IT Outsourcing: Key Insights, Benefits, & 3-Step Procedure
Did you know that software development in most cases relates to information technology outsourcing?
IT outsourcing is popular among companies of all sizes. The Spending and Staffing Benchmarks study for 2018-2019 found that larger companies had increased spending on nearshore software outsourcing from 6.3% to 8.7%, while medium companies increased their investment into technology outsourcing from 4.7% to 6.5%.
These days, information technology outsourcing has become a common practice among companies from all over the world. The global market size of IT outsourcing services reached $85.6 billion in 2018. There are many reasons why they choose to outsource, from the ability to reach a more diverse talent pool to cutting costs.
In this article we will uncover the following aspects:
- why companies choose to outsource work and which outsourcing IT companies they choose
- outsourcing IT pros and cons, and the risks businesses should be prepared for when outsourcing IT services
- how to ensure that the outsourcing process will go smoothly and the final results will be up to your expectations
Introduction to Information Technology Outsourcing
What is information technology outsourcing? To answer this question, let’s first define outsourcing.
IT outsourcing is the practice of sub-contracting or “farming out” some tasks related to information technologies. Companies engage external resources to perform certain operations which helps them streamline the workflow, and save time and money.
Technology outsourcing opens up a whole world of possibilities for companies and allows them to not be limited to a particular location or market. It became a panacea for many growing companies that require software development services and highly experienced professionals.
Based on the place where the information technology outsourcing services are performed, the following types of IT outsourcing are defined as follows:
- local or onshore IT service outsourcing implies hiring staff outside your company but that are still based in your country
- nearshore IT outsourcing means hiring contractors in a country near yours, often a bordering country
- offshore information technology outsourcing happens when a business hires a company or individual who is more than four time zones away from their own, typically to enjoy the benefits of lower costs for IT outsourcing jobs
If you are going to study the outsourcing models, you will encounter these definitions quite often, so it is important to know the differences between them.
What are examples of outsourcing? Aside from information technology outsourcing, they are numerous and include the following services that frequently turn to outsourcing:
- application and software development
- software maintenance and management
- technical support
- telecommunication services
- database development and support
- business process outsourcing
- human resource management
- supply chain management
- legal documentation
The places you can look for IT outsourcing companies are numerous. Depending on your business needs, you can hire an individual, a team, or even a dedicated software development company to work exclusively on your project.
Let’s take a look at the most common places to look for vendors:
Work exchange platforms like Upwork and Fiverr are a great place to start your search. These platforms contain profiles of freelancers who are ready to take on different tasks in the field of IT outsourcing. Anyone can create a profile, so you need to be careful with your choices and try to avoid the risk of hiring under-qualified specialists. This is one of the main considerations among IT outsourcing risks.
Vendor-listing sites are a worthy resource in your search for information technology outsourcing companies. Platforms like Clutch and The Manifest list the main players and provide access to reviews and references from clients of these IT outsourcing companies.
If the advantages of lower cost of offshore outsourcing have not yet won you over, you can also consider searching for a company among those that are local. You just need to type in your search query in Google and you will get dozens of results with the technology outsourcing companies nearest to you.
The choice of a particular IT outsourcing vendor is interconnected with the location of the most prominent software development companies. The destination of your information technology outsourcing often depends on the language, time difference, and service cost.
Eastern Europe, Asia and the Middle East, and Latin America are considered some of the best places for outsourced IT services. The following table compares the main advantages and disadvantages of outsourcing to these regions.
|Eastern Europe||Western Europe||Asia and the Middle East||Latin America||North America|
|Good level of English||+||+||-||-||+|
|Average hourly rates (2018)||$40-50||$40-100||$20-40||$35-50||$70-170|
After taking all of the above into consideration, it should come as no surprise that Eastern Europe is the primary technology outsourcing destination for many businesses all over the world. While Asia and the Middle East can offer lower costs, Eastern Europe provides IT outsourcing services of exceptional quality. The majority of technology outsourcing companies from Latin America are just making the first steps and have not yet established a good reputation nor do they have a lot of experience in providing this service at a high-quality level.
IT Outsourcing: Pros & Cons
10 Benefits of Information Technology Outsourcing
The reasons why outsourcing is done are numerous. The benefits of IT outsourcing are diverse and may vary depending on the location of the company that orders these services, its business goals, and available finances.
The main reasons why companies outsource information technology are as follows:
1. Cost reduction
This is probably the most attractive advantage of offshore outsourcing. The level of payment in developed and developing countries varies greatly. Companies can save up to 30% by outsourcing information technology tasks. In contrast, when you create a dedicated in-house team, the business has to pay additional costs including employee salaries, taxes, leave, and so on.
IT outsourcing for small business is very beneficial, as these companies save precious money that is needed for the further development and improvement of internal operations. Even giants like Telecom, Unity Technologies, and Alibaba reduce their development costs by means of outsourcing information technology tasks.
2. Saving time
Routine tasks like software maintenance and support may take a great deal of time. Companies need to create dedicated teams specifically to address these problems, which is also time-consuming. Technology outsourcing companies can provide clients with ongoing support and software maintenance.
The result of IT outsourcing is the reduction in time that is needed for an in-house team to tackle problems. If there is a significant time zone difference, you get the benefits of round the clock business operations.
3. Access to more talent
There are instances when a company needs a unique talent that is not available in-house or even in the local talent pool. Information technology outsourcing is a workaround for many companies that get access to the best talent from all over the world.
The information technology outsourcing market is huge and specialists can be found with rate tech skills like blockchain developers and machine learning specialists. This is the key advantage of offshore outsourcing.
4. Focus on business strategy
In business, nothing is done without a good reason. Every decision should be made based on well-thought-out research and data. IT outsourcing allows businesses to concentrate on core operations and frees employees from tasks that do not match their expertise.
As a result, businesses better optimize internal processes and more wisely allocate resources to the tasks that directly influence the performance of a company.
IT outsourcing provides companies with the ability to quickly react to changes in the business environment. If the information technology outsourcing vendor under-delivers, it is quicker to find another company than to search for a full-time employee with the necessary skill set.
The same goes for the adoption of innovative technologies, as companies sometimes refrain from them just because they cannot find qualified specialists in the local market.
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6. Speedy hiring process
Among the benefits of outsourcing, this one is crucial for many leading businesses. At one point or another, there might be a need for an employee with a rare talent. Information technology outsourcing opens up the possibility to hire any professional from any part of the world. It is quicker to find a vendor than to hire and relocate a professional, which can lead to unnecessary bureaucracy and additional costs.
7. Fresh and new ideas
An outsourced employee benefits the hiring company in many ways. One of them is the ability to look at a problem from a new angle. If you have encountered a problem, there is a chance that other companies have also faced the same dilemma. An outsourcing service provider deals everyday with different challenges and, in some instances, can offer unique solutions that you may not have otherwise come up with.
8. Technology availability
The world of software development is ever changing and new trends arise every day. For an in-house team of developers, it is difficult to keep up with all the latest changes and technologies. This is why IT outsourcing is a cost-efficient way of accessing innovative solutions and implementing them in your business projects.
9. Risk sharing and mitigation
Do not put all your eggs in one basket or, rather, do not invest all your money in a single IT outsourcing vendor. You can easily mitigate some of the risks of technology outsourcing by entrusting different types of tasks into the hands of different IT outsourcing firms.
As you can do due diligence, talk with the existing clients of an IT outsourcing provider and view the ratings from their former clientele. This can help to significantly reduce the risks and get assurance that the outcome matches your expectations.
10. Business support
Business process outsourcing allows a company to get support from the side. Even if some processes inside your company fall apart, the operation you outsourced may continue to run smoothly. Even the loss of a significant employee will not influence the work as, in most cases, IT outsourcing companies have a few different employees that can take on the role.
In many cases, these vendors are not only able to support your company from a tech perspective, but unite both the business and tech parts in a way that produces the best outcome.
The benefits of IT outsourcing are diverse and bring additional freedom for companies that turn to information technology outsourcing services. Flexibility, cost and time savings, and access to a pool of highly-qualified specialists are the main reasons why the market of IT outsourcing is growing.
The Data Analytics Outsourcing Market research states that the technology outsourcing market is expected to grow at a CAGR of 25.8% during the period between 2019 and 2027. By the end of the forecast period, it will account to $19.35 billion US dollars.
8 Potential Risks Connected with Technology Outsourcing
Even though the benefits of outsourcing are plenty, many companies are still wary. Let’s review the main risks that may scare you away.
1. Loss of control over operations
Many companies are afraid that when they tap into technical outsourcing, they will lose control over core operations. When dealing with in-house employees, companies can directly influence all processes, track the execution of tasks, and ensure that operations align with the business needs of the company. In comparison, IT outsource companies are more independent, which may make you think that you are losing control over everything.
Solution: Lack of awareness is a problem caused by poor communication. This can be solved with a properly established plan of action and regular communication. This way you will not feel that important operations are slipping through your fingers.
2. Relative cost reduction
Cost reduction can belong both to IT outsourcing pros and cons. If a company makes a poor choice and hires a vendor without learning about all the hidden cost components, this may significantly increase the final price of web or mobile app development. In this case, companies risk losing money instead of saving more.
Solution: To avoid these sorts of situations, it is important to learn about all of the hidden costs and extra charges, as well as payment models (fixed, time and material, etc.) so that you can be prepared for unexpected surges in development costs.
Want to better understand how app development cost is calculated?
Read the article App Development Cost: Understand Your Budget to Build Powerful Apps to find out about 10 hidden project cost drivers.
3. The risk to the business of downtime failure
Businesses that rely on an external company for IT outsourcing run the risk of downtime during critical system failures. A busy contractor might not have time to instantly fix the problem and businesses may need to wait for days. These types of failures may have a daunting impact on performance, productivity, and may even cause money loss.
Solution: This risk should be considered during the preparation of any contract agreement between the companies. These instances should be registered in the document and these should be an established plan of action in case of emergencies.
4. Culture, time, and language discrepancies
Offshore international technology outsourcing involves a few challenges. Very often, companies do not only differ due to location, but also because of the differences in time zones, languages, and cultures. These diversities can become a real stumbling block, as they negatively influence the effectiveness of communication.
Solution: Before a project commences, both parties should have an established process for communication and a schedule for the exchange of information. This will ensure that all the requirements are met and your project will go on as planned.
5. Insecurity with regard to service quality
Exchanging lower prices for lower quality services is a bad idea. The fear that an IT outsourcing company will not be able to deliver the needed results often stops businesses from exploring the possibilities.
Solution: Finding the right quality-to-price ratio is vital for the future success of a project. You can ensure this success by reviewing feedback from former clients and comparing the offered prices with those of other companies.
Do you want to learn how to choose the right developer for your project?
Read the article How to Hire an App Developer for Your Project, which will provide you with some insight and the step-by-step process for choosing the best app developer.
6. The complexity of function migration
The process of IT outsourcing may seem like a difficult task, especially when we talk about function migration. If your vendor loses an important employee, the functions of this employee should be transferred to another specialist, which may take time to accomplish.
Solution: IT outsourcing companies have established processes in place that help to transfer important functions to a few specialists with the needed background so that you will not face the same problem.
7. Inefficient management
Inefficient management of an IT project can lead to loss of money and a failure to deliver the desired result within a set timeframe. This is another concern that makes some companies doubt the viability of application outsourcing.
Solution: It is important to conduct thorough research of the company you want to hire for software development. If you go to trusted companies with highly professional teams, this risk will not not necessarily come to fruition.
8. Risks with data security
Another key concern when choosing an IT outsourcing provider is data security, which may negatively impact the reputation of, and result in multi-million-dollar penalties for a company. With ever-changing data regulations, businesses should choose a vendor wisely.
Solutions: It is important to pay attention to the established processes that prevent data loss, breaches, and privacy compromise if you do not want to deal with the consequences of these occurrences.
It is important to note that all risks connected with IT outsourcing can be mitigated with the right vendor. Businesses should choose a reliable company that develops web and mobile applications, operates in different countries, and has a crystal-clear reputation in the market of information technology outsourcing.
Overall, the pros and cons of outsourcing IT are not equal, as the former clearly outweighs the latter.
IT Outsourcing: Easy 3-Step Process & Checklist
Even though IT outsourcing may seem like a daunting task, a company can easily ensure that everything will run smoothly and that a vendor will deliver the needed results in accordance with your requirements.
Below, you will find a short checklist that will help you choose the best technology outsourcing company.
1.Define your exact goals
Having a clear understanding of what your company wants to achieve with IT outsourcing will help you determine what type of help you need and what skills are required to bring your project to life. You need to have answers to the following questions:
- What is your product concept?
- What timeline do you need to adhere to?
- What is the budget you are ready to spend on web or mobile app development?
- What expertise do you need to bring it to life?
- What is the size of the team you want to hire?
2. Shortlist potential service providers
There are thousands of companies providing IT services and outsourcing and you need to choose the best fit, as the future of your project directly depends on your choice. Create a shortlist of potential service providers. You can rely on word of mouth and choose a provider that other companies in your field have chosen. Alternatively, you can use online resources such as Clutch, The Manifest, GoodFirms, etc, for reviews from other companies. The following questions will help you narrow the list down to 2-4 companies:
- Do companies follow the latest IT outsourcing trends?
- Are they among the top providers in their field of expertise?
- What is their reputation and ratio of positive vs. negative reviews?
3. Evaluate your prospects
Now that you have narrowed down the list of companies to 2-4, you need to further evaluate each of them. The following list will help you perform a thorough investigation and make a final decision regarding your IT outsourcing service provider.
1. Background checks
This stage implies the collection of basic information regarding a company you may be considering for technology outsourcing. Find the answers to the following questions:
- How long has the IT outsourcing vendor been on the market?
- What is the main specialization of the company?
- What expertise the IT outsourcing company can offer to your business?
- Does the portfolio of delivered projects contain cases similar to yours?
- What is the pricing model and how does it align with your budget?
2. Client list and references
A review of the client list and references are other important steps in the evaluation process. During this stage, you need to find answers to the following questions:
- How many projects has the company completed?
- With which companies does the IT outsourcing provider mainly work?
- Which countries and regions does the vendor operate in?
- Has the company handled an IT outsourcing project similar to yours?
- Which references have former clients provided?
3. Capabilities of an IT outsourcing company
At this stage in the evaluation process it is important to look deeper into the operations of prospective vendors. You need to have a comprehensive idea of their company and what skills and technologies they can offer you. Here is what you need to find out:
- What is the size and structure of the company?
- Which skills do the professionals there have?
- What services does the vendor provide?
- How flexible is the company?
4. Company culture and talent
As communication plays a major role in the future success of your project, you need to make sure that differences in language and culture will not become a roadblock on the way to the desired results. The following questions should be answered at this stage:
- Are there any major cultural differences between your company and prospective vendor?
- What languages do the employees at your company know and what languages does the IT outsourcing service provider know?
- Is there a process in place that regulates all communications?
Do you want to learn the right way to outsource web development?
Check out the article Outsource Web Development Wisely: Useful Tips, which will provide you with a few extra tips on how to choose the best vendor.
5. Processes and tools
Internal processes in an IT outsourcing company directly influence the process of web and mobile project development. Find out as much about the behind-the-scenes life inside the company as possible and answer the questions below:
- What are the management regulations inside the company?
- What tools does the vendor use for communication and are they suitable for you?
- What software development approaches does the company adhere to?
- How does the IT outsourcing team log hours during the development process?
6. IT outsourcing quality standards
Before you outsource the development process to a third-party, you need to make sure that the company you consider choosing as your service provider can guarantee the quality of their work. To find this out, you can use the following checklist with questions:
- How is the quality of code assessed?
- What certifications does the team have?
- How does the company ensure a high quality of code?
- Does the vendor have a code review process in place?
7. Legal and security moments of outsourcing IT
You also need to evaluate the prospect from a business point of view. As they may deal with your client’s sensitive data, you need to make sure that your contractor will not violate any laws and regulations. When you finish the evaluation process, you need to have the following questions answered:
- What agreements does the company offer to sign?
- What types of open source software and instruments will be used during the development process?
- Is the company GDPR compliant?
- Do the employees of the vendor sign an NDA?
By the time you have finished this assessment, you will probably already know which IT outsourcing vendor to choose.
Bottom Line: Consider IT Outsourcing to Ukraine
Eastern Europe, and Ukraine in particular, is widely known as the primary destination for many companies looking for high-quality technology outsourcing providers. Ukraine IT outsourcing attracts companies with favorable rates, experienced teams, the professionalism of developers, the pool of talent, high quality tech education, cultural similarities, and much more.
Below you can find some general recommendations for IT outsourcing that will ensure that everything will run smoothly:
- Identify your business and technical goals as early as possible
- Plan the project budget and timeline considerations way in advance
- Make sure that the vendor utilizes adequate project management processes and development tools
- Set up the payment process clearly
- Sign NDAs and clear agreements
- Plan to be involved in the development process greatly, especially in the beginning
When you give your project up for IT outsourcing, you can start with its smaller version and, based on the results your vendor provides, later move to the development of a full-fledged solution. This way, you will mitigate risks and if the results are not up to your expectations, you can switch your technology outsourcing company for another one.
Do you want to hire an IT outsourcing company that will bring your idea to life?
MLSDev has proved itself as a leader in the IT outsourcing market. We use a modern stack of technologies and tools to deliver great results. Feel free to reach out for a consultation regarding web and mobile app development services.