Benefits of Outsourcing Software Development Team
The number of new programming languages (e.g., Erlang, Go, or TypeScript), frameworks (e.g., Angular or Spring), and practices (e.g., Agile methodologies like Scrum or Kanban) that have been introduced into the world of computing recently is truly impressive. With such an overwhelming array of new techniques and tools, many companies struggle to keep pace with their competition and often lose the fight. That shouldn’t be the case, though, if the right business management methods are applied. One of them is outsourcing. In this post, we are going to give the definition of outsourcing in general and software development outsourcing in particular, and explain what benefits IT enterprises can reap from trying to adapt this business model for their needs.
What Is Outsourcing?
Outsourcing is a business practice wherein specific company tasks are entrusted to an outside service provider instead of being addressed by the company’s own staff. This business model is popular in many fields including research and development, legal services, accounting, tax preparation, manufacturing, engineering, pharma, retail and hospitality, and others. According to a report published by Statista, a leading provider of market and consumer data, the global outsourcing market was estimated at $88.9 billion in 2017. That is a considerable increase in comparison with the previous year ($76.9 billion).
Types of Outsourcing
There are three types of outsourcing as distinguished by the location of the external team in relation to the company that hires it.
ONSHORE OUTSOURCINGThis means entrusting certain business functions to a team from the same country or territory. For instance, a company located in New York can outsource developing a module of their big application to a group of programmers from Washington, D.C.
NEARSHORE OUTSOURCINGThis is when a team from a neighboring country is assigned a business task. Example: an American company hiring a Canadian team.
OFFSHORE OUTSOURCINGFinally, offshore outsourcing suggests finding an external service provider from a remote location. For instance, a company from Los Angeles partnering with a team from an Eastern European country such as Ukraine.
Outsourcing in Software Development
According to a survey conducted by Deloitte, one of the largest accounting firms, in 2016, 87% of the respondents that outsourced their business functions came from the IT sector. Outsourcing in software development means entrusting the creation and testing of a whole project or part of it to a third party company.
Ordinarily, software manufacturers produce early versions of their applications in their own offices. Then, they keep adding new features until they find an opportunity to sell their product at a profit. When that happens, the number of their customers begins increasing. They need to improve the software, add new functionality, and solve technical issues to keep their users satisfied. Over time, the workload gets so big that the in-house team can no longer handle it on their own and needs to grow. This is where outsourcing comes to the rescue. So, what exactly are the advantages of finding an outsourcing partner?
Benefits of Software Development Outsourcing
1. Reduction in Costs and Time
The main reason why companies decide to delegate their functions to a third party is a great cost-saving effect that outsourcing brings.SALARIES. According to the information from the Bureau of Labor Statistics (BLS), the median pay of a web developer in the U.S. in 2017 amounted to $67,990 per year. At the same time, the median salary of a web developer somewhere like Ukraine was approximately $20,000 per year. That’s almost $50,000 less. For some positions, that figure could be even lower – up to 80%.
NO MONEY ON EQUIPMENT AND INFRASTRUCTURE. An outsourcing partner is responsible for purchasing computers, renting an office, and providing all the necessary supplies to its employees. That way, the hiring company saves a great deal of finances and time.
NO RECRUITMENT EXPENSES. All human resources managers will tell you how effort and time-consuming it is to find a suitable candidate for many positions. The process includes a number of stages: screening applications, shortlisting developers, conducting job interviews, and testing the technical level of candidates. This last phase can be quite costly as it requires the time of a professional already involved in a commercial project. By contrast, finding an outsourcing partner allows a software manufacturer to avoid the overhead in terms of time and money paid to HR specialists and technical evaluators.
NO NEED TO PAY TAXES OR SOCIAL BENEFITS. Adding a new employee to an in-house team doesn’t only suggest paying him or her a salary. It also means setting up a working station, paying employment taxes, and social benefits. All that may increase the overall cost of hiring one programmer by almost 80% in some cases.
2. Flexibility
Outsourcing gives you a lot of room for maneuvering. You don’t have to sign a long-term agreement with an outsourcing partner. It can be just a single project or even chunk of a project. That way, you can see if the outsourcer is really worth dealing with in the future and choose another one if you wish. On the other hand, imagine hiring a full-time in-house developer for a project that will last a month or even less. When it’s over, you will inevitably face a dilemma:
– Should I keep him or her even when there is no work to be done, paying them a salary and covering other expenses for them?
Or
– Should I be constantly looking for projects to keep that programmer’s hands full? Both of those options require time and money, but doesn’t guarantee you that keeping an extra programmer on your team will pay off in the end.
Another problem common for many software development companies is when a new project calls for a certain skillset that the in-house programmers don’t currently have. One solution is to hire new full-time developers who are experts in the required technologies. That, however, will take time, which you can’t afford if you want to have an edge over your rivals. Outsourcing the project is a much more cost-effective and time-saving option in this case.
3. Focus on the Core Business Objectives
To any business, the final result is far more important than the process. By freeing your internal team from routine, low-level tasks, you allow them to put a greater emphasis on the key business objectives including marketing, strategic planning, ensuring the quality, and selling the product. That will help the company grow and increase its market share more rapidly.
4. Access to a Larger Base of Programmers
When hiring developers in your own country you may have a very limited choice of suitable candidates who meet your requirements. That will enforce you to raise salaries and tolerate certain inadequacies in the behavior of your new employees if you don’t want them to work for your competitors. On the other hand, by going the outsourcing way you can significantly expand your search options for talented professionals as it gives you access to pools outside your country and even continent.
5. Shorter Idea-Implementation Span
In today’s highly competitive and fast-paced business environment, the time it takes to implement an idea into a new product is the most crucial factor. That holds true for the software development arena more than for any other field. Your internal developers may already be working hard at a project or even several projects when the idea for a new product comes up. You have three main choices:
In today’s highly competitive and fast-paced business environment, the time it takes to implement an idea into a new product is the most crucial factor. That holds true for the software development arena more than for any other field. Your internal developers may already be working hard at a project or even several projects when the idea for a new product comes up. You have three main choices:
– Assign the project implementation to your own staff. However, there is a risk that quality may suffer.
– Find additional employees to work in the office. As discussed earlier, this is time-taxing (around 50 days for one developer by some estimates) and will put you behind other market players.
– Hire an outsourcing team. This is the optimal solution as it allows you to staff the new project quickly according to the required number of employees and technology stack. That way, you increase your chances to create and market the product fast.
6. More Efficient Development Processes
Software development is a complicated activity. Actual coding makes only one of its stages. More important here is how the process is organized. Outsourcing companies are normally staffed with seasoned programmers who have implemented numerous projects throughout their careers. They may share their expertise on how to improve the development processes in your company and give you advice on some of the best practices adopted in the industry.
7. Better Risk Mitigation
Some managers are afraid that working with an outsourcer in another part of the globe is risky from the business perspective. In most cases, though, outsourcing companies value their reputation in the IT world. Thus, they do everything to ensure the high quality of the final product. The risks are equally shared between the hiring business and the outsourcer.
Conclusion
Assigning internal business functions to outsourcing partners has a number of advantages for software development companies. They can gain access to a larger base of talented IT experts all over the planet, improve their development processes, reduce costs, and spend more time on the implementation of their core business objectives.