How to Outsource IT Services Wisely in 2022: Pros, Models, Examples, and Pricing
What is the best way to build a digital product today?
If the question is about the most time- and cost-efficient way that provides the best results, then the answer is IT outsourcing.
As of 2022, the revenue of the IT outsourcing sector is projected to reach $3.59 billion in the USA alone by 2026. This number indicates that more and more companies will be outsourcing tech services, and even more businesses will use them.
You have a complete information system outsourcing guide in front of you that uncovers the essential secrets of successful outsourcing.
What IT Services You Can Outsource?
IT outsourcing is the process of hiring third-party service providers to deliver some of the IT processes that the client requires. The main goal of outsourcing IT is to help clients build digital products and solutions while reducing costs, accelerate the time to market, and provide access to the best experts from across industries.
Depending on the purpose of IT service outsourcing, you can either work with an onshore company or an offshore software development company. We’ll talk about key models later in the article.
In 2022, the list of top IT outsource service locations includes the following areas and the benefits they offer:
- Asia — cheap workforce at a relatively high level of provided services
- Eastern Europe — affordable services, high quality of provided services, strong technical experts
- Latin America & Mexico — low development cost, no extreme time differences
- USA — the center of the development world, no time difference but high prices
What the IT Outsourcing Industry Looks Like in 2022
So, what does the industry for outsourcing IT look like today?
- Global outsourcing market revenue was estimated at $92.5 billion in 2019. In 2021, the market is projected to have grown to $359.8 billion in revenue. By 2026, the market will grow to $425.19 billion at a CAGR of 4.5%, (Statista, 2022).
- From 2020 to 2024, the market of IT outsourcing is projected to grow by $97.51 billion at a CAGR of 4.58%, (Technavio, Jan 2020).
- In 2021, small businesses planned to outsource some tasks to improve efficiency and access required resources, (Clutch, 2021)
- In 2020, 70% of businesses turned to a company providing IT outsourcing for cost reduction, (Deloitte)
List of IT Services to Outsource: Examples
The list below demonstrates the most popular examples of software development services that you might be interested in:
- Software development
- Web and mobile app development
- Software support
- Quality assurance
- UX/UI design
IT Outsourcing Models
Outsourcing is a term that encompasses some more specific notions. Let’s review some of the most popular types of IT outsourcing:
- Staff Augmentation
This model of IT outsourcing is the best solution for businesses that already have an in-house development team but lack some specific talents like, for example, DevOps or designers.
- Dedicated Team
This type of IT services outsourcing is suitable for long-term projects that require the involvement of an entire development team. This model allows you to save money on recruitment, management, and office expenses since the team works off-site.
- Project-based Team
This model of IT outsourcing fits projects that take from 3 to 9 months of active development. This model allows companies to do the required work quickly and without a long recruitment process.
- Offshore Dedicated Center (ODC)
This model is suitable for large projects and for companies that want to have full control over the development team. Instead of hiring a team on-site, they can open a dedicated development center in a country with more favorable tax systems and lower labor costs.
Based on the outsourcing location, IT outsourcing services are divided into the following types:
- Local outsourcing
- Nearshore outsourcing
- Offshore outsourcing
Outsourcing IT Services: Pros and Cons
Why do companies outsource IT services?
There is not one, but a few reasons why small, medium, big, and even enterprise companies turn to IT outsourcing. The list includes reduced development costs, access to a broader talent pool, higher expertise, and more.
Let’s review the top 7 benefits of IT outsourcing.
- Reduced Expenses
- Access to Global Talent Pool
- All-Encompassing Expertise
- Reliable Technicians & Qualified Service
5. Significant Time Savings & Flexibility
6. Ability to Upscale Quickly
7. Uninterrupted Workflow
Disadvantages of Outsourcing IT
Outsourcing is associated with certain risks as you are entrusting a third-party vendor with an important part of the work. Let’s review some of the cons of IT outsourcing:
- Security issues
- Potential downtime
- Missed objectives
- Limited scalability
Thankfully, you can mitigate all the risks of IT outsourcing by choosing the right vendor. We’ll talk about the process in more detail later in this article.
Industries that Can Benefit the Most from IT Outsourcing
Let’s take a look at business domains that outsource the creation of software development solutions to third-party vendors.
1. On-demand Economy Domain
The on-demand economy is growing exponentially. Between 2020 and 2024, the market will grow by $1,57 trillion at a CAGR of around 49%. This is why the number of startups in the industry continues to grow.
2. E-commerce & Retail
Another industry that’s on the rise is eCommerce and retail. In 2020, online sales surpassed $4.2 trillion dollars worldwide.
3. Banking & Finance
There is no doubt that the banking and finance industry can count the money. That’s why it is actively investing in IT outsourcing to build financial solutions, HR, and marketing applications.
4. Healthcare & Medical Industry
This is yet another industry that’s actively reaping the benefits of outsourcing. The medical industry can create all sorts of mobile and web applications, and internal systems for staff and hospital process management.
5. Automotive & Transportation
The automotive sector also relies heavily on IT outsourcing. The industry is going through rapid transformations and is facing increased demand for various in-vehicle options and systems.
Outsourced IT Service Costs: Main Drivers
The average cost for IT outsourcing services doesn’t go below $50,000. However, the number can fluctuate depending on a number of factors.
Below, you can see some factors that impact the final development cost, which can fluctuate depending on the following factors:
- Service Specifics
- Engineers’ Professionalism
- Vendor Rates
- Cooperation Model
Let’s see some of the key models and analyze their strengths and weaknesses for your business.
1. Cost Plus — this model means that you pay your developer’s monthly salary and a fixed fee for your vendor.
2. Time and Materials — many companies prefer to work within this model, as you only need to pay for the hours developers spend working on your project.
3. Fixed Price — with this model, the vendor estimates the cost for the whole project. You will need to pay the cost in full, and the vendor is obligated to deliver the project within the predefined timeline and budget.
4. Rate Card — this model allows you to cover the monthly rates for developers involved on the project. The main downside is that you can’t influence who will work on your project; instead, the vendor makes the decisions.
Next, we will cover the key steps of the process so you can easily navigate all the steps and choose the best partner.
1. Choose a Region & Country
2. Decide on the Engagement Model
3. Prepare RFP or RFI
4. Shortlist the Best Vendors
5. Analyze PFP Replies
6. Hold Video Interview
7. Apply Vendor Assessment Matrix
8. Conduct Final Calls & Negotiations
When to Outsource IT Services to MLSDev
We’re almost at the finish line, but there is still one open question.
How will you understand when you need to find an outsourcing company?
The following factors will help you decide when you need to hire a team:
- If you lack in-house IT
- If you want to save costs and find real experts
- If you want to augment your in-house team
- If you want the utilization of the best, the newest, or the most mature technologies
Note: This is a summary of a guide.
Check out more details about DevOps services and recommendations on their utilization in the complete article on the MLSDev blog.