Why Do Companies Outsource? All Your Questions Answered

January 29, 2021

Advanced technologies we have these days facilitate the workflow and daily operations for companies in every industry. They also make it possible to simplify the hiring process and give access to a worldwide talent pool.

Not long ago, organizations were limited to their locations, so you could only look for the right employees in your home town. Nowadays, the situation is quite different, and businesses tend to outsource to other cities and countries.

Previously, companies were mainly interested in outsourcing software development within the IT sector, but now it is not limited to this sphere.

What is “outsourcing”? 

Outsourcing is a type of agreement in which one company hires a vendor to complete a particular task or project. A vendor provides a company with all the necessary resources, including a skilled team, tech tools, and a project plan.

This article will discuss why companies use software development outsourcing, its pros and cons, and how to make it successful.

Why Do Companies Outsource Process

Why Do Companies Outsource?

Digital transformation drives industries outside the IT field to develop better software solutions to improve their services and deliver high-quality products. Thus, outsourcing software development becomes more common as businesses turn to third-party vendors to complete in-house projects and provide necessary solutions.

Software outsourcing is a phenomenon that becomes more popular every year due to several reasons:

  • reduction of costs
  • resolution of capacity issues
  • enhancement of service quality
  • access to the international talent pool
  • focus on core business needs, etc.

It allows small and medium-sized businesses to access and hire professional teams of developers for lower prices.

Software outsourcing gives a chance to find one expert and the whole team with all the necessary resources and tools to complete your tasks within limited time frames. In this way, your in-house team can solely focus on the company’s core activities.

Why Do Companies Outsource Cons

Why Do Companies Outsource to Other Countries?

Nowadays, it is a common practice to look for outsourcing software development companies overseas. In most cases, companies from developed countries tend to hire experts from developing countries.

What are the reasons for this to happen? Why would developed countries outsource to developing ones?

First and the main reason lies in costs. For instance, in the US, the UK, German, etc., companies are more likely to hire a software outsourcing company from Eastern Europe or India than in their own country.

Companies from developing countries offer their services for lower prices, but their services are of the highest standards.

Apart from this, Eastern Europe and India are famous for their tech education. There are renowned universities that train thousands of students each year and provide top-class education.

What is more, it is required to work continuously without delays and minimum time losses when it comes to business.

Outsourcing software development from other countries in different time zones is a great way to keep your company continually running. Outsourcing offers agility, and projects are more likely to be completed on time.

Why Do Companies Outsource Teams

Why Do Companies Outsource Software Development?

It is impossible to imagine the modern world without software and its solutions. Companies outside the IT industry rarely have in-house development departments, so software development outsourcing is essential for the business to survive the competition and keep up with the modern trends.

Up-to-date software solutions are necessary for companies in the industries like Healthcare, Finance, Logistics, Mobile Development, etc. The software allows improving daily administrative operations and providing efficient services to the final users.

In some cases, even IT companies require to reach out for external support, as they might lack the right staff or tech tools necessary to create a solution or complete the project.

Software Outsourcing: 5 Things You Need to Consider

Before you start working with a software outsourcing company, take into consideration the following things:

  1. Understand the workload: make sure that everyone in your in-house team has enough work, and no employees can take on a new project. It is essential to maintain the team’s spirit within your company, explain why you need additional help and what roles your team will perform during the development process.
  2. Identify the project scope: prioritize tasks, think of the ones you can exclude, or add later in the process.
  3. Outline budget and deadlines: ensure you have a detailed plan and realistic picture of the project’s budget.
  4. Have a list of possible software outsourcing companies: study their portfolios, check previous projects and customers.
  5. Examine vendor’s corporate culture and services

Why Do Companies Outsource People

Companies often dismiss these aspects and pay attention only to the percentage of saved costs. Do not forget to consider the highlighted ideas, as they will contribute to your company’s successful cooperation with a vendor.

Outsourcing Software Development Process in 8 Steps

Turing outsourcing into professional cooperation requires some time and effort. There are several questions and issues you should consider beforehand. Here is a list of simple steps to follow:

  1. Determine your needs (staff, resources,  goals)
  2. Find target outsourcing location (think whether you will outsource nearshore or offshore)
  3. Choose the vendors and get to know them
  4. Choose the right partner
  5. Select the collaboration model (outsourcing, IT staffing,  dedicated team, staff augmentation,  R&D center)
  6. Test the employees
  7. Establish good relationships between in-house and outsourced teams
  8. Start working

Software Outsourcing Company: Choosing the Right Company

There are numerous software development outsourcing companies that offer their services, but choosing the right vendor is not straightforward. The abundance of companies doesn’t mean that each one of them is capable of completing your tasks. Follow the tips to make sure you are choosing the best possible vendor.

  • Finding the right vendor starts with knowing your needs and goals. Once you know what you want and need, you may begin the process.
  • Research vendors: make a shortlist of suitable candidates.
  • Check their background;
  1. Examine their portfolios and completed projects;
  2. Evaluate vendors’ capabilities (tech and staff);
  3. Read previous customers reviews;
  4. Contact the previous customer and ask for additional information about the company.
  • Contact vendors and communicate with them.

Why Do Companies Outsource Interviews

  • Learn about their companies’ cultures.
  • Choose a vendor.
  • Determine Quality Standards.
  • Review legal/security aspects.
  • Analyze business (rates, engagement model, value for money, etc.)

It is crucial to take into account all highlighted points to find the right vendor for your project. Pay much attention to the company’s background as it is challenging to control offshore companies, and have a full picture of how the company works.

Outsourcing Software Development: Pros and Cons

Every partnership has two sides. Software outsourcing development is not an exception to the rule. We will discuss the most prominent pros and cons of outsourcing software development.

Pros:

  • Cost reduction
  • Access to the large talent pool
  • Flexibility
  • Reduced time-to-market
  • Responsibilities delegation

Cons: 

  • Miscommunication
  • Lack of transparency
  • Lack of quality and labor control

Advantages of Outsourcing Software Development

Software development outsourcing company brings numerous advantages when you decide to recruit one. One of the most prominent benefits is that you speed up the development process, as you can hire the whole team at once.

There is no need to run dozens of interviews and waste your time on secondary tasks when your in-house team can pay much attention to core business activities.

Another significant advantage is that the global talent-pool opens right in front of you. You can find specialists with the right set of skills and experience to quickly and professionally deal with a project.

Why Do Companies Outsource Challenges

In addition to this, service outsourcing means reducing costs that you could spend if hiring individual employees.

Outsourcing also allows you to work on core business activities continuously, as a vendor will pick up on some duties and take responsibility for the project. There will be more flexibility in the development process. It will be easier to scale up the project if necessary and apply the agile method, so there are no delays in development, and you fit the deadlines.

Reasons Why Organizations Outsource Functions

Software outsourcing and other outsourcing types have proven to give many benefits for companies in different industries. There are several reasons why this type of cooperation is popular and becomes more widely used, penetrating various sectors.

Companies continuously face the lack of in-house staff that has specialized skills, knowledge, and experience. Third-party vendors ensure that their development teams suit high standards, are organized, share partner’s values, and set strong business relationships.

Outsourcing software development companies also gives access to the advanced technologies other companies might not possess. It is vital to use the latest technologies and tools to enhance your products and deliver better services to the end-users.

Outsourcing is a quick and effective way to produce new products and services. It is a time-saving model where you spend less time searching for the right candidates and more time on the development process.

Instead of interviewing and hiring staff individually, companies have a chance to employ the whole team at once. In this way, the in-house team stays focused on core business processes, while the external one takes on the other projects.

It follows that every business aspect is maintained correctly, and there are no crucial drawbacks in the company’s development plan.

Why Do Companies Outsource Teams

Another reason for the success of the “outsourcing” phenomenon lies in cost savings. The company reduces costs on HR, as there is no need to interview every team member individually. In addition to this, hiring the whole team is less costly, as vendors have settled prices for their services. It also results in lower taxes.

Last but not least, outsourcing provides access to professionals worldwide. Now you are not limited to one particular location, and it is possible to find a suitable team faster, even if the right team is in another country.

What Are the Industries Where Business Outsource Processes the Most?

We have already mentioned that previously outsourcing was primarily associated with the IT industry, as tech companies were looking for outsourcing software development.

Today, we observe a shift in this way of thinking, as other businesses across all sectors try to improve their service and processes.

For instance, your company specializes in mobile app development. It is your core business activity. If you want to reach more customers, find new ones, etc., you should promote yourself via different social media platforms and know how to use analytical tools to make the best of your advertising campaigns.

Why Do Companies Outsource Pros

Social media marketing is not your core activity, and, quite often, small- and mid-sized companies do not have a separate department specializing in this direction. Thus, you try to outsource a professional team to fill out the missing part.

Another example can be a delivery company. Technologies significantly influence day-to-day operations, and there are constant growth and enhancement in tech tools and solutions. It is hard to keep up with all the changes when you have limited resources, so outsourcing software development can be a suitable option for your company.

The list of tasks the companies commonly outsource these days includes:

  • HR activities
  • Marketing activities
  • Customer support
  • Administrative work
  • Mobile/Web app development
  • Web Design
  • Manufacturing, etc.

If we talk about industries, the IT sector remains the top contributor to outsourcing industry growth and development. Although, as we can see, it is not limited to this one field anymore.

Companies of different size and specialization tend to outsource the following processes:

  • IT services
  • Finance/Accounting
  • Digital Marketing
  • HR Activities
  • Customer Support

No wonder that software IT outsourcing takes up the top position. As technologies develop and enhance, there is a constant need for their upgrading and refining.

Cloud technologies change on-premise systems, a growing number of mobile phone users, the popularity of mobile apps all contribute to the development of the IT sector.

Small- and mid-sized businesses usually tend to outsource specific operations to experts who have all the necessary resources. In this way, companies protect themselves from making incorrect decisions resulting in significant losses or failure.

How to Perform a Successful Outsourcing Operation?

Successful software outsourcing development depends on several aspects that are essential to the process of hiring external resources. The process might seem to be simple in execution, but there are hidden points that you should consider beforehand. It includes:

  • Knowing Your Goals 

A company that clearly defines its outsourcing goals is one step ahead in the competition. Outlined aims of your company will allow you to search for the right partner and make sure the external team suits your expectations.

What is more, you can use the available resources to the full and as effectively as possible.

  • Defining Budget 

Map out the project plan and calculate the required costs while considering your present company needs and possible or unexpected expenditures. Ensure that you choose a reputable vendor for cooperation that has proven to provide transparent services.

A reliable vendor will help you calculate the costs and find the balance between their services’ affordability and the results you want to see when a project is over.

  • Choosing Outsourcing Model 

Define the specialized skills your company needs for the period of the project. It will be easier for your HR and managerial teams to choose the right outsourcing model (onsite, nearshore, or offshore).

A clearly defined model will help you save a lot of time and effort. Thus you will get to the development phase quicker.

  • Establishing Relationships 

Communication is essential when it comes to outsourcing. It is necessary to build stable and friendly relationships with your partners and make sure that you share the same goals and values.

Software development outsourcing brings numerous advantages for the companies that specialize in industries outside the IT sector. Digital transformation is only taking its path, and there is a lot to come in the nearest future.

Successfully performed outsourcing strategy and choosing the right vendor for your company would promote your business services and help you reach the desired results.

Talk to our experts and find out more about the topic and how your business or project can start benefiting from it today!