What Is Software Development Outsourcing (Pros, Cons & More)

outsourcing software development

Over the last few decades, software development outsourcing has experienced tremendous growth. Around 64% of all companies now outsource their entire development process!

And why not?

Outsourcing software development can offer tons of benefits like cost reduction, enhanced product quality, and more.

In this article, we’ll explain what software development outsourcing is, its benefits, and its challenges. We’ll also highlight five common software outsourcing models and four effective tips to efficiently outsource your software activities.

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Let’s get started.

What is Software Development Outsourcing?

In software development outsourcing, a company hires a third-party service provider to handle its software development projects. The development services can range from developing custom software your company uses or developing commercial software for your customers.

Outsourcing software development services allow your internal IT team to focus on core competencies such as growth and innovation.

In fact, like 64% of all companies, you can outsource your entire development process!

Let’s check out a few software development services that you can outsource:

  • UX Design: Offers usability consulting, front end, and UX design services for TV, PC, and mobile devices across all industries.
  • Feasibility Study: Assists in benchmarking your product idea through feasibility study, proof of concept, and user testing to minimize risks in the early stages.
  • Consulting: Offers technology advice to easily implement the optimal technology stack for custom software development requirements.
  • Software Architecture: Helps design solutions quickly and more efficiently for projects at different scales.
  • Software Testing: Provides a full range of software testing services to produce a fast, reliable, and efficient software product.

But where do you outsource to?

While India and the Philippines are two popular offshore destinations due to low costs and English language fluency, you can outsource to any location that fits your needs best. 

Depending on where you’re located, you can opt for either nearshore, onshore, or offshore software development outsourcing models.

Here’s what they mean:

  • Offshore outsourcing: Outsourcing to a company or freelancer in a foreign country. 
  • Onshore outsourcing: Hiring an outsourcing services provider within your own country, either remotely or on-site.
  • Nearshore outsourcing: Outsourcing services to a company from a nearby country.

Now let’s dive into the tremendous benefits software development outsourcing offers.

4 Key Benefits of Outsourcing Software Development

Here are four benefits of outsourcing your software development team:

1. Cost Savings

This is the principal reason why companies outsource their software development process.

In fact, around 59% of all businesses use outsourcing as a cost-cutting tool!

How is outsourcing cost-effective?

Hiring an in-house software developer can be expensive because you’re using resources for scouting, training, and onboarding new hires.

When you hire an outsourced team, you can save money on these hiring expenses. Additionally, you won’t need to invest in office supplies or training them.

There’s also a considerable difference in the cost of living between developing and developed countries. For example, the cost of living in London is far higher than in a country in Eastern Europe, like Poland and Ukraine.

By outsourcing your software development team, you can also hire top-quality talent from developing countries like the Philippines at a fraction of the cost!

2. Access to Global Talent Pool and Cutting-Edge Technology

With outsourcing, you’re not location-limited when searching for talent.

Instead, you get access to tons of third-party vendors around the globe to handle your custom software development projects.

The benefit?

Most of these software development agencies have accumulated technical expertise by working with a wide variety of clients.

To manage these clients and projects, outsourced teams also have access to top-of-the-line software development tools. This will help them easily adapt to your business needs!

No matter how specialized the project is, there’s an outsourced team to handle it for you!

Additionally, outsourced teams may follow Agile development methods or DevOps that allow them to be more productive. These processes can also help speed up time to market delivery, helping your company increase its tech capability at a rapid pace.

3. Greater Focus on Core Business Processes

Outsourcing benefits your in-house team too!

By transferring time-consuming projects to an outsourcing vendor, you can reduce the workload for your internal tech team. As these outsourced teams don’t require additional guidance, your employees can focus on projects that directly contribute to business growth.

Additionally, instead of forcing your in house development team to handle projects they’re not equipped to deal with, just outsource it to a third-party vendor!

This way, your full-time employees can focus on strategic goals that match their skill level, while the outsourced team focuses on these niche software solutions.

4. Improves Product Quality

Having an outsourced software development team can often improve the quality of the final product.

How?

Your outsourced team can have dedicated resources for testing and quality assurance to ensure that the final software product is stable for a better user experience.

Moreover, as your outsourced team may have fresh ideas on making your software solution better, it can lead to more innovation. They might even suggest new approaches to solve existing business problems.

Next, let’s explore the risks involved with software development outsourcing.

3 Major Challenges of Outsourcing Software Development

Here are three problems you might face when outsourcing the development of a software project:

1. Communication Barriers

This is one of the major disadvantages of outsourcing.

You may need to overcome problems like language barriers, cultural conventions, and time zone differences.

For example, if your outsourced team is on the other side of the world and runs into a problem when you’re asleep, they’ll have to wait hours to get your approval on a change! 

This can completely slow down the problem-solving process and can even hamper productivity.

So how do you bridge the communication gap?

Here are some solutions:

  • Use collaboration tools like Slack and Jira to manage your processes.
  • Encourage transparency by checking in with your remote team every week.
  • Identify potential language barriers and hire a translator if necessary.

2. Privacy Risks

There can be a few security risks when working with an outsourced team.

Think about it.

You expose confidential company data to a third party and trust them to use it correctly.

Your outsourcing software or algorithm is at the risk of being stolen or replicated by an individual employee. Alternatively, if the outsourced company’s database suffers a leak, your valuable information can be compromised!

How do you reduce these risks?

Here’s how you can safeguard your data:

  • Ask software vendors to sign an NDA (Non-Disclosure Agreement) before sharing your data. This document legally restricts them from sharing trade secrets.
  • If your software is proprietary, include the intellectual property rights clause in the contract. This will protect you from any copyright infringement issues in the future.
  • Use performance monitoring tools like Time Doctor to monitor your outsourced team. This will help you keep track of what they’re doing and accessing.

3. Code Quality Issues

There are no strict definitions for high or low code quality.  

But one can loosely define code quality as a collection of attributes that needs to be communicated to the outsourced team. And two must-have attributes are clarity and maintainability.

Along with errors due to miscommunication, adherence to quality standards can be an issue if you’re a non-tech firm without significant coding expertise. 

For example, you should be able to check if the code is well-formatted, documented, and tested for long-term success and bug-free execution.

How do you keep quality issues in check?

Here’s what you can do:

  • Check if the software development outsourcing company has an established quality assurance process with code review and unit testing. 
  • Conduct regular meetings with the team to stay on top of the development efforts.
  • Use project management tools like Trello and Basecamp for logging bugs and managing backlogs.

Sure, these can be challenging, but you can overcome them with some proactive measures mentioned above.

Now, if you want to outsource software development, you need to choose the right model based on your needs. 

5 Common Software Outsourcing Models

The best thing about outsourcing software development is that you can manage your outsourced team in any way you choose!

You can use different models to outsource the development, maintenance, and testing of your software solution to suit your business needs.

Here are five models you can use to manage your team:

1. Project-Based

This model consists of outsourcing end-to-end management of the entire software project. 

You can hand over project requirements to the outsourced team, and the team works on the project from start to finish.

Before the project begins, both you and the outsourced team fix the price and deadline of the project.

Note: Usually, the pricing doesn’t depend on the number of hours worked or resources used. This gives the outsourcing developers complete control over the planning and execution of the project.

When should you opt for this model?

  • If the project requirements are clear.
  • If the project scope is fixed.
  • If the deadlines are known and agreed upon by both parties.

2. Dedicated Team

This model consists of hiring a team of skilled experts from a third-party outsourcing vendor. These outsourced software development professionals work together and act as an extension of your core team.

When choosing a team of developers, you can assess them with a short coding test to check if they are prepared to take on the essential tasks to develop the software for your company.

The dedicated team can consist of many skilled professionals, like a software engineer, designers, UX specialists. They ensure that your product development processes are running smoothly and effectively.

Managing a dedicated team is similar to managing a remote team. You can hire a specialist as a project manager who communicates with your outsourced team and reports to you.

Unlike the project-based model, the pricing depends on the number of hours and the number of dedicated team members you hire.

When should you opt for this model?

  • If you’re looking to build a long-term relationship with an outsourcing company.
  • If your software requires regular maintenance and updates.
  • If your software is highly scalable.

3. Staff Augmentation

The third-party vendor builds the software development team in this model, but you’re responsible for the core processes.

You, as the client, manage the software development project and all its individual tasks. You are also responsible for the distribution of responsibilities within the outsourced team.

Meanwhile, the developer is responsible for the team’s productivity. They also manage concerns related to employees, such as vacations and compensations.

When should you opt for this model?

  • If you’re looking to be more involved in the development process.
  • If you want more creative control during software development.

4. Time and Material

The Time and Material (T&M) model consists of projects that have a clearly defined end goal. 

This outsourcing model usually calculates in person-hours of effort, and the client pays for the time spent exclusively on the development. 

Moreover, as T&M is usually based on Agile methodology, you can see all stages of development. This increases the likelihood that the deliverables will align with your expectations.

And once you accept the final results of the work, the contract with the outsourced company is fully realized. 

When should you opt for this model?

  • If you have a clear goal for the project.
  • If you’re looking for a short collaboration engagement.

5. Fixed-Price

The Fixed-Price model is devoid of external dependencies and has a strictly defined scope and requirements.  

In simpler words, it isn’t dependent on time and resources. And you, the client, is billed on pre-defined milestones and specifications.

What if you want to implement or remove a feature?

Implementation of new features under this model is negotiated in a separate statement of work.  However, paperwork and approval of new features can take longer and might delay the entire development cycle.

When should you opt for this model?

  • If you want to develop a small project.
  • If you have a clear scope and defined schedule for the project.

4 Simple Tips for Effective Software Development Outsourcing

Here are four things you should keep in mind when outsourcing your software development processes:

1. Choose the Outsourcing Provider Wisely

The quality of your software greatly depends on the quality of your outsourcing provider.

A high-quality software development company can create great software that boosts your company’s productivity. However, hiring a software development company with a bad reputation may derail your operations.

So how do you hire the best software outsourcing company for your business?

When looking for software outsourcing services providers, reading their reviews and testimonials isn’t always enough. You need to look at some of their previous projects.

Their work is an indication of their quality and skills. It also showcases their technical capabilities.

Start by visiting apps, websites, and other software that they’ve worked on.

Keep an eye on these features:

  • User experience: How easy it is to navigate it and engage with content.
  • Mobile functionality: How well the tool works on mobile devices.
  • Design: How aesthetically well-crafted the software is.
  • Software load timings: How quickly the tool loads.

2. Start with a Test Project

Before hiring an outsourcing software development company, you need to be sure about its capabilities.

Start by asking their team to work on a trial software development project. Their performance on this project can help you decide whether you want to continue working with them.

Here are a few things you can learn about your outsourcing partner through this test project:

  • Communication skills: Does your outsourced team ask important questions? Are they able to follow instructions effectively?
  • Trustworthiness: Is your outsourced team open and honest about their processes? Are they able to deliver on their promises?
  • Time management: Does your outsourcing partner create internal deadlines of their own? Are they able to submit work on time?

Conducting a test project may require some investment in time and resources. However, it ensures that you don’t face any significant problems in the future.

3. Define Goals

It’s important that you clearly write down the goals you want your outsourced project to accomplish. 

But remember, they should be realistic, well-balanced, and achievable.

While the goals of each software development project can vary, setting clear expectations from the start can have a major impact on growth and development. It’s also crucial for measuring success upon outsourcing.

For example, let’s say your outsourced project requires additional resources during the course. You can then analyze if it aligns with your defined goals and make your decision. 

Additionally, as your project progresses, you should perform timely evaluations. This can help you make the necessary changes before you end up investing too many resources.

4. Use Performance Monitoring Tools

One of the issues of outsourcing software development is that it’s hard to monitor the performance of your remote tech team.

Think about it.

Your outsourcing team could be thousands of miles away.

How will you verify:

  • If they’re working during office hours.
  • If they’re accessing non-work-related websites.
  • If they’re billing you for idle work hours.

Fortunately, tools like Time Doctor can help you here.

What is Time Doctor?

time doctor

Time Doctor is a powerful employee productivity management software used by large corporations Verizon, as well as small businesses like Firehouse Subs, to track the productivity of their employees.

Here’s how it can help you manage your outsourced software development team:

Additionally, you can monitor their web and app activity to ensure that your outsourced team is working on what they’re supposed to!

Wrapping Up

Whether you’re a startup owner or a CTO, outsourcing is one of the easiest ways to save money and speed up your software development process.

And while it can be challenging, you can easily overcome them through defined goals, clear communication, and real-time monitoring.
By outsourcing software development, you’ll have no difficulty leveraging a talented workforce to boost the growth rate of your business!

 
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8 Comments

  • Avatar Rodrigo says:

    Very interesting post! What also works well for us as a software agency is to facilitate our incoming leads the possibility to conect with past clients.

  • Avatar Hector Monzalez says:

    Finding expert developers in limited time to meet fast-approaching deadlines is only one side of keeping your development moving forward.

  • Avatar Smirithi Maya says:

    Yes, your blog nailed it. Many small business entrepreneurs are still not focusing on outsourcing their services. As you said, Growth is one of the most important goals for a lot of small businesses. Outsourcing is popular for a reason – it allows businesses of all shapes and sizes to tailor their operations and make the best use of their time money and resources to grow their businesses effectively.

  • Avatar Rachel C. says:

    Different clients, different needs… Thank you for sharing this information. 🙂

  • Avatar Arooba Sheikh says:

    Very Informative Guide. Thanks for sharing!

  • Avatar Aditya Joshi says:

    Thanks for the nice article. Software is becoming an inevitable part of our life and we are using software no matter in what way on a daily basis. Technology is the demand of time and business can gain advantage from advanced technology. The older it gets the more it will evolve.

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