Software Development Outsourcing in 2022: All You Need to Know
Looking for a high-skilled development team for a reasonable price? Then, turn to outsource, a $93 billion niche that keeps growing. Outsourced services have been popular for a while now. However, the pandemic has taken things to another level because remote work became the new normal.
In this article, we collected vital information about outsourcing so you can get a complete picture.
What is software development outsourcing?
Outsourcing implies transferring the tasks to independent teams outside the company for cost-cutting or due to the lack of own capabilities. Software development is a complicated process that requires professionals to perform it. At the same time, not every company needs an IT department on a constant basis. Here outsourcing comes to the rescue as a wonderful alternative to in-house teams – you can hire an agency located elsewhere to do the job.
Here are the most popular cases for outsourcing:
- startups outsourcing SaaS development
- entrepreneurs building marketplace platforms
- established businesses developing websites or custom software for their own needs
Now, let’s look closer at the positive and negative sides of outsourcing.
Outsourcing software development: pros and cons
As a team that has been performing outsourcing services since 2007, we will share our own experience of the advantages and disadvantages of outsourcing software development.
Reasons to outsource the work:
- money saving. Hourly rates are not equal in every region. A team from North America with the same set of skills as Eastern European colleagues will charge a much higher price for their services just because of their geographic location. With an in-house team, you will have no choice but to pay at the market. At the same time, outsourcing allows you to optimize costs and save up to 70% of your expenses. Let’s look at average hourly rates globally (of junior and senior developers respectively):
- USA – $65- $130
- Latin America – $50 – $70
- Eastern Europe – $25 – $60
- Asia – $20 – $45
- Africa – $20 – $40
What is an adequate price for outsourcing? Accelerance identifies a prime range of rates from $35 to $75 per hour as a “sweet spot”, where fair price meets quality performance. The chart below sets the criteria for choosing software engineers against hourly rates. It shows that the cheapest option is risky and the most expensive option is not cost-efficient.
- wider talent pool. Research shows that today there is a significant deficiency in talents. So why limit yourself to one region if you can look for qualified executives globally? If you are searching all over the world you are able to find even so-called unicorns who possess unique skills that are necessary for your business. You will not be open to such opportunities if your geography is limited to your city.
- no HR costs of hiring and retaining employees. It costs on average $4k to hire an employee in the USA and even more to keep him or her in the company. With outsourcing you are spared such expenses as hiring, providing a social package, sick leaves, training, and others associated with in-house teams. Outsourcing agencies take care of all this for you. So you don’t need to build an infrastructure and create working conditions to keep your employees happy and productive.
- flexibility. The outsourcing team can work on-demand, so when you don’t have enough work you don’t have to maintain the whole team. This kind of optimization helps to distribute resources efficiently. In-house teams can run out of tasks and end up idle while you still will be paying their salaries.
- innovation. New people bring new ideas. Independent teams keep themselves ingenious to stay competitive and thus are always ready to adopt the latest technologies and practices. It also helps the companies who hire them to be innovative. In-house employees who work on the same projects for a long time may lack stimulus and motivation to be innovative.
Risks of outsourcing:
- fraud. Outsourcing doesn’t give you 100% control of the people and your project, so fraud is the biggest issue. You are asked to trust your money and ideas to complete strangers, whom you may never even see in person. With an in-house team, you can spot suspicious activity right away while agencies abroad may even get away with breaking their promises because they can escape liability in your country. Therefore, when looking for a team, pay special attention to their online reputation. Conduct a thorough background check in sources they don’t control like Upwork, Clutch, GoodFirms, and other third-party review platforms.
- miscommunication. It’s not only about the language barrier, but cultural differences can play a big role too. Your remote team might not understand what you expect of them. So when choosing a region for outsourcing, make sure the cultural differences will not become an issue.
- the team doesn’t care about the company’s goals. Outsourced teams can be distant in all senses. As a temporary team, they may care only about current tasks, not the company’s success as a whole. To avoid this, ask the team what they do to ensure customer success, and confirm it with references.
- lags in responses due to time differences. You can be miles away, perhaps even on a different continent, from the people working on your project. Thus you will not be able to interact and collaborate in real-time. This can slow down the work. In our experience, it is possible to overcome this problem with a strict schedule and discipline on both sides. Your work can be planned in such a way that all meetings and vital discussions are conducted during the overlapping work hours. The rest of the time your team will work on their own, while you sleep, for instance.
The picture below presents the correlation of pros and cons of outsourcing software development services:
How to choose a software development outsourcing company and manage the work
You can avoid the negative consequences of working with an outsourced team by conducting research before starting cooperation and finding the best match. Here are factors to consider before starting a project together:
- Can you speak the same language?
- Is there an overlap in time zones?
- Has your team worked on a similar project?
- Does the team have positive verified reviews on different third-party platforms?
- Have they previously worked in your region?
- Can they provide contacts of previous clients for personal references?
- Do you feel comfortable communicating with the project manager?
- Have you agreed on the budget and deadline?
How to arrange workflow with an outsourced team:
- Write a specification with detailed steps and requirements. If you are not sure where you are going you will barely get anywhere. About 70% of software development projects can’t align with the terms (deadline, budget, requirements) agreed before work. Make sure you have a written document with clear instructions on each stage of your project. It will help the team to do the job coherently and avoid potential arguments afterward.
- Use a trial period to see if you can cooperate. Recommendations and feedback are great but you’d rather see the expertise of your staff with your own eyes. For this, give your team a small test task before trusting the whole project. You will get an idea if they are qualified enough and able to handle important work.
- Build a strong communication channel and discuss your expectations. It is especially important as you can’t meet personally and talk online only. You need to have an easy and functional way to speak to your team and discuss all the work questions. And make sure you indeed understand each other.
- Set a clear deadline and budget. Your team must be aware of what time and financial limits they have. This will help avoid stretching out your resources and give you a defined framework.
- Explain your goals and involve the team in the company’s life. Have a thoughtful conversation with your team to explain your business background, views, purposes, and what you want to achieve with this project.
- Try a hybrid model when part of the team is located in your office and the rest is outsourced. Combine onsite management with remote executors for maximum productivity.
Custom software development outsourcing is a popular alternative to in-house teams. It implies delegating a job to third-party professionals outside the company. This strategy brings a lot of advantages like additional flexibility, cost-efficiency, and talent acquisition.
However, the risks are also serious and you need to be careful before trusting your project to strangers. If you do everything correctly, outsourcing can be a great way to optimize your business.