IT Outsourcing: Key Insights, Benefits, & 3-Step Procedure

IT Outsourcing

Did you know that software development in most cases relates to outsourcing information technology?

IT outsourcing is popular among companies of all sizes. The Spending and Staffing Benchmarks study for 2018–2019 found that larger companies had increased spending on nearshore software outsourcing from 6.3% to 8.7%, while medium companies increased their investment from 4.7% to 6.5%.

Introduction to Outsourcing

This is the practice of sub-contracting or “farming out” some tasks related to information technologies. Companies engage external resources to perform certain operations which helps them streamline the workflow, and save time and money.

Global IT Outsourcing Market

Based on the place where software outsourcing services are performed, the following types are defined as follows:

  • local or onshore
  • nearshore
  • offshore

Aside from software development, they are numerous and include the following services that frequently turn to outsourcing:

  • application and software development
  • hosting
  • software maintenance and management
  • technical support
  • telecommunication services
  • database development and support
  • infrastructure
  • business process outsourcing
  • human resource management
  • supply chain management
  • accounting
  • marketing
  • legal documentation
Main Information Technology Outsourcing: Regions & Rates

Depending on your business needs, you can hire an individual, a team, or even a dedicated software development company to work exclusively on your project.

Let’s take a look at the most common places to look for vendors:

  1. Work exchange platforms like Upwork and Fiverr are a great place to start your search. These platforms contain profiles of freelancers who are ready to take on different tasks.
  2. Vendor-listing sites are a worthy resource in your search for such companies. Platforms like Clutch and The Manifest list the main players and provide access to reviews and references from clients.
  3. If the advantages of lower cost of offshore outsourcing have not yet won you over, you can also consider searching for a company among those that are local. You just need to type in your search query in Google and you will get dozens of results with companies nearest to you.

Eastern Europe, Asia and the Middle East, and Latin America are considered some of the best places for outsourced IT services.

The following table compares the main advantages and disadvantages of outsourcing to these regions.

After taking all of the above into consideration, it should come as no surprise that Eastern Europe is the primary outsourcing destination for many businesses all over the world.

IT Outsourcing: Pros & Cons

Why Companies Choose Technology Outsourcing

10 Benefits of Outsourcing

The reasons why outsourcing is done are numerous. The benefits of outsourcing are diverse and may vary depending on the location of the company that orders these services, its business goals, and available finances.

The main reasons why companies outsource information technology are as follows:

1. Cost reduction

2. Saving time

3. Access to more talent

4. Focus on business strategy

5. Flexibility

6. Speedy hiring process

7. Fresh and new ideas

8. Technology availability

9. Risk sharing and mitigation

10. Business support

The Data Analytics Outsourcing Market research states that the technology outsourcing market is expected to grow at a CAGR of 25.8% during the period between 2019 and 2027. By the end of the forecast period, it will account to $19.35 billion US dollars.

8 Potential Risks Connected with Outsourcing

Risks of IT Outsourcing

Even though the benefits of outsourcing are plenty, many companies are still wary. Let’s review the main risks that may scare you away.

1. Loss of control over operations

Solution: Lack of awareness is a problem caused by poor communication. This can be solved with a properly established plan of action and regular communication.

2. Relative cost reduction

Solution: To avoid these sorts of situations, it is important to learn about all of the hidden costs and extra charges, as well as payment models (fixed, time and material, etc.).

3. The risk to the business of downtime failure

Solution: This risk should be considered during the preparation of any contract agreement between the companies. These instances should be registered in the document.

4. Culture, time, and language discrepancies

Solution: Before a project commences, both parties should have an established process for communication and a schedule for the exchange of information.

5. Insecurity with regard to service quality

Solution: Finding the right quality-to-price ratio is vital for the future success of a project. You can ensure this success by reviewing feedback from former clients and comparing the offered prices.

6. The complexity of function migration

Solution: Companies have established processes in place that help to transfer important functions to a few specialists with the needed background so that you will not face the same problem.

7. Inefficient management

Solution: It is important to conduct thorough research of the company you want to hire for software development. If you go to trusted companies with highly professional teams, this risk will not necessarily come to fruition.

8. Risks with data security

Solutions: It is important to pay attention to the established processes that prevent data loss, breaches, and privacy compromise if you do not want to deal with the consequences of these occurrences.

Overall, the pros and cons of outsourcing IT are not equal, as the former clearly outweighs the latter.

IT Outsourcing: Easy 3-Step Process & Checklist

Even though outsourcing may seem like a daunting task, a company can easily ensure that everything will run smoothly and that a vendor will deliver the needed results in accordance with your requirements.

IT Outsourcing in 3 Easy Steps

Below, you will find a short checklist that will help you choose the best company.

1. Define your exact goals

Having a clear understanding of what your company wants to achieve with software outsourcing will help you determine what type of help you need and what skills are required to bring your project to life. You need to have answers to the following questions:

  • What is your product concept?
  • What timeline do you need to adhere to?
  • What is the budget you are ready to spend on web or mobile app development?
  • What expertise do you need to bring it to life?
  • What is the size of the team you want to hire?

2. Shortlist potential service providers

Create a shortlist of potential service providers. You can rely on word of mouth and choose a provider that other companies in your field have chosen. Alternatively, you can use online resources such as Clutch, The Manifest, GoodFirms, etc, for reviews from other companies. The following questions will help you narrow the list down to 2–4 companies:

  • Do companies follow the latest software development trends?
  • Are they among the top providers in their field of expertise?
  • What is their reputation and ratio of positive vs. negative reviews?

3. Evaluate your prospects

Now that you have narrowed down the list of companies to 2–4, you need to further evaluate each of them. The following list will help you perform a thorough investigation and make a final decision regarding your service provider.

1. Background checks

2. Client list and references

3. Capabilities of a company

4. Company culture and talent

5. Processes and tools

6. Quality standards

7. Legal and security moments

Bottom Line: Consider Outsourcing to Ukraine

Eastern Europe, and Ukraine in particular, is widely known as the primary destination for many companies looking for high-quality outsourcing providers.

Ukraine attracts companies with favorable rates, experienced teams, the professionalism of developers, the pool of talent, high-quality tech education, cultural similarities, and much more.

Below you can find some general recommendations:

  • Identify your business and technical goals as early as possible
  • Plan the project budget and timeline considerations way in advance
  • Make sure that the vendor utilizes adequate project management processes and development tools
  • Set up the payment process clearly
  • Sign NDAs and clear agreements
  • Plan to be involved in the development process greatly, especially in the beginning

This is a summary of an article. Check out more details and recommendations for IT outsourcing and how to choose the right software development vendor inside the complete article on the MLSDev blog.

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