, that helps to deliver extra functionality, optimize or improve existing functions, etc.
After explaining why companies are outsourcing IT, but before explaining why it is a win-win strategy for both sides of such a cooperation, let’s consider some cases, when it may be not an option. There are some potential scenarios when it will cause more problems than solutions.
First of all, it brings additional legal processes. On the one hand, with outsourcing, companies can simply delegate all the bureaucratic procedures to the IT outsourcing services companies, they are cooperating with.
However, on the flip side, it will definitely bring new challenges. For instance, you will have to deal with international laws and regulations in such cases. Yet, apart from very standard rules, related to employment, cooperation, and others, you will have to deal with the new laws, which are constantly appearing, some of which are related specifically to the IT industry, and other connected fields.
One of the most obvious examples is General Data Protection Regulation, or simply GDPR. It is a regulation, adopted by the European Union, which sets rules for software companies on behaving with the personal information of EU citizens. As a matter of fact, apart from clear explanations for the product companies about what they can and can’t do with such data, this regulation also establishes and defines how cooperation with outsourced companies should look like. For instance, it requires both sides to sign an additional Data Processing Agreement (DPA), which legally defines everything, that includes access to this type of data, how it can be used, what steps must be done to secure it, etc.
Frankly, it is not the only example of such laws, that directly impact software development. As for now, most countries have their own alternatives to this regulation, like FISMA or HIPAA in the United States. Most likely, the number of such regulations and new laws will keep increasing. So, it might result in numerous agreements and other bureaucratic processes to be signed and proceeded before actually starting the outsourcing itself.
Additionally, some types of applications or information they may contain can be totally suspended from outsourcing.
The next potential drawback of outsourcing is the potential lack of control and management of offshore teams or even their full absence.
Undoubtedly, having an in-house development makes it easier to control and monitor all the processes, related to the development. It gives both symbolic and physical access to employees and their working environment. To rephrase it, business owners can fully control software projects and take a more active part in the development, having an access to any aspect of the job, including even small or barely noticeable changes, implementations, or other aspects.
On the flip side, outsourcing proposes less such control, because the team of developers is located in another place, giving no physical access, and is more independent, performing their tasks by themselves, discussing potential changes, and informing product owners about the progress post factum. To cut a long story short, the only possible way to somehow control outsourced development is to actively communicate with your remote team and use various KPIs to measure your vendor.
Sometimes, it may be crucial for contractors to take an active part in working processes and have full control over the development. Thus, outsourcing is obviously not an option in such a scenario. Yet, it is possible to improve the situation by improving the communication between the owner and the outsourcing vendor.
The foregoing fact about lack of control also results in another possible drawback of outsourcing IT - poor quality and efficiency.
Honestly, the independent nature of dedicated team models is not a primary reason for poor quality. However, combined with not knowing how to hire a dedicated team it may easily end up with poor results.
We are not saying, that all IT outsourcing services companies are incompetent or trick, yet it would be also wrong to state, that all of them are reliable and effective. So, if the product owner hires such an incompetent vendor, the result will obviously be devastating. However, truth be told, this is probably the most arguable drawback of such a development approach because there are numerous ways to avoid potential risks. For example, make a more detailed research on the outsourcing provider, check the background of this company and feedback, use the KPIs, etc.
Finally, let’s talk about the outsourcing win-win strategy. The best way to illustrate why outsourcing is a good business strategy with a win-win result - is to consider it in the context. For example, let’s talk about how it happens here, in Incora.
Judging from all the foregoing, we already know that outsourcing has numerous advantages, starting with financial benefits, time-saving, a high level of flexibility, and the opportunity to get great software experts, spending fewer resources. Yet, all of these facts are related to the product owner and actually are not as crucial, as the final one.
Great outsourcing results are a definite win for the companies, that provide IT outsourcing services. To put it differently, the better feedback and final result the outsourcing vendor get - the higher its rank is, correspondingly the more chances for the new contract are. The competition in this field is extremely high, and the only way to keep working in this industry - is to be the best.
Therefore, our Incora team tries our best and threats each project as if it was our own product. We also encourage our developers to constantly gain new skills and look for out-of-box solutions, which is clearly seen in our case studies.
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There are many reasons why businesses outsource, including cost savings, access to specialized expertise, increased efficiency, and the ability to focus on core business functions.
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