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The 21st century executive

Is Outsourcing Software Development Right for You?

Software is one of the great new frontiers in business today, and with a global market value expected to exceed $800 billion by 2027, it’s certainly not going anywhere soon. The software industry has seen steady growth, buoyed by improvements in chip design, the availability of computer and smart devices, the growth of e-commerce markets, and other emerging trends in technology. To keep up in such a competitive market, many organizations have begun outsourcing software development to agencies and other external service providers.  

Nearly 64% of businesses are already outsourcing their IT efforts, thus pushing the global outsourcing market to new heights. With a market value of $526.6 billion in 2021, experts expect the industry to continue growing at a CAGR of 4.13%. Studies have found that Application Development and Maintenance have become the most in-demand functions in IT outsourcing over the last 2 years. 

Why outsource software development? 

When organizations aren’t capable of developing mission-critical software themselves, retaining outside assistance can be a winning strategy. The following are 3 of the core reasons businesses may choose to outsource their software development. 

  1. There is a need to reduce development costs 

    Whether there are tight budget constraints, or your business is simply not at the level where it can afford to pour large investments into native development, outsourcing can lower costs while still providing value 

     External developers and engineers usually work with their own tools, software, and equipment. This makes the cost of overhead much lower. What’s more, outsourcing can also help to save on the costs associated with hiring permanent developers, such as competitive salaries, benefits, and incentives. 

  2. There is a lack of native capacity

    When your native development team isn’t big enough to tackle an ambitious new project, you may want to consider outsourcing software development. If large, labor-intensive projects aren’t common in your organization, committing to the time and financial expense of recruiting, onboarding, and providing support to new full-time hires may not be the most strategic course of action 

    When such projects do come up, however, it may be preferable to quickly increase development capacity by contracting external talent. Additionally, temporarily boosting capacity as needed can be more economical long term. This is especially true when projects that exceed the scope of your team are few and far between.  

  3. There is a need for domain knowledge/expertise

    A key benefit of outsourcing to established software agencies or freelancers is the ability to access knowledge or skills that your team may lack. When your team doesn’t have the necessary skills or experience to tackle a high-value project or initiative, outsourcing can be a great way to get that expertise on board.  

    In these cases, outsourcing can provide a shorter Time to Value as compared to securing talent with a specific tech stack or level of domain knowledge. Given the challenge of hiring and retaining top-flight talent, outsourcing can be both faster and more cost-efficient in the short term.  

While these are the most common reasons businesses may have to outsource development, it can vary by organization. For example, some businesses may not be especially software-focused but still need development capacity for certain projects. These organizations may prefer to leave software and development concerns to an external agent specialized in the field. This allows them to focus on their core business rather than unduly splitting their resources. 

Download free eBook: Top KPIs for Optimizing Software Development

When should you consider outsourcing software development? 

 The question of “When to outsource software development?”, can be a hard one to answer. While the reasons behind outsourcing may be clear, knowing when to start can be a bit fuzzier. In our experience, it’s generally much easier to identify a need for outsourcing once you've properly assessed the scope of your project and its alignment with your existing development and business strategies. 

 Bearing this in mind, you should consider outsourcing your development if you find yourself in one or more of the following 5 situations: 

  1. You have hard constraints on hiring 

    Sometimes, due to tight budgets or tough labor market conditions, recruitment and hiring can be put on hold. While you might need more hands on deck, it may not be possible to secure the talent you need to build the capacity required. In such cases, outsourcing software development can help keep mission-critical projects from going cold. 
  2. There is pressure to reduce internal costs  

    Where the overarching business strategy is aimed at reducing internal costs and incrementing I+D costs, there can be pressure from management to outsource. In cases where there is a specific demand to outsource development, technical departments may only have a say in where they contract external assistance. 
  3. Your project needs specific skills and expertise 

     After analyzing the scope and requirements of a proposed project, it’s necessary to assess your in-house capacity. If your team doesn’t have the necessary skills and expertise to complete the project, your best bet is to outsource to build that capacity.  
  4. Deadlines are tight and workloads are intense 

    Projects with tight deadlines and heavy workloads can show up from time to time. However, the stress it places on native teams can negatively impact employee satisfaction and retention rates. Spreading out software tasks by retaining extra development capacity can help maintain a healthy work-life balance for your teams while still making steady progress toward project goals. 
  5. There are tasks that your devs don’t want to do 

    Occasionally, tasks may crop up that are considered tedious or undesirable for developers. While they don’t necessarily add business value, they may still be essential tasks (for example data entry, documentation, debugging, etc.). Developers tend to be creative problem solvers that need stimulating work. When they’re forced to work on tasks they perceive as having little value, they can become bored and demotivated. Outsourcing to handle these lower-priority tasks can help allocate your native talent to areas of development where their skills or expertise are more useful. 

 Risks associated with software outsourcing 

 As with any investment, there are inherent risks to outsourcing. While contractual obligations and penalties can help assure a minimum deliverable of work, it can end up costing you more in the long term if your service providers fail to deliver. 

 Other key risks associated with outsourcing include: 

  • Reduced transparency and managerial control 
  • Potential for higher technical debt 
  • Lack of engagement from outsourced talent 
  • Possibility of new competitors in the immediate future due to idea sharing 

How can you ensure your outsourcing efforts deliver results? 

 Software outsourcing can certainly add value to your development efforts, especially in terms of time and cost savings. It can also provide experienced talent on demand. However, there are few guarantees that your external providers will deliver everything they’ve promised to the quality that you expect. 

 So, what can you do to get better results from outsourced teams? 

  1. Embed outsourced talent in native teams 

    Depending on the scale of your outsourcing it may be a good idea to embed your outsourced labor into in-house teams. This has the benefit of creating oversight from your organization as well as improving communication and transparency.  

     Another benefit of embedding external service providers in your team is the opportunities it provides for knowledge exchange. This can help your team develop skills in areas where they may not have had as much experience, making future maintenance efforts easier. 

  2. Insist on having trusted native talent as a point of contact 

    When projects or tasks are outsourced to external service providers, it’s important to maintain visibility of the project. To ensure that your teams are up to date with progress on outsourced tasks, it’s a good idea to insist on having a trusted and experienced representative from your team serving as the point of contact with external teams.  

    They can be assigned to technical lead or team lead positions. This means they will be privy to regular updates on tasks, participate in code reviews, and generally be able to report back on how external teams are progressing. This, in turn, allows you to adjust expectations and development strategies as needed to improve the success of your projects. 

  3. Use Software Intelligence Tools to track performance 

    Using software intelligence tools is a great way to ensure that the decision to outsource software development bears fruit. Most software intelligence tools connect to applications in development to provide high-impact insights into team activity.  

    Foreworth’s platform offers an additional diagnostic dimension that can help determine whether your team really needs to outsource. By analyzing in-house team capacity and experience in different technologies, for example, you can see what skills you may need to source externally.  

    Foreworth also provides objective insights into developer productivity based on the size, complexity, and quality of their contributions to the code base. Using these insights, you can monitor the ongoing performance of both internal and external development teams and keep track of the technical debt being accrued. This improved visibility helps to manage development efforts more accurately. 

 What kind of outsourcing arrangement works best for you?  

 For organizations aiming to leverage software products to improve their value-generation potential, outsourcing can be a great way to get there. However, the type of outsourcing should be carefully considered. Whether retaining a software development agency or using freelance developers, careful planning for how they will integrate into your long-term goals must be part of any development strategy. 

 Questions you should ask yourself include: 

  • Who will have ownership of the project? 
  • Who will provide management and oversight? 
  • How will outsourced talent be onboarded and integrated into native teams? 
  • Where will you outsource to? (Offshore/Onshore/Nearshore)  
  • What is the extent of your outsourcing? (How many people/teams are you retaining?) 
  • How long do you plan on outsourcing? 
  • How will you ensure maintainability of code in areas that have been outsourced? 

Weighing the pros and cons before committing 

Contracting external service providers to aid your organization is always a key business decision, and before doing so, you must first assess your key challenges. Weighing the advantages and disadvantages of outsourcing software development can help with making a more informed and conscientious decision. To learn more about the pros and cons of outsourcing development, read our article here. 

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About the author
Elena Leralta

Working as Foreworth’s Chief Financial Officer, Elena possesses a wealth of knowledge on business management and finance owing to her over 20 years of experience working in the financial sector.

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