In this fast-paced digital age, people are more connected to devices than ever before. No matter with what kind of device – smartphone, tablet, or laptop, – we got used to spending hours per day, along with the plethora of applications available in stores, they all have noticeably entered our lives. That’s why the number of existing web and mobile applications is increasingly growing, and the quality of these applications is only being improved.
Keeping up with the competition and following the latest industry trends, many companies consider making an app that would raise their brand awareness, increase customer loyalty, or boost sales, but not every company has enough expertise and resources to proceed with development. At such moments, there are two common options of a solution: to hire developers in-house and undertake the development process or outsource app development to an experienced third-party vendor.
According to Techanvio’s research, the market of application development outsourcing will grow by $ 117.24 billion during 2021-2026.
Deloitte’s Global Outsourcing Survey 2022 states that 76% of executive respondents indicated that IT functions in their companies are outsourced. 32% of responders confirmed a budget increase for traditional outsourcing. And 81% of executives use third-party vendors to support their cybersecurity functions.
But, of course, not all outsourced projects have a happy ending. Back in the year 2000, Dun & Bradstreet released a “global outsourcing barometer”, which claimed that 20-25% of all the relationships between clients and outsourcing software development companies would fail within two years.
Those numbers have significantly lowered over the past two decades – the market has undergone massive development, and the trust in application development outsourcing has greatly increased. That said, some companies are still wary of the idea: entrusting their precious applications to some strangers doesn’t sound that exciting, after all.
Looking at all these trends, we all may predict that it is likely that the demand for application development will grow even further.
When do you need outsourcing software development services?
The first popular reason is the lack of specialists. For example, the project you are working on keeps growing, but all of your employees are fully-loaded, so you need to connect additional staff to complete it. Or maybe you’re starting a new project that happens to require more specialists than you currently have. Hiring a single developer can take up to 4 months – sometimes the wait is just too long. In cases like that, application development outsourcing is a much faster option.
The second common reason is the lack of expertise within the company. Perhaps, you’re starting a new project on an unfamiliar technology stack; maybe your old project has grown so much that it has become too high-load for your company’s team to handle; maybe your website needs a redesign, but your programmers don’t have the experience to pull it off. If you’re having similar problems, then outsource product development can be a great way to achieve your goals without getting bogged down by risky experiments and amateur mistakes.
The third major reason is web app development not being part of your company’s core set of services. This mainly applies to small businesses: say, a company is engaged in website design, promotion, and advertising. For them, it would be much more cost-effective to outsource product development rather than to hire and onboard a team of programmers in-house.
We have a blog article that compares in-house software development and outsourcing. Feel free to give it a look!
Pros of outsourcing software development:
Saving time and costs
Hiring specialists is expensive. Working with third-party employees will save you the cost of recruiting, arranging a workspace, sick days, vacations, and other full-time benefits or overheads. The only thing you will have to pay for is a number of specific tasks.
Every app development project has a time limit. If you hire an in-house development team to work on your solution, the project is likely to take no more than a few months; by the end of it all, you’ll have to pay all members of the team, regardless of their actual involvement in the development process.
If you do it externally, there is no need to spend your resources. You’ll only pay for your application’s development – all the internal problems fall on the third party’s shoulders.
It’s also worth mentioning that nowadays, when most developers are working remotely due to the pandemic, working with third-party developers is more cost-effective than hiring an additional specialist.
Flexibility in the working process
There is no need to train your staff or search the market for qualified specialists. Outsourcing allows you to quickly find or change certain specialists whenever necessary. Such actions can easily lead to conflicts within an internal team, however, they’re not nearly as difficult to deal with during application development outsourcing.
Assembling an in-house dedicated team for an app development project will take about 3 months. This can often lead to delays and stir up customer discontent. Application development outsourcing accelerates the whole process, with many tasks being delegated to other trusted specialists. Contractors are especially useful in seasonal work and project development. Plus, you won’t have to stress over having employees with nothing to do after the fact.
Best processes and practices
The advantage of most remote development teams is that they incorporate the best practices and methods into their app development process, all the while putting a great emphasis on a customer-centric mindset.
A faster pace of work
Major IT companies tend to work on several projects simultaneously. Therefore, tasks are distributed among various team members to make the process as time-effective as possible. Companies that specialise in outsourcing are particularly efficient with making the development very fast, especially if they are experts in certain things (for instance, you may outsource java development or outsource dot net development).
Less stress and risk factors
Application development outsourcing vastly reduces the risks and stressful dynamics involved in any type of development project. Many responsibilities that would normally be on you (such as keeping track of the progress, distributing tasks, and ensuring that all deadlines are met) are taken on by the project manager of the outsource team.
That way, instead of constantly worrying about possible obstacles and complications that might arise, you can focus on more interesting or important tasks.
Turnkey work
Skilled IT specialists are involved with every part of development: the analysis of business processes, coding, implementation, testing, and system maintenance. The only things required from you as a client are consistent comprehensive interaction and assistance.
Various options for payment
Fixed model
A fixed model is applicable when the project requires a fixed budget. If you want to outsource app development, the development company will estimate its price before starting to work on it. The plus is that the cost becomes rapidly known and cannot be changed. As a rule, if the outsourced developer makes a mistake in accounting, that’s their problem.
Bear in mind that the cost of development does not always include testing. Sometimes it’s part of the hourly cost, sometimes it is only included in large-scale tasks, sometimes it’s paid separately, sometimes the outsource team does not have a tester, so this task falls on the client.
The disadvantage of the fixed approach is that the cost always accounts for risks, so it can be 10-30% higher.
Another detail that is worth mentioning is that you have to clearly understand the level of developer you want to hire. Any mistake could lead to further problems with hiring an additional specialist who would help with problems unsolved by a previous specialist. This is not a disadvantage, just a nuance since in this case, it shouldn’t matter to you who performs the task – you pay for the result.
Time & Material model
The time and materials (T&M) model, also known as the cost and materials (C&M) model, is common in long-term IT projects. This requires service providers to bid on a specific project and create a proposal based on the client’s specifications.
This can also be seen in a build-operate-transfer (BOT) approach, in which the provider initially develops and controls the project’s development. The T&M model also requires the provider to operate in-house or under the supervision of the client.
Now let’s take a closer look at this model using an example.
Let’s say that you are a software development company that needs to outsource a project to a third-party vendor. You have agreed to pay the vendor for the work they will do on an hourly basis, as well as for any materials or expenses they incur during the process.
The vendor will provide you with a detailed estimate of the time and materials required to complete the project. This will include things like the number of hours each team member will need to work, as well as any hardware, software, or other materials they will need to purchase.
Throughout the project, the vendor will track their time and expenses carefully, and will provide you with regular updates on their progress. You will be billed periodically (usually weekly or monthly) based on the number of hours worked and the materials used.
Outstaffing
Outstaffing is a full buyout of specialists. For example, an outstaffing company supplies a programmer of a certain level (junior, middle, senior) to work as a staff unit in the client company. If the outstaffed employees get sick or decide to quit, the company is obliged to quickly find replacements for them – that is, in 1-5 days to avoid downtime.
The possible downside is the fact that you might hire a middle-level specialist, but some tasks turn out to require a senior expert. Then you have to be sure that your contract foresees the ability to change specialists to the ones with a higher level. If not, then you’ll have to hire additional specialists. Also, you must clearly understand all types of specialists you need to hire. Of course, you can hire additional professionals when your project is in progress, but in this case, you can lose time while this person is delving into all the details. You’ll have to hire an additional professional in this case.
For outstaffers, the risks of this work format include the possible burnout of employees and problems with their professional development. For example, a company has a lot of specialists on its team, and those who are immersed in client-side development can sometimes feel like the “black sheep” of the group – after all, they barely take part in the current projects or company life.
Access To Relevant Skills And Experience
Hiring an external vendor for product implementation gives you access to a team of talented techies who know what they’re doing and how to get the desired result. That’s because outsourcing firms are highly concerned with the level of proficiency of their employees. Each member of staff is typically appropriately trained and qualified in the services they provide.
So outsourcing is hiring a team of experts to help you through the development process and advise you on the best technology selections for your company. In other words, you will be paying for access to knowledge about how to use the latest technologies to your advantage outside of working hours.
Focus On Core Business
While some companies prefer to keep software development in-house, outsourcing projects is often a more cost-effective alternative. Your in-house workforce is constrained by time or resources, whereas outsourcing provides you with flexibility and knowledge that will improve the outcome of any project.
In-house teams are fantastic, but they can easily become overwhelmed. This is especially important to prevent in software projects, where quality should never be compromised. So avoid DIYing any serious mobile or web development project to save time and hassle.
Outsourcing is also a great alternative if you’re working another job at the time of development. That way there will be no distractions from either side of this transaction, making it go more smoothly for everyone involved!
Innovative Technologies Application
Access to the technology stack, in addition to talented developers, is another benefit of outsourced software development. Artificial intelligence, automation, and machine learning technologies are only a few of the most commonly employed solutions in IT projects, and incorporating them into yours will bring in more customers.
However, you can’t rely on your in-house development team to stay up with current technology, let alone upskill in such a short period of time. Because software development evolves at such a quick speed, it is best to save internal resources for core business processes.
At the same time, you can be confident that you are working with seasoned professionals when you hire outsourced software developers. They are continually up to speed on the most cutting-edge innovations in the market, providing you with a significant competitive advantage.
Scalability
The opportunity to expand and grow is easily achievable with the assistance of third-party specialists. These professionals have years of expertise and can advise you on how to best exploit the benefits of outsourced software development to build your business. This has a number of advantages and puts your company on a fast route to success. Such teams can not only help you steer your company and projects in ways you never considered previously, but they can also bring those ambitious plans to fruition.
Cons of outsourcing software development:
Confusing code
Perhaps, you often change your development team or decide to abandon application development outsourcing and work on your own. Since the code is being worked on by many different people, the quality of it can seriously suffer. In some severe cases, this can lead to the app needing to be rewritten from scratch.
Business risks
Third-party companies are not immune to normal business risks: they can suddenly go bankrupt, lay off their employees, or even close down altogether. Therefore, despite its obvious advantages, the delegation of tasks always presents a huge risk: there is a possibility of getting a raw, unfinished product due to unexpected business problems of the contractor.
Time difference and communication problems
Different time zones are a common risk for those working with offshore companies. The bigger the time gap between you and a hired company, the harder it is to find a convenient time slot for both teams to communicate and resolve emerging problems.
Lack of control over the team
By delegating tasks to a third-party outsourcing software development company, you lose the ability to personally monitor their implementation. Of course, you will follow the process, receive regular reports, and be aware of how well the development is going. Good companies ensure that the clients who delegated their tasks to them are closely involved and engaged in the project. Still, this is not always the case.
Expensive for regular use
Usually, hiring a specialised development company is cheaper than setting up your own IT department. The employer saves on employee salaries, tax deductions, the need to create new workplaces, management, downsizing risks, etc. But if software development services are required constantly and especially full-time, expanding the staff might be a more feasible solution.
Information security concerns
Of course, there is an NDA. But even if you follow the most sophisticated security measures, transferring important data to a third party increases the likelihood of it falling into the wrong hands.
Different Business Philosophy
Every company has a set working tempo that is tailored to its specific needs. However, to an outsider, it may appear strange. Every IT team is used to a specific management structure and set of progress tracking tools, which may be unfamiliar to the other party. When confronted with a completely different style of management, you may feel as if you are losing control of the project and have no idea where it is heading.
Of course, this can be readily prevented by outlining the intended structure of the business process from the start. That way you can be confident that the collaboration between your company and the outsourced vendor will meet your expectations.
Hidden Costs
While businesses strive to outsource in order to save money and achieve a high-quality final product, there is always the risk of receiving a large bill full of hidden expenses. Especially if you’ve decided to outsource your work outside of your home country.
Some businesses will double-bill the client or provide a misleading overestimation. Phone calls, meetings, additional consultations, and even travel expenditures can all be considered hidden costs. It all adds up in the end, but while you’re in the middle of a project, there’s no turning back.
Limited Motivation
In-house teams are quick to settle in their comfort zones. As a result, it is the employer’s responsibility to consistently inspire them to expand their expertise. This approach can be horrible in the long run because the teammates won’t strive to grow as professionals unless they are extremely motivated.
Trends In Outsourcing
The experience of outsourced teams can immediately and effectively impact your product, or you can implement breakthrough technologies first and reap the benefits before anybody else. Here’s a basic list of innovations that are currently being employed in outsourced software development.
Cloud Services
Businesses utilise cloud computing to outsource data management and storage, as well as other IT functions. This allows them to collaborate effectively with teams all around the world and exchange and alter information in real time. As a result, costs are reduced and efficiency is increased.
The most common cloud-based services are:
- SaaS (Software as a Service): Rather than installing software, a cloud provider hosts it and makes it available to end users through the internet.
- PaaS (Platform as a Service): Allows businesses to design, manage, and operate their own apps without having to construct or maintain the platform or infrastructure.
- IaaS (Infrastructure as a Service) is another contemporary trend in IT infrastructure outsourcing. It is a pay-as-you-go service in which a third party provides you with cloud-based, internet-based infrastructure services like storage and virtualisation as needed, but the operating system, any data, applications, and so on are your responsibility as the user.
Cybersecurity
As cyberattacks become more common, high-level data security will be one of the most critical problems in the coming years, and there will be a significant need for cybersecurity outsourcing firms. Although many cloud service providers offer security solutions, these are typically insufficient for creating enterprise-grade security. To fight against data breaches and targeted assaults, additional third-party solutions are frequently required.
AI (Artificial Intelligence)
AI, one of the top global IT outsourcing trends, refers to computers or systems that can perform tasks and improve themselves based on the data collected by emulating human intelligence. AI can manifest itself in a variety of ways. Here are several examples:
- Recommendation engines can automatically propose TV shows to consumers based on their viewing habits.
- Chatbots employ artificial intelligence to better comprehend consumer needs and provide more effective solutions.
As AI technology grows more popular, the outsourcing market has taken note, and the number of organisations offering such services is growing.
ML (Machine Learning) Automation
Machine Learning Automation is a type of AI that uses data and algorithms to replicate how humans learn, enhancing its accuracy.
The AI & ML market was valued at USD 15.44 billion in 2021 and is expected to grow from USD 21.17 billion in 2022 to USD 209.91 billion by 2030, with a CAGR of 38.8% during the forecast period.
We can’t forget to mention the biggest and loudest trend of the past months: ChatGPT. Microsoft became its biggest sponsor, investing more than $10 billion since March 2019, including credits for processing power via Azure. Microsoft is expected to contribute an additional $10 billion, valuing OpenAI at $29 billion. It is a wonderful illustration of the AI&ML market potential nowadays.
WEB 3.0
Developers can use blockchain technology to construct applications that securely store data across several decentralised computers. While Web 3.0, the latest Internet technology, integrates blockchain, AI, and ML to enable real-world human engagement.
Blockchain Services will soon be one of the most important IT outsourcing trends because everyone appreciates the concept of a decentralised web. Digital transformation is already one of the key assets in the business world, and as the majority of businesses will switch to blockchains, the demand for competent software vendors will increase.
Alternatives Of Software Outsourcing
If you are still unsure about the benefits of software outsourcing, don’t have many opportunities to try it out, or believe it is inappropriate to delegate all responsibility for the process to others, you can experiment with offshoring (outstaffing), onshoring, and nearshoring.
Offshoring
If you are unwilling to give up complete control over your project, you can employ offshoring. This is a great alternative because you keep the simplicity and speed of hiring new employees, you get valuable personnel from all over the world with economic benefits for yourself (this model is less expensive than outsourcing), you have full control over your processes, and you can personally check all the results.
Onshoring
If you’re seeking specialists only in your region who share your values and work culture, consider onshoring.
It should be noted that the economic rewards from this will be minor, and the selection of acceptable employees may be limited due to low competitive skill. And be aware that the talent search procedure can be time-consuming!
Nearshoring
If you don’t want to deal with time zones and cultural differences but are still willing to venture outside your country, nearshoring is the way to go. Nearshoring presupposes that you can use the services of an agency that will fully implement your project on a turnkey basis, as well as an outstaffing firm that will allocate the individual you require in the least amount of time.
If the cause requires an experienced team of outstaffers, you can save time and money on hiring and still find a treasure of an employee. However, it is important to pay attention to the selection of human resources and their number. Talent is limited in some countries, and you may face problems you wouldn’t have to deal with if you expanded your options to more faraway nations.
Tips For Successfully Outsourcing Software Development
Now that you’ve assessed the advantages and downsides of offshoring software development, you’re probably thinking of diving right in. When done correctly, software outsourcing can save you time and money while delivering a high-quality result. However, if done incorrectly, it can be a costly blunder.
Here are five tips for reaping the enormous potential benefits of software outsourcing.
Define Business Goals
Before you begin contacting possible offshore outsourcing partners, consider what you want to accomplish with your project. What problem are you attempting to solve? What characteristics are you looking for? What is your spending limit? Answering these questions will assist you in locating the best vendor for your unique needs.
Check The Company’s Profile
Once you’ve determined what you’re looking for, it’s time to begin your research. Check with your company owner network to see if they have any recommendations.
When your requirements and possibilities are narrowed down, spend some time reading internet evaluations and visiting your prospective external vendor’s website and portfolio. This will give you an idea of their work style and whether they’re a good fit for your project.
Make a Plan
Many business owners fail to develop a clear strategy for software development or business process outsourcing. Make sure you have a thorough project plan that describes your objectives, milestones, and deliverables before signing any contracts for outsourcing services. This will help you and your remote team get on the same page.
Follow Every Stage
Just because you’re outsourcing doesn’t mean you can ignore the project entirely – you still need to be involved to ensure that everything goes as planned. Plan meetings or virtual check-ins with your service provider to track progress and provide comments as necessary. Don’t be afraid to speak up if something isn’t working as planned – after all, it’s your project!
Manage Expectations
Last but not least, it is critical to manage expectations regarding both the benefits and drawbacks of outsourcing. Make certain that your service provider understands what they’re getting themselves into and is realistic about what they can accomplish given your budget and timetable.
Similarly, don’t expect any miracles – understand that there will always be some risk involved with software development outsourcing. Even when working with knowledgeable teams, sometimes certain delays are unavoidable. But everyone will be able to weather the bumps in the road (in case they do arise) if both parties enter the endeavour with their eyes open.
Outsourcing Experience In Companies
We found use cases of companies that succeeded with software development outsourcing, and those who failed with it.
Success Stories
GitHub
GitHub is a web-based platform for version control and collaborative software development. The company has used outsourcing to develop some of its key features, such as its mobile app and its desktop client. GitHub has worked with outsourcing partners from around the world, including in India, Romania, and Belarus, to develop new products and features quickly and efficiently.
Slack
Slack is a team communication platform that allows users to send messages, share files, and collaborate with colleagues. Slack has used outsourcing to develop its mobile app, which is available on both iOS and Android. The company worked with a team of developers in India to build the app, which has been downloaded millions of times and is a key part of Slack’s overall offering.
Liver Doctor
Sanofi, a worldwide healthcare organisation, tasked Bamboo Agile with developing a mobile application to increase user participation in monitoring the state of their liver. Another goal was to enhance brand awareness for the Essentiale® Forte N product and offer consumers information on a variety of hepatological disorders and treatment options.
Based on the results of the patient’s tests, the software recommends the most appropriate type of therapy, with all medical suggestions validated by doctors. In most circumstances, a user does not need to consult a physician or a hospital; a proper diagnosis can be made using the app. As a result, the introduction of the Liver Doctor enabled patients to assess their symptoms and get advice on how to ease them, reducing the frequency of trips to local health centres.
Failures
Boeing
In 2019, Boeing faced significant issues with its 737 Max aircraft, which experienced two crashes that killed a total of 346 people. An investigation into the crashes found that one of the causes was a faulty software system that had been outsourced to a team of developers in India. The investigation found that the outsourced team had not been adequately trained or managed, and that communication and coordination between the team and Boeing’s in-house developers had been poor.
Los Angeles Unified School District
In 2013, the Los Angeles Unified School District (LAUSD) launched a $1.3 billion project to provide all of its students with iPads. The project was outsourced to a vendor, which was responsible for providing the iPads and developing the necessary software. However, the project faced significant issues, including problems with the software that made it difficult for students to access educational materials. The project was eventually canceled, and the LAUSD was left with a significant financial loss.
Conclusion
Ever since the digital transformation of society, most companies have realised that to keep up with the latest trends, they’ll need to consider application development. And when it comes to choosing how to manage a project like that, the best option is to rely on experts.
Many companies are already outsourcing development to great success. You just need to be mobile and take the big step! Of course, this method can’t be suitable for everyone. If your company is among such, then it’s better to combine in-house and offshore development teams or even not to risk at all and just hire your own professionals.
Bamboo Agile can become your helping hand in software development. Experienced professionals in various directions are here to help you with any issues you might have. If you consider outsourcing software development services to Estonian reputable companies with competitive rates, get a free consultation from us after filling out the form.
