Nowadays, modern companies are confronted with uncertainty as new advanced technologies emerge and trends change pretty fast. To keep up with the competition and survive among other companies present on the market, businesses across various industries choose to digitize their processes with the help of outsourcing and provide top-notch experiences to clients and employees.
IT outsourcing strategies are key enablers of the sustainable competitiveness of the companies engaged in technology-intensive business. As a result of a successful outsourcing experience, the company can reap the benefits of enhanced dynamic capabilities, market-oriented innovation, strategic flexibility, agility, and increased efficiency.
The cooperation between an outsourcing company and a business will result in the development of dynamic capabilities that are related to knowledge management routines such as learning, sharing, integration, and reconfiguration.
In the article, we will dive into the types of outsourcing, define the term “outsourcing strategies”, their advantages and disadvantages, as well as will showcase the best practices for developing a well-performing outsourcing strategy. Let’s get started!
Facts About IT Outsourcing
- The IT services market has an estimated CAGR of 8.4% and the IT outsourcing market 7.7%
- By 2025, the IT services sector is expected to be worth $1,070.28 billion
- By 2025, the IT outsourcing market potentially will be valued at $ 806.63 billion
- By the end of 2023, IT outsourcing expenses will exceed $1.3 trillion as companies increasingly look for digital transformation partners
- 64% of all companies outsource their entire development process
- 70% of the top reasons to outsource is cost reduction
- Big companies are 66% more likely to outsource than small businesses
- 24% of small businesses outsource to boost their business efficiency
- 78% of businesses feel positive about their relationships with an outsourcing partner
What Are the Outsourcing Strategies?
Outsourcing means finding and hiring a third-party service provider to deal with certain tasks that are beyond the capabilities of the in-house team. Recently, the practice of working with external resources has grown into a trend as it brings a number of benefits to the outsourcers.
Outsourcing strategies are a plan built on the analyses and assessment of the functions that should be better performed by an external service. It means that the company defines tasks that are hard or impossible to perform with its own resources and starts searching for the companies that have all the necessary tools and qualified staff to deal with the task within the stated time frame.
The same goes for outsourcing strategies, as IT companies work in different directions within the field and might not have all the means to complete certain operations or implement new technologies on their own.
Types of Outsourcing: What Is the Difference?
Over the years, outsourcing strategies have developed and grown into different types that have specific purposes.
Outsourcing can be divided into:
- Onshore – you are looking for third-party services in your own country
- Nearshore – hiring from the neighboring countries
- Offshore – working with distant countries
In addition to this, outsourcing strategies are usually grouped into the following categories:
- Professional Outsourcing: your company lacks mobile app developers, so you decide to outsource the professionals who can fill in the gap and provide their services.
- IT Outsourcing: nowadays, small or large companies in any field have IT needs (infrastructure, software development, maintenance, support, etc.). It’s usually cheaper to contact a third-party IT service rather than build your one to deal with certain functions.
- Multisourcing: this strategy means hiring IT services in combination with other business functions.
- Manufacturer Outsourcing: if you want to produce products under your brand, you might look for a company (manufacturer) that already has all the necessary equipment and is capable of providing you services.
- Process-Specific Outsourcing: means to hire an outsourcing team that specializes in a narrow or specific service.
- Project Outsourcing: you have too many projects, and you cannot complete all of them, so you look for a company that will deal with one or a number.
What IT Services Are Usually Outsourced?
Before you start building your outsourcing strategies, it’s important to also understand what IT services can be outsourced. It will enable you to request the relevant set of services that will help you achieve desired results within a shorter time frame. The most widely outsourced services it’s possible to name:
- Web development
- Application development
- Custom software development
- Website or app testing
- Application maintenance and support
- Database management
- Infrastructure management
- Disaster recovery
- Data Center management
- Data cloud storage
- Web security
Primary Advantages of Strategic Outsourcing
The external cooperation brings a number of advantages of outsourcing strategy as the company can build a wide network of competencies linked by outsourcing contracts, from which necessary functions such as raw materials, components, and systems can be outsourced.
The company can build strong relationships and partner with external services to work on certain projects or tasks on a regular basis. It gives a chance to exchange knowledge and experience between the companies, to build tight, professional relationships, and develop managerial and communication skills of both teams.
In addition to this, outsourcing strategies can offer such advantages as:
It is one of the most prominent advantages of outsourcing. It is common practice to be based in the USA or Western Europe but hire teams or individual specialists from Asian countries, India happens to be the most popular one. There are companies that offer their services at a lower price in comparison with the US and EU companies, but they have proven to be of high quality.
Outsourcing results in higher efficiency, as you hire experienced teams who can deal with complex tasks and can provide the most effective and suitable solutions for your company. As they have a good understanding of the field and years of experience, productivity, and efficiency increase.
Focus on Important Tasks
Outsourcing services will take care of the issue you are facing at all stages of the process. The CEO and managers of the company would be kept in the loop but they will not be required to perform any of the tasks related to the project. Thus, it gives them an opportunity to work on the other important aspects of your company’s development.
No Need to Invest in New Tech Tools
Outsourcing service takes all the responsibility for the infrastructure and technologies. In most cases, they already have all the necessary tools to work on your task.
Skilled and Experienced Resources
Outsourcing saves your time spent on recruitment and training of the specialists for the in-house team. Companies that provide outsourcing services have highly-qualified, experienced, and educated experts who will be able to complete the project.
It follows that outsourcing is also time-effective, as you do not have to spend years searching for the candidates and growing the specialists you need to support your business growth and development.
Main Disadvantages of Strategic Outsourcing
Though advantages of strategic outsourcing are prevailing, it still has a few disadvantages that you need to keep in mind as well. Among the top challenges that companies encounter while outsourcing are data security concerns, disaster recovery issues, as well as potential problems with data ownership.
In addition, it’s not that easy to maintain communication while outsourcing as usually, you are going to be located in different countries and even on different continents with the big time-zone difference. In its turn, it can create slower response time, potential misunderstandings, as well as a language barrier.
In case you collaborate with a reliable outsourcing partner you will manage to easily avoid these issues. Finding the cheapest vendor is not an option if you want to receive quality services.
Keep in mind that it’s paramount to check the outsourcing service before you have a contract with them. It should be a company with a good portfolio and customers’ reviews. It is recommended to contact previous customers in order to have a better picture of the company and make sure they have a good reputation and provide excellent services.
Strategies for IT Outsourcing: Things to Know
IT outsourcing strategies require the cooperation of several departments (legal, HR, operations, etc.), and the outcome depends on unified work and a clear business plan. Usually, organizations have only one goal for this strategy: to get the best technologies at the lowest cost. But it can lead to failure, and it is essential to take into account the tips listed above.
First of all, it is essential to have clear objectives, and your team should understand them. Another critical issue in external outsourcing is communication. Companies should make it simple and clear for both parties to understand the requirements, terms, and conditions of the cooperation.
Best Practices for Implementing Successful IT Outsourcing Strategies
It cannot be said that there are bad or good outsourcing strategies. The success of outsourcing depends on a number of aspects that every company should think of before hiring external services. Although IT outsourcing strategies described above have different goals, they all have the same structure. Thus, there are certain steps to follow in order to make it successful.
- Outsource the right things for the right reasons: do not only fall for a cost-driven strategy but make sure that both outsourcing and your business strategies are aligned.
- Define what you expect: develop a sound business case that outlines the business value of outsourcing and how this initiative supports your company’s objectives. In addition, develop an achievable and realistic plan for the end product you and your outsourcing partner can rely on.
- Prepare the documentation: in order to make the collaboration between you and an outsourcing partner effective, you need to prepare all the relevant specifications and requirements to proceed with the development right away. At the end of the article, we have prepared a quick checklist that will help you make sure you have all the necessary documents ready.
- Choose the right vendor: the vendor should suit your needs and be capable of completing tasks of any complexity. Take your time and research the company’s reviews on the Internet as well to see what their previous clients say about them. Also, do not underestimate your in-house staff and make sure that senior management is involved in the process.
- Pick the best-matching engagement model. There are three main different approaches to collaborating with an IT outsourcing company so research each option. Before you make your final decision, it’s crucial to know what financial resources you are ready to allocate for the development process. Once you know your budget, you will be able to choose the right engagement model that will help you get all the work done that will fit into the budget that is most suitable for your team.
- Create an effective contract: it should reflect strategic goals and clearly define expectations for the vendor and the company. It’s the legal basis of your partnership so pay close attention to this aspect.
- Track the process: make sure that you are getting what you have paid for. The reporting on the project's progress and transparency are extremely important. It would be highly recommended to clearly define your KPIs so you can easily track your progress and make sure everything is done in a timely manner.
These are the aspects that companies should keep in mind in order to outsource external services successfully.
Bonus: Checklist for Outsourcing Efficiency
Before you even consider outsourcing your software development services, it’s important to go through the preparation stage. Make sure you can answer the questions below.
- Are you and your team clear about the main task or project that you are planning to outsource?
- Do you have all the documentation ready such as an outline or manual describing in detail your future project? Make sure it contains the following information:
- Specific task/project description
- Main technical requirements
- Description of a customer problem that you want to solve as well as the possible solution
- Expected results
- Overall project budget
- Technical skills that you are looking for
- Who will be responsible for managing the whole development process and being a contact point with an outsourcing vendor?
Once you have all this information ready, you can establish your collaboration with a software outsourcing company. It will help your partner quickly and easily understand their primary task and start the development process as soon as possible to deliver the quality results you expect.
IT outsourcing strategies: Bottom Line
As you can see, outsourcing is a very cost- and time-effective option when it comes to software development and digitization initiatives. However, it should not be treated as an easy path to take.
In order to make your collaboration with a chosen IT outsourcing strategy partner, you should take your time for the preparation stage. Having a clear and detailed plan for the process will help you make everything successful and will bring you a number of business advantages.
Don’t hesitate to talk to our experts today to find out more about the topic and how your business or project can start benefiting from it! We have dozens of qualified professionals with relevant experience who can help you not just with defining your IT outsourcing strategies but also be instrumental in building an innovative solution that will ensure your ultimate growth.