Having worked in the IT industry for over three decades, I am all too familiar with in-house development or addressing development issues such as delivery delays, severe bugs, stifled growth, or slow digital transformation. Still, the final decision is being put off because no one is sure which engagement model to use, and people are worried about losing control of the development process or putting the security of the company at risk.
According to Statista, the global IT outsourcing market will be worth nearly $100 billion by 2020, demonstrating how massive the IT outsourcing industry has become. What is IT outsourcing, what are its various types, and why should businesses use it? We are well-positioned to answer these questions.
What Is IT Outsourcing?
IT outsourcing is a broad term that encompasses processes ranging from the creation of a specific solution to the execution of distinct IT functions. Third-party providers are frequently used by businesses to perform the following operations and business processes:
- Implementation of the project
- Upkeep and assistance
- Upgrades and migrations
- IT infrastructure enablement and quality assurance
What Are the Benefits of IT Outsourcing?
Companies that outsource their IT operations can reap enormous benefits. They are as follows:
- Concentrate on the most important business goals. Companies can concentrate on high-priority business objectives while outsourcing IT to a vendor.
- Expertise in a specific field. Developing the necessary skills can take months or years, whereas an outsourced team can provide them quickly.
- Cost-effectiveness. Building, training, and supporting in-house staff, as well as dealing with related issues, far outweigh the cost, especially if a company requires a one-time project.
- The lead time is short. Businesses can start projects right away and quickly adapt to changing needs without having to build and train an internal IT team.
- High level of competition. Companies can integrate advanced technologies into their operations, resulting in highly competitive services and products.
- Quick problem resolution and minimal downtime A professional team can resolve issues more quickly and consistently than a single in-house support engineer.
- High levels of software stability and dependability. Outsourced specialists’ extensive experience enables them to anticipate and prevent problems.
- Monitoring and support are available 24/7/365. A company can keep a constant eye on its workload with the help of external IT experts.
What are the Limitations of IT Outsourcing?
These services may be limited in some ways as well. They are as follows:
- Communication problems The client’s distance from the outsourced team, as well as the time difference, impede communication.
- Language barriers and cultural differences Cultural and linguistic barriers can make collaboration between client and service provider teams difficult.
- Security has been compromised. Access by third parties to assets and sensitive data may jeopardize security.
- Control issues. The lack of proximity of IT experts complicates monitoring and control.
- Time spent adjusting to the specifics of the client. Even service providers who specialize in a specific industry or business domain must tailor their operations to the needs of their clients.
- Hidden expenses Benchmarking and analysis, selecting a business partner, transferring business processes and knowledge to an external provider, and staffing assistance may all incur unexpected costs.
Types of IT Outsourcing Model
A CTO maps out a project and determines whether or not the in-house IT resources can handle the required scope of work. One of three outsourcing service models can be selected depending on the situation.
This model, also known as full-process outsourcing, is the most widely used in IT outsourcing. The IT vendor is given complete project control and responsibility, including all process stages, team management, results, deliverables, and risks.
The client forms a development unit comprised of experts from the vendor. Full-process outsourcing assists businesses in developing long-term relationships with their partners.
- Minimum client involvement, allowing the client to focus on high-priority tasks and processes.
- The Service Level Agreement guarantees solid results and clear, predictable outcomes.
- Access to the IT vendor’s expertise and knowledge, which allows for the realization of ideas of any complexity.
- Any risks and difficulties are the responsibility of the vendor.
- The client has very little influence over the development process.
- When compared to other models, project kickoff takes longer.
- We recommend this option if you lack IT expertise or if your IT resources are being used by other software projects. This type of collaboration ensures continuity and is ideal for businesses that require long-term services.
- To ensure transparent and easy collaboration, the client appoints a project manager (PM) to communicate with the vendor’s PM and control reporting and workflow as needed.
- Project requirements are pre-agreed upon with the client and then included in the specification for future reference. The vendor is in charge of the entire project and its management, including the agreed-upon deliverables and timeline.
In this outsourcing model, also known as the managed team, the vendor collaborates with the client’s in-house IT department on a specific scope of the assigned project. The dedicated team operates independently: it is not fully integrated into or employed by the client’s staff.
The team is managed by the vendor’s project manager, and communication is handled by the client’s and vendor’s project managers. The two parties share the same responsibilities and risks.
The benefits of using a dedicated team are very similar to the benefits of full-process outsourcing:
- Rapid ramp-up and scaling, as dedicated teams are typically assembled in advance by the vendor, and their structure is well thought out but easily adaptable to project requirements.
- Project management receives little attention and effort because it is the vendor’s responsibility.
- Better control of processes and deliverables due to the involvement of in-house specialists
- Utilization of the vendor’s best practices and expertise
The drawbacks include:
- It may take some time to get started because processes and workflows must be established.
- Issues with communication and collaboration may arise.
- Short-term collaboration is not appropriate.
This model is also known as the extended workbench, outstaffing, and team extension, and the name is self-explanatory: the client integrates and manages the vendor’s specialists into its IT team. Typically, this collaboration is only temporary. External specialists collaborate with the client’s experts to fill specific positions, and the client is fully accountable for the project.
- Flexibility and cost-effectiveness, as the client can increase resources without hiring full-time specialists
- Rapid and simple team expansion in response to client needs
- Access to skills that in-house specialists do not have
- The client has complete control over the project, with third-party experts serving as staff members.
- The client is solely responsible for all processes and deliverables.
- Possible issues with cooperation and communication
- There is a high risk of extended staff turnover.
Every development firm, whether onshore, offshore, or nearshore, provides standard engagement models to its clients.
Let’s go over each approach one by one.
In recent years, most businesses have considered onshore to be the best option for developing a robust business application.
Firms collaborate with a local IT firm in the same city, province, or country under this model. The main reason for choosing onshore services was to be able to quickly contact the company with any questions.
The main reasons for its popularity were its easy communication and on-site visits.
However, there may be some disadvantages. For example, if the cost of software development in your country is higher, you must pay more to your technology partner.
With the increasing demand for business solutions, the trend of hiring an offshore IT firm is picking up speed. In the offshore model, you collaborate with a software development company on another continent or far away from your home country.
Most businesses consider this approach to reduce project costs because the developer and essential asset rates may be lower in other country. Furthermore, different time zones can make communication difficult to manage. Many outsourcing companies provide services based on your time zone, and you must find a reputable IT firm.
When you collaborate with a software development company in a border-sharing country, you are using the nearshore model.
It can provide you with the benefits of both onshore and offshore models because you can quickly visit on-site, your time zone will match, or there will be only an hour or two difference. Furthermore, development costs in a neighboring country may be lower than in your own. You will have improved communication and cultural similarities, resulting in a more solid professional relationship.
How to select an outsourcing model that fits your needs?
Even if you only work with one service provider, you don’t have to rely on a single outsourcing model. When it comes to selecting a collaboration model, most IT companies provide some leeway. A hybrid pricing model is also possible.
The budget of your project will most likely influence your choice of outsourcing model. Aside from that, consider the following factors when making your decision:
- Your project’s scope.
- The project’s estimated duration.
- Your preferred project management approach.
- If the team needs to be scaled down during the development process.
- The project’s level of technical innovation.
- Consider all of these factors when drafting a contract with an outsourcing company. When making that decision, you should ideally get some input from your potential tech partner.
After you’ve decided on a model, you can begin screening vendors. I recommend narrowing the list of potential vendors down to 3-10 and focusing on their trust indicators such as years of experience, professional certifications, case studies, and testimonials. Given that Groove Technology (app and software development company) provides all three engagement models, I invite you to consider us as a candidate to take over or supplement your project or project pipeline. Groove Technology has a long history of providing software development services. We have many years of experience in outsourcing and IT and have gained extensive knowledge in a wide range of technologies, IT verticals, and business domains.
If you’re interested, please contact us to discuss the specifics.