The Pros and Cons of IT Outsourcing
IT Outsourcing in a Nutshell
The business model behind IT outsourcing is pretty simple. Instead of gathering your web development team in-house, you have to get in touch with a software development outsourcing vendor and the company will source the ready-made team for your project. Team management, operational costs, project management, and result delivery are the responsibility of the vendor. The customer, in this case, pays a certain amount for the web development services which can be either fixed or fluctuating, depending on the chosen type of outsourcing contract.
Below are three types of contracts in IT outsourcing, in brief.
- Fixed price. This is the simplest type of contact, according to which you pay a certain amount for your website development service. This contract is good for small and well-predictable projects, created according to Waterfall methodology.
- Time and material. When there is no opportunity to accurately forecast the cost to develop a medium project, choosing a Time and Material contract makes sense. In this case, you pay for the actual work done.
- Dedicated development team. This approach can be good for large projects developed for the highly competitive market and looking for ways to stay flexible, cut extra costs and quickly switch to the newly emerging market necessities.
Now, let’s review the pros and cons of IT outsourcing in more detail.
The Pros of IT Outsourcing
Most companies choosing software development outsourcing services are driven by the following benefits this business model can promise.
A More Cost-Effective Option Compared to an In-House Team
Depending on the outsourcing destination and type of contract you can choose for your project, software development outsourcing can save you up to 60% of the budget, mainly because of the opportunity to avoid hiring a tech team in-house and take advantage of price gaps for the same services in different locations.
A Lot of Outsourcing Destinations to Choose From
There are a lot of countries that are frequently chosen as software outsourcing destinations. In most cases, the companies from the US and Central Europe outsource their website creation to the Far East or Eastern Europe, in particular, Ukraine. The latter country is the top IT outsourcing destination for several years in a row because of the winning match of affordable development cost and top tech skills.
Project’s Specifics and Development Skill Set Match
This is another benefit of information technology outsourcing services. Choosing from the almost global talent pool, you get better chances to match your project’s specifics with the skills, knowledge, and competencies you need to create it. This opportunity is game-changing for highly specific projects that are one of their kind and looking for narrow tech expertise.
Creating software projects according to the outsourcing business model opens up an opportunity to stay more flexible with your team, scale it when necessary at a faster speed, avoid overpayments and pay for the actual work done instead of maintaining an in-house team.
Strategic Partnership Opportunities
For the companies on the way to digital transformation, software outsourcing solutions make special sense since such organizations can proceed with long-term and cost-effective partnerships, creating the applications they need step by step. Following such a strategy, they are grabbing all the benefits of software development outsourcing at once, cutting costs on maintaining an in-house team, reducing operational expenses, accessing tech talents on-demand, and staying flexible in case the development course changes.
The Cons of IT Outsourcing
Despite all the benefits IT outsourcing can promise, it also comes with some drawbacks you should also be aware of before making the final decision on your project development strategy.
Choosing the Outsourcing Vendor Can Be Challenging
The IT outsourcing business has a relatively low entry threshold – the winning mix of technical, management, hiring, and communication skills will be enough to start a software development company remotely. That’s why hiring a reputable vendor can be challenging.
To avoid this pitfall, make sure to carefully compare the companies, read reviews on Clutch.co, and even better, ask for a recommendation from colleagues and business partners.
Remote communication is also less effective than face-to-face one, and no modern tools are able to close this gap. That’s why running a development project remotely may lead to communication delays and misunderstandings. Language barriers and the time zones which sometimes aren’t conveniently overlapping contribute to the communication issues between a tech team and a customer.
Some companies make a bet on cultural diversity, gathering international teams. Indeed, people from different cultures solve the problems differently as well but too much diversity and huge mentality gaps can be a development pitfall. You should be especially careful creating the solution for the market (in contrast to those for internal use) since in this case, the mentality of the developers is better to overlap with one of the final users.
Lack of Control and Transparency
This is one of the top drawbacks and main concerns of the companies thinking about IT outsourcing as a strategy. That’s why when running a remote software development project, you as a customer should always stay updated on the development progress using team tracking and control software. To protect your business from such a pitfall, discuss the ways to control the team in advance, before signing a contract with a development vendor.
Lack of Effective Management
The lack of effective management can destroy all the benefits IT outsourcing can promise. In such a case, the cost-saving opportunities turn into additional expenses, the risks of running out of a budget and failing a deadline increase, and the quality of the final product may also suffer when there is no aligned vision. To solve this problem, as well as all the above, get back to the first point in the cons list, and choose the software development vendor wisely.
Like any business strategy, outsourcing your web development has its pros and cons. Start small if you aren’t ready to enroll in long-term relations with a software development partner. For example, you can hire them for a small and budget-friendly project, make sure the development process works as expected, and then proceed with developing larger solutions supported by an outsourcing development company.
Can outsourcing work for a small business?
Yes, it can. Because of the versatility of this business model, it can work equally well for businesses of any size, under the condition that IT outsourcing is supported by a reliable software development vendor and the customer has clear goals/success metrics.
How much does IT outsourcing cost?
The IT outsourcing services pricing gap is very deep. The cost to create a project on outsourcing terms largely depends on the location of the development vendor, technical complexity, design customization, actual time to develop a solution, technologies used, and a lot of additional factors that are always project-specific.
Why is IT outsourcing cost-effective?
IT outsourcing is cost-effective since it allows the company to get rid of the need to hire and maintain an in-house tech team. Instead, the development process is run remotely in the country where the salaries of the tech specialists are lower than those in the customers’ homeland.
What are the main IT outsourcing risks and challenges?
The main risk is partnering with a dishonest IT outsourcing vendor. Other challenges relate to the lack of control, communication, understanding, and competent management.
What is the difference between nearshore and offshore outsourcing?
The only difference is in the outsourcing destination. Nearshore means outsourcing the development process to the relatively not-so-distant counties; for example, outsourcing the US-based project to Europe. Offshore outsourcing, in turn, means a more remote destination, for example, outsourcing the US-based project to Australia.