Why do big companies outsource some of their work to the outside, if they have enough resources to hire professional employees trained and skilled to do such work in-house? What makes outsource so popular? What are the main benefits of software development outsourcing as compared to the in-house development? Is software development outsourcing so good at all times and in all cases?
These are the questions we will try to answer in our post below, as we ourselves were very interested in finding the answers to them.
What is Outsourcing?
To start describing the advantages (or disadvantages) of outsourcing, we need first to define it.
According to Wikipedia, “Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally.”
Seems to be quite clear definition, right? Actually, outsourcing is a very simple thing: your company has a project you find difficult or expensive to implement by your own resources and you pass it over to a third-party contractor specializing in such projects. That is what outsourcing basically is.
In one of the books we found a saying: you are not able to do everything at the same time, unless you are Julius Caesar. This saying reflects what we think: nobody can sit on two chairs at the same time and at a certain point there pops up the need to choose.
Why Do Businesses Outsource Some of Their Operations?
All businesses at some point need help, and they can obtain that help either from their in-house employees or from external contractors. The most important thing is to make the right choice. Specifically for making the right choice, a company facing the need for help has to understand whether it can satisfy this need with its internal resources and skills or not. The company may also hire an asset possessing those needed skills, but in this case a certain amount of initial training will be needed for this asset. In case of assigning the job to an external agency, no initial training or any other investment is needed: negotiation on the scope of work, discussion of the schedule, agreement on the payment, and voila – the job is outsourced and you may focus on what really matters.
Why Outsourcing Is So Popular Now?
Being recognized as one of the successful competitive approaches, outsourcing can help businesses focus on their core activities and better control their expenses.
Different businesses find different reasons for outsourcing their certain activities to the outside. These reasons can include company costs reduction, targeted investment routing, unwillingness to spend money on in-house employees training, and, of course, the need for a better expertise.
Let’s have some overview of those benefits outsourcing has in the area of software development.
Benefits of Outsourcing in Software Development Field
- Better Expertise
As we mentioned above, nobody can do everything with the same quality. This thesis applies also to business: marketing companies are not able to develop complex Web applications, banks are not able to build healthcare software solutions etc. Of course, they can hire relevant experts but it won’t work best as a lot of additional expenses will be needed: training, taxes, wages, professional development, retention etc. It is way cheaper and faster for a company to assign development of its software to a specialized software development firm. This will ensure a higher quality of the product, its faster completion etc.
- Better Control of the Operational Costs
Outside contractors can have one of the most important advantages – cost-effectiveness. A lot of the best-rated software development companies have their development branches in such countries as India, Philippines, or Ukraine where labor costs are low as compared to the Western markets. So, outsourcing the software system development to such contractors definitely helps a business to cut expenses and even save on operational costs as contractors don’t charge administration costs, payrolls, HR costs etc. Saved costs can be rerouted to develop the business and improve its core activities.
- Better Time Control
A business surely can hire in-house people, train them properly, pay their payrolls, taxes etc., pay HR agencies for the services and so on, but it takes time, a lot of time – weeks or even months. Opposite to it, outsourcing can save time for this business, as the selected contractor needs no additional training, taxes and alike – after you have agreed on the scope, schedule, and payments, the work is commenced.
- Enhanced Flexibility
Flexibility means that a company contracts an outside contractor for a certain period. If the job is done according to the company’s requirements and expectations, the company may renew the contract for a new period of time or for a new project. But if the company is not happy with the results or suffers any sort of financial difficulties, it can easily cease the contract with no harm to the company’s reputation. This also ensures quite perceivable savings in costs as compared to hiring and firing the in-house staff.
- Access to New Technologies
External experts the company outsources its project to not only save time and costs but also provides the company with access to hot and new technologies, as these experts specialize in their domain and closely monitor the industry evolution. They don’t want to use time-consuming and outdated development or testing technologies if there are newer ones that can save time, money, and resources. That’s how the company that outsources development of its software can have it packed with new technologies which make the product competitive and technologically streamlined.
- No Need to Follow Laws Protecting In-House Staff
Local laws in many countries anticipate quite stringent rules which protect in-house employees: paid leaves, regular increase in pay, various incentives, resignation payments etc. In case a company goes with the outsourcing option, none of these laws applies, as all these rules will need to be observed by a contractor, not by the company. What we get here? Time and costs savings again.
- Better Choice
Sometimes finding and hiring a suitable in-house professional can be a real headache, as there is, quite often, shortage of skilled employees due to a higher demand for them. And a company may spend months hunting a talent it needs. Outsourcing kills this problem in an eye blink, as there is just an ocean of outside development companies with the matching talents on their lists. Frankly speaking, we can find many more advantages offered by outsourcing, but the most important we believe are those mentioned above. But outsourcing has not only pros, it also has cons, and we will walk you through these below.
Disadvantages of Outsourcing and How They Are Negated
- Alleged Low Quality of the Outcome
Some time ago outsourcing was quite synonymous to “bad quality” as there weren’t precise tools to control the process from the customer’s side. It still is now at certain situations and locations, but now customers have way more options, methods and tools to control how their outsourced projects and tasked are fulfilled. The best option is to outsource your projects to reliable and highly rated contractors.
- Insufficient Communication
In many cases external service providers assigned with the task of software development are located in other countries than the clients. This fact may give rise to communication-related issues, when it is difficult for the client to regularly communicate with the offshore development team. The problem may be exaggerated by unavailability of the appointed contact person or similar issues. However, this problem is now nearly negated thanks to the development of the communication methods: Skype, Slack, email, direct messaging, video and telephone conferences, you may resort to any of these options to keep in touch with your contractors.
- Lack of Direct Control
Undoubtedly, as compared to software development by in-house teams outsourcing software development may display, at least visually, some lack of direct control over the development process. We think this problem is a matter of poor efforts coordination and distribution of responsibilities. There are multiple tools to monitor and control how the project evolves: Trello, Redmine, Confluence, Jira etc. The important thing is to discuss with the contractor which level of control you need and how it needs to be exercised.
- Time Difference
As mentioned above, it may happen that external development team sits in other country or even on another continent than the client. That leads to the risk of different time zones. 3 pm at your clock can be 1 am at your contractor’s wristwatch. It may make communication between the client and the contractor some more complicated. However, there are many options to mitigate this risk.
- Language Barriers
Outside contractors may often be located in different countries where native language is not necessarily the one the client speaks. But if the contractor positions itself as a reliable international partner, it has to take measures to speak and write fluent English, as English is currently the language of international business. We know that foreign contractors arrange English courses for their staff, making this bottleneck quite a minor one at the present time.
- Confidentiality Risks
Information security and confidentiality is certainly one of the most critical concerns to be addressed when a business decides to outsource development of its software to any external company. There certainly exist unfair vendors which may sell your critical business data to your competitors and to any other third parties. This risk can be mitigated by means of Non-Disclosure Agreements (NDA) signed between the client and the contractor at the beginning of their cooperation. These agreements regulate the smallest details and include comprehensive explanations of both parties’ rights and obligations, thus protecting both the client and the contractor.
We have collected several opinions from the IT industry professionals, so jump below to read what outsourcing is in the eyes of its supporters and opponents.
