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By 2030, the software development outsourcing industry will be worth $1.06 trillion. Global IT services are expected to reach $1.389 billion in 2023.
These figures speak volumes about the widespread use of software outsourcing by businesses across all industries.
You can use one of the existing models to benefit from software outsourcing based on your goals, the industry you are in, the resources available, and more.
Next, let's take a look at some software development outsourcing models.
Outsourcing Software Development Models
Software development outsourcing comes in many forms. Choose an outsourcing model based on project scope, budget, size, complexity, and location.
Nearshore Outsourcing
The Nearshore software outsourcing is a model where you outsource your software development to a company located in the same or a nearby country.
A company in the US might outsource software development to a business in Canada or Mexico.
Offshore outsourcing
Outsourcing software development offshore means that you are outsourcing the work to a provider outside of your country or in a foreign country.
Cost reduction is one of the main reasons for offshore outsourcing. Deloitte says that cost is a major factor in choosing an offshore team.
Cost savings can be achieved by outsourcing services to service providers in other countries. You will get skilled professionals for a lower price than you would pay for local talent.
Onshore Outsourcing
Onshore models involve outsourcing development and test activities to service providers located in the same area.
This allows businesses to use local companies in the software development process. Onshoring allows organizations to outsource essential or non-essential tasks so they can focus on their core business.
Why Outsource Software Development?
A thorough analysis of the requirements is required before making a decision to outsource. You need to know why you want to outsource your software development.
You need software with a budget that you can afford
Outsourcing is a good option if you have a budget set aside for software development. It is important to consider your budget when developing software.
Outsourcing software can reduce the cost of hiring developers and internal resources. Imagine how much time, effort, and money you would save by hiring a team of remote developers! Outsourcing lowers recruitment costs and gives you access to the best IT talent.
Outsourcing software development is a good option, for example, if your team has a limited number of backend developers and you only need React frontend.
Hiring an in-house React programmer involves costs such as recruitment, onboarding, and insurance. You can reduce your costs by outsourcing front-end development. This may require more than one developer.
You develop complex software with many features
It is difficult to build an engineering team if you are developing complex software that has multiple features and uses different technologies.
Outsourcing software can allow you to focus on your core business logic without having to create an in-house development team.
It can be time-consuming and expensive to find and train diverse talents. Outsourced teams, on the other hand, remove the in-house team's hassles and offer greater flexibility and elasticity.
You can also add or remove developers in an outsourcing project-based model based on the requirements. If you want to integrate Artificial Intelligence (AI), Machine Learning, or Natural Language Processing (NLP), then you do not need to hire them separately!
You have a deadline for completing the project
Your business can be made or broken by the timing of your product's launch. Rushing your software development could lead to performance problems.
By outsourcing your software development project to a firm with an extensive pool of resources, you can be assured of a timely completion without compromising quality.
The time required for planning, designing, and development will be greater if you decide to develop the software in-house.
You are looking to reduce project risk
To reduce errors, software development projects require proper testing, monitoring, and tracking. Software bugs aren't the only thing to be concerned about.
Security failures in software are another major concern.
Outsourcing software development can help reduce the risk of bugs, security issues, and low availability. Outsourcing also allows you to access the best software developers in order to reduce risks.
Outsourcing the development allows you to take advantage of testing expertise, ensuring that there are no mistakes.
Outsourcing allows you to have support available on demand around the clock and can accommodate changes quickly.
This will improve your business' agility. Outsourcing is not the perfect solution. It comes with some risks.
You are looking for the best technology talent in the world
If you decide to outsource your project, it is no longer limited by its geographical location. You can, for example, choose developers in the US, UK, Asia, or Australia.
For hiring professionals, the most important criteria are their knowledge, skills, and experience. You can look at the portfolio of a software company, read reviews from customers, compare retention rates, and ask about their successful products.
These factors will help you to find the best technology talent in the global market.
You don't need to compromise the quality of your products when you hire exceptional talent. All remote tech teams will also bring diverse perspectives to the project.
So, building a team with a global talent base allows you to embrace diverse perspectives, break down cultural barriers, and drive innovation.
You are looking for the best value-quality ratio
The first thing that comes to mind when you think of outsourcing is the budget. This is true. Outsourcing is not just about money.
You can also find the best talent to provide high-quality solutions for a reasonable price. Outsourcing software development can help you find a balance between quality and price. You can adjust your budget based on location and the available human resources.
In the past few years, certain developing countries have seen a rise in their software outsourcing rankings. These countries have a large pool of talent that can be hired at reasonable rates.
Hiring professionals with similar skills in developed countries such as the USA would be much more expensive. It's all about finding the perfect balance between quality and price.
You want to create a cross-functional group faster
You will also need to create a cross-functional team of developers if you plan on building your software in-house.
It is hard to find experts in different fields within a certain geographical area. Outsourcing the software project allows you to access experts in different fields and have them work on your project.
You can, for example, hire UI/UX and business analysts in one place, testers and expert developers in another, and strategic consultants in a third.
Outsourcing software development company that will work within your budget and meet your business requirements.
The company will have relevant experience in outsourcing and a cross-functional team that includes business analysts, solution architects, UI/UX designers, software programmers, and QA engineers. You can develop software faster and lower your time-to-market, giving you a competitive edge.
You don't need to micromanage everything
If you decide to outsource your software project, the agency or organization will assign a project manager that is responsible for all day-to-day tasks.
The PM brings the development team and product owner on the same page regarding timelines and expected results. The PM will take care of all the execution after you have approved the project plan.
You don't have to micromanage every aspect of your project as a product owner. Project managers can plan sprints, establish deadlines, manage delivery, maintain a schedule, and prepare feature demonstrations while they focus on important business tasks.
Ask for regular updates on the status of your project and give feedback. You will receive a response from the project manager and will not have to spend time checking on the status of the tasks.
Outsourcing software development has its benefits, but it is not without risks. In the next section, we will examine the main risks associated with software development outsourcing.
Outsourcing Software Development Can Be Risky
It is not the answer to all your problems to outsource software development. If you do not have a plan for outsourcing your development process, it can cause problems.
Here are some of the risks associated with outsourcing without a plan.
Delivery delays and low-quality products are a risk
It can be risky to outsource, especially if you have to deliver software on schedule. Project completion can be delayed if you do not choose the right outsourcing vendor.
Many vendors will promise to deliver on time. However, a lack of management can lead to delays and problems. Some vendors do deliver on time, but their quality must be good.
Target is a good example. Target is a US grocery chain that had a big project to enter Canada. Accenture consultants were hired to create a unique SAP system for all of their stores in Canada.
The SAP system, however, failed to provide accurate data resulting in massive inventory problems. The target was forced to close more than 130 shops in Canada as a result of the SAP system failure.
The SAP system's failure was attributed to data overload and project management problems.
You should also test your software thoroughly before launching it.
Outsourcing software development is associated with security risks
Outsourcing software means sharing data with the vendor. If you do not have a data access and security plan, this can lead to the leakage of information.
A report states that 43% of cyber threats, whether intentional or not, are internal. It is, therefore, crucial to protect your internal network and data.
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How can you Protect your Data when Outsourcing?
A policy that uses Role-based Access Control (RBAC) is the best way to prevent such a situation. This is a method where access to information is restricted for specific roles.
An employee or an outsourcing vendor could access the required data.
Lack of Control
You can choose between different types of outsourcing to manage your software project. You can, for example, have more control over onshore or nearby projects and less with an offshore project.
Outsourcing to a vendor who is transparent in their communication of the different stages of software creation will not be a problem.
It is, therefore, crucial to choose the right vendor. Selecting an extended team is one way to improve the quality and control of software delivery.
Vendor Lock-in
Outsourcing can be a risky business because it could lead to you paying more but being restricted to one tech stack.
This can also be a major problem when developing cloud-based applications. If, for example, your vendor provides AWS services to develop cloud-based software, then the tech stack is limited to certain tools and technologies.
Research shows that being tied to a single cloud provider poses a serious risk. The study focused on UK-based businesses, indicating that vendor lock-in can be a major barrier to cloud adoption.
Respondents reported major challenges with cloud adoption.
- Cloud migration: moving data/applications from cloud environments
- Problems with data ownership
- Cyber attacks and data security concerns
- Interoperability issues with third-party providers.
Finding a company that offers greater flexibility with tech stacks and cloud migrations will help you avoid being locked into third-party vendors.
A well-designed outsourcing strategy that is tailored to your specific business needs will address all of the issues we have discussed.
Outsourcing Software Development Strategy
You should conduct a transactional value analysis before creating a software outsourcing strategy. This is an inter-organizational method of evaluating the level of collaboration between your organization and vendors or companies offshore based on such factors as
- Cost
- Shared Responsibility
- Risks
- Control
- Transparency
This analysis will help you to understand the value of outsourcing. The value of transactions can be used to formulate a solid strategy.
Identify the Goals of your Project
In order to define the goals, the right questions must be asked. One of the most important questions is, " What are the benefits of outsourcing software development?".
Other questions to ask in order to determine the project's goals include:
- What are you trying to achieve with your project?
- What is the best way to achieve this outcome through outsourcing?
- What technology stack is required to develop software?
- Do you have the right tech stack?
- What metrics are used to measure the project's success?
- What is the budget and timeframe of the project?
Why estimate the total budget of the project once you've defined your goals?
Cost is a major factor in the decision to outsource, so estimation is important.
Estimate the Budget for your Project
Internal processes for estimation include predicting costs and expenses associated with software development. Here are three methods to estimate your software development budget.
- The Empirical Estimation Technique: Is an estimation method that uses data from previous projects to estimate the budget for software development.
- Heuristic Technique: Uses industrial data to estimate a model based on the Constructive Cost Model.
- The Estimation Technique: Based on analytical methods calculates the budget by dividing tasks into simple operations and calculating timelines for them.
It's now time to implement your budget.
Find the Skills Gap
An outsourcing strategy can be formulated based on a technical skill gap assessment. You must first identify the technology stack needed for software development.
After you've decided on the tech stack, the next step is to find the soft skills needed to use it.
Finding a software partner with a similar skill set is essential to achieve your goals.
Transparency and Good Communication are Essential
Transparency and communication with your vendor will help you gain greater visibility. This also allows for better project management and the tracking of important metrics.
It is important to strategize collaboration, particularly for offshore outsourcing, due to the time zone and other differences.
You are an organization in the US, and you outsource your project to a firm in Australia. The difference in time is 14 hours, which can be a barrier.
You should look into tools such as Slack and Skype to improve your collaboration. These tools offer file sharing and real-time chat features that help improve collaboration.
Understanding the Software Development Methodology
The software development methodology is crucial to the success of a project. Agile software development, for example, follows an incremental approach with continuous feedback integration.
The waterfall approach, on the other hand, follows a series of stages in which a new phase begins only when the previous one is completed.
It is important to assess the project's goals, scope, timeline, and complexity before deciding between waterfall development and agile.
Agile is the way to go if you are looking for rapid growth. There will be no delays, and there will be a high level of quality due to continuous testing.
Your software development outsourcing should also include the methodology you will use to develop software. Your outsourcing vendor should also align their software development method with yours.
Choose the Right Engagement Model
Your choice of outsourcing company will depend on your project requirements, timeline, and budget.
- Time-and-Material Model is a method where you charge based on how much time the developer spends and what infrastructure they use. The developer's charge can be based on an hourly rate.
- The fixed Price Model involves the agreement of all project requirements, including budget and timeline, before software development begins. The fixed price model does not allow for sudden changes, and the parties agree on a set price.
- The dedicated Team Model is a model where experts from an outsourcing vendor's pool work and become part of your company culture. It is a fee-based extension of your current team.
Outsourcing software development costs [Factors you should consider]
![Outsourcing software development costs [Factors you should consider]](https://bimg.b-cdn.net/himg/39.jpg)
The cost of software outsourcing is an important factor in determining whether or not to outsource a project. The type of project, the size, and the location of the vendor are all factors that may affect the outsourcing cost.
It can be difficult to estimate the cost of software outsourcing due to the differences between each project. What works for one may not work for the next.
Type of Project
Included in software development projects are frontend, backend, and full stack. They also include desktop, mobile, web, and desktop application development.
- Frontend Development - Highly-skilled developers develop functional and visually enhanced user interfaces.
- Backend Development - Individual developers focus on parts that are invisible to users. It involves creating an infrastructure that focuses on functionality, system interoperability, and the execution of business logic.
- Full-Stack Development - includes frontend and backend developments.
- Desktop Development - creating apps that run on Windows, macOS, Linux, and other operating systems.
- Web Development - is a web-based application that web developers create for users who want to access software via the internet.
The Project's Size
Estimating the cost of outsourcing software projects is largely based on the size of your project. Large-scale projects require more time and resources, whereas smaller projects do not.
The size of the project is also a major factor, particularly for the time-and-material engagement model.
The Location of the Vendor
It is important to know the location of your outsourcing vendor in order to estimate software development costs.
These vary by region.
These are the hourly rates for front-end developers across different countries.
You can see that hiring a front-end developer from India will be cheaper than in Australia or the United States.
The hourly rate for backend and full-stack remote developers is also different depending on the vendor.
Case Studies on Software Outsourcing
Understanding what worked for an organization and what lessons we can take from that case study is crucial.
Unilever outsources ERP integration
Unilever, a huge consumer goods company, has more than 200,000 workers who require ERP system integration. They chose to outsource integration despite the fact that they had enough resources to hire a tech team in-house.
Outsourcing was largely due to the inability of companies to manage ERP integrations across multiple platforms.
Skype has outsourced its entire software development
Skype is a well-established company that offers telecommunications solutions, messaging, and conferencing. They chose to outsource the entire software development despite having such a large organization.
It was due to a lack of expertise when it came to developing software.
We have already seen the nitty-gritty of outsourcing software development. The subject would be incomplete without a look at the software development processes of outsourcing companies.
Let's examine them in the next section.
Software Development Process
You want your software to be easy to maintain and flexible, no matter how complex or simple it is. To achieve this, you need to understand the software development cycle and know what best practices are to be implemented at each stage.
These are the phases that typically occur in the software development process.
Idea
Each software project starts with an idea. You need to narrow down the idea by identifying the customer's pain points and business needs.
The following activities are included in the ideation phase:
- The feasibility of an idea can be assessed by using a PEST profile (Political, Economic, Social, and Technological profile), a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats), and focusing group discussion.
- The scope of the project
- List the project owner, objectives, deliverables, and goals.
- Defining various stakeholders
- Develop a business plan that will help you turn an idea into a successful digital product
Planning
The following steps are included in the planning phase:
- Making a project plan
- Building a Development Team
- The roles and responsibilities of each team member
- Estimating the budget total of the project
- Gathering hardware and software resources
- Evaluation of risks and drafting a plan for risk mitigation
- Documenting Software Requirement Specifications (SRS)
Rich documentation is essential to the success of any software project. It is also important to update the documentation as requirements change.
In an SRS, you should include all the information that was discussed and analyzed in the planning phase. The SRS document is a roadmap that outlines the product development process and resources required to complete the project.
Designing
UI and UX are one of the first things that users will interact with while using your software. A visually appealing, intuitive, and easily navigable design is crucial to ensure a positive customer/user experience.
In the design phase of the software development cycle, the following factors are taken into account:
- Architecture: The overall skeleton of a product
- User interface (UI): How the user interacts with the product
- Platform-Specific Guidelines: Android, iOS, or Windows-specific design guidelines
- Communication: How a product interacts with other assets
- Security: Data leakages prevention measures, such as SSL encryption, password protection, and 2FA.
You'll be able to create a prototype, which is a visual representation, at the end of your design phase.
Coding
This phase is fundamental to any software development. Your team will translate planning and design into a product.
You can build a small-business project with a developer or two who have significant coding experience.
If you are working on a big project, it is necessary to divide the tasks among a larger team according to their expertise.
A front-end designer will be responsible for building a robust UI, a database administrator is in charge of database design, and a back-end developer connects the front and back ends of an application.
Make sure the code created during this phase is in line with the original project requirements. It is the development phase that will take most of your time.
However, if you have worked with other teams to achieve the right outcomes in the planning and design stages, then there won't be too many obstacles. You will end this phase with a working code repository and a product.
Testing
The QA team will conduct quality assurance after the development phase is complete. They will analyze the source code to check for bugs, errors, or security holes.
The product is now subjected to a variety of tests, including functional, regression, integration, security, and usability.
Once the quality assurance team has identified all errors through a well-established process, QA sends a detailed report to the experienced developers.
The dedicated development team fixes the bugs or errors and then sends the report back to QA for retesting. The process is iterative and continues until the product has been declared bug-free.
Deployment & Maintenance
You launch your product after the testing phase to a small group of users who are also part of your target market.
The support team then begins collecting feedback from these early users. Then you analyze the feedback and incorporate it into your product. Finally, you launch the product on the market. The cycle does not end there.
To stay relevant and avoid saturation, you must strive for continual improvement. Software maintenance is a regular task your team should perform in order to maintain the best quality and performance.
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Conclusion
Software outsourcing is more than just a decision. It's a transformation of your business. The results can be great if you do it correctly, but if you make a mistake, everything you have invested could go wrong.
Consideration of the project requirements, cost, and outsourcing models is important.
Choosing an extended team can be a good investment, as it offers flexibility and reliability. cisin has been at the forefront of providing software engineering services with a dedicated team that acts as an extension of your company.
