The Definitive Guide to Software Outsourcing

What is Software Outsourcing?

Software Outsourcing is the practice of selecting a 3rd party service provider of software development services that is capable of managing all the tasks involved in a software development project. In essence, outsourcing is a company’s practice of delegating control of a specific business area or project to a qualified, external enterprise that has the resources, talent, capabilities, and time to handle the required business needs.

As far as global trends in Information Technology, software outsourcing is definitely at the top of the list. The concept of software outsourcing is accelerating now more than ever, as more and more companies choose this road to travel towards efficient, cost-effective, swift, and successful software development projects.

It’s very challenging for companies to stay ahead or stay afloat in an environment where new software is emerging on a daily basis. What’s new today is probably old news tomorrow. Thus, companies are shifting their strategy towards software outsourcing to reach goals faster and within budget, all in the hope of gaining a competitive advantage in the software technology market.

This rise in software goes hand in hand with the increase in demand for technology resources and talented personnel to meet demand. Companies require top-notch talent but the pool of expertise and skills is not always available within a specific geographic region, which is why it is common to search elsewhere for solutions.

The ability to transfer technological needs to 3rd parties is very appealing to companies who want to stay in the race of delivering high-quality software with the help of talented developers around the world.

In this article, we are going to explore the riveting concept of software outsourcing. But first, we must understand what the magnetism of software development outsourcing is based on.

It's a cost-effective model. Outsourcing abroad helps reduce prices, expenses, and costs. Typically, executives turn to software development outsourcing to make a company lean and flexible enough to be responsive to the latest market demands and changes in software technology. 

In the following section, we are going to review different software outsourcing services and models that are available to meet client needs.

Software Outsourcing services

Software outsourcing companies must have a comprehensive set of software outsourcing services that cater to a wide range of industry and business needs.

Regardless if it’s a small or big company with outsourcing needs, outsourcing companies must be ready to address projects at any point during the software development lifecycle. From inception to software delivery, software outsourcing companies must provide the expertise and resources to deliver software solutions.

ith most software outsourcing companies, services are offered under a remote operating model which allows companies to hire best-of-breed professionals from across the globe to assemble a unique and top-notch team of professionals who are dedicated to a specific software project.

Typically, software outsourcing services include automated business processes, expertise in web and mobile application development, specialized development of SaaS-based products, team extensions of dedicated developers, software consulting, and more. In a subsequent section, we’ll cover the numerous and comprehensive software outsourcing services that Svitla offers to its valuable clients.

Description of the Software Outsourcing Models

Before transitioning to the software outsourcing models available, we will cover the different business models for software development outsourcing: nearshore, onshore, and offshore.

Onshore Software Outsourcing 
Onshore companies work with teams that reside in the same home country as the client partner; while there is typically little to no language barrier with the external team, onshore software development companies are also the priciest of the three options.

Offshore Software Outsourcing 
Offshore companies work with teams in other countries. This is the most affordable option because offshore software development companies operate virtually and remotely. 

Nearshore Software Outsourcing 
Nearshore firms work with teams in similar time zones. Nearshore software development companies sit in the middle between the onshore and offshore options. They are cost-effective since they delegate operations to teams abroad.

Now that we understand the different types of software outsourcing, let’s dive into the different software outsourcing models available.

Time and Material Model

This traditional model is easy to understand since it covers projects that have a clearly defined final goal. This type of contracting model defines the scope of work which is used to gradually build the required solution. The time and material model is usually calculated in man-hours of effort. This outsourcing model contract is finite and is only fully realized once the customer accepts the final results of the work. Its key characteristics include:

• A clear goal for the project.
• A System Requirements Specification Document is used to describe specifications, functionalities, costs, development timeline, milestones, and deliverables.
• Short collaboration engagement (3 to 6 months approximately) with a warranty period to fix defects and bugs in the deliverables (usually of up to 30 days).

Fixed Price Contract Model

This project-based engagement model is not dependent on how much time and resources are spent to complete a project; instead, the fixed price model is devoid of external dependencies and does not share the scope of work and resources needed to complete the project. It follows straightforward timelines and treats changes in the statement of work separately, with budget approval. Clients are billed on pre-defined milestones and this model is ideal for one-off projects where the scope is defined internally. This model is very similar to the time and material model, with the important difference of billing clients on a fixed-basis instead of basing it on man-hours of effort.

Dedicated Development Teams or Resources Model

This model is ideal for companies that need to quickly extend their development capabilities with highly-qualified and skilled teams of developers and other IT professionals such as designers, UI/UX specialists, business analysts, project managers, testers, and more. Usually, in this type of model, the client is in control of the extended team as the goal is to provide a look and feel of a remote team of dedicated team members. This outsourcing collaboration model can be useful to any type and size of a company and it includes three options in pricing: per resource, management fee, and per hourly rate. This model is an excellent fit for long-term support, maintenance, and progressive workloads of software projects that are expected to be flexible and scale easily.

Offshore Development Center Model

This is the global alternative to the dedicated development teams of resources model. In this model, enterprises don’t usually have an internal IT department and use dedicated development centers to outsource the entire IT processes on the client’s premises. With this model, clients are billed based on a cost per resource fee or a management fee.

Nowadays, companies sometimes opt to use a hybrid model to balance technologies and arising needs. Combinations of models are helpful to gain a specific value from each of the selected models. It is important to understand the type of project and its entire scope to fully assess how each model can be of benefit and which one is the best fit. In the following section, we are going to talk about the multiple pros and cons of software outsourcing.

Why Outsource? The Pros and Cons of Software Outsourcing

In essence, by hiring a software outsourcing company, organizations are able to solve these fundamental needs: reduce fixed costs, speed up and scale a development team, and work swiftly with skilled developers from across the globe.

Next, we detail some of the pros and cons of software development outsourcing.

Pros of Software Outsourcing

• Reduce software development costs and operating expenses: the most obvious and significant advantage of software outsourcing is cost reduction. Minimizing expenses goes hand in hand with nurturing business growth, which is why it is important to consider all the alternatives available to reduce costs, which is where software outsourcing comes in.  It helps reduce costs by making it affordable to hire top-notch, qualified personnel who don’t require the hiring company to cover the full spectrum of employee benefits such as taxes, training, trips, healthcare, insurance, and more. Typically, software outsourcing companies calculate the true cost of a resource by determining the hourly rate of an employee, without including all the aforementioned costs, which makes it attractive for businesses to choose this route as it translates into huge savings vs. in-house developer. Furthermore, additional cost reduction comes as the client doesn’t need to equip the hired personnel, the service provider company covers that aspect of the transaction.
• Flexibility: Clients can hire software outsourcing companies only when needed. There is no real pressure to sustain a long-lasting business relationship of employment; instead, the working relationship is project-based which alleviates the client company from feeling obligated to run a specific project with a software outsourcing company. This flexibility also adds to the cost reduction advantage as it is cheaper than hiring an in-house team full of resources all year around when in reality, there may be slow seasons where they are not particularly needed. Another aspect of the advantage of flexibility is the fact that working remotely is becoming a worldwide standard. The location of software development teams is increasingly becoming irrelevant for businesses and thus more attractive to employees. This opens up the possibility or hiring developers from a global pool of talent resources without risking quality, the degree of service, or skills.
• Increase skills and scale a development team: external software professionals open up the door to new talents on a global scale. With access to skilled software developers across the globe, clients feel confident streamlining entire software processes and the implementing new projects. By hiring a team of external software professionals, companies are exposed to new and more comprehensive skills, which enables them to scale significantly and nearly effortlessly.
• More time available to focus on core business needs: focusing on core business needs is fundamental to designing strategies for growth. With software development outsourcing, companies find themselves with more time available to spend on core business needs that foster growth and continuous improvement. By outsourcing significant chunks or the entire software development process, companies can solely focus on what’s most important, especially if IT is not the company’s line of business. Typically, the software outsourcing provider manages all the labor-intensive aspects of a software development team, leaving client in-house teams with enough time to focus on the strategizing and implementation of essential tasks such as management, marketing, customer service, and other crucial services.
• Quick software development: since the hired software outsourcing team of developers is already trained and experienced, there is little to no time wasted in onboarding, training, or a learning curve. In big companies, it is relatively hard to get things done quickly as there are a lot of layers to get through before reaching the desired outcome. With software outsourcing, there is a lean startup process implemented that kickstarts software development into high gear and decreases the software delivery time notably. Additionally, the team of developers is working around the clock to get a project delivered quickly and get it market-ready in significantly less time than an in-house team of developers.

Cons of Software Outsourcing

• Risk of low-quality service: There is an inherent risk with hiring an outside party to deliver high-quality services for a fraction of the cost of existing market prices. Nowadays, it is relatively common to hire software outsourcing resources from developing countries where the cost of labor is remarkably cheap, which increases the chance of experiencing low performance or low quality of service. Additionally, by not fully owning the development process of the external development team, it can be challenging to address performance issues that may arise.
• Language and cultural barriers: When contracting with a software outsourcing company from an entirely different location than the client’s own, it can be very challenging to manage and adapt to the language and cultural barriers. Additionally, clients must also deal with time zone differences that hinder the direct interaction with external teams. If not properly handled, these differences can pose a significant threat to the overall success of a project as it is vital to fully engage with the external team and create a reliable rapport. This is usually accomplished by setting up frequent team meetings between the client and the external team to open up the lines of communication and to try and gain familiarity with each other’s cultures. 
• Security risks: It is challenging to open up the pathway to sensitive, private, and sometimes highly-confidential information to 3rd parties. There are always risks involved when exposing data, especially confidential and proprietary information, and entrusting it for lawful and appropriate usage. Leaks in information have become relatively common, which is why it is important to hire a software outsourcing company that puts security at the forefront of its business strategy and that takes comprehensive measures to protect their client’s security and data.

Next, we are going to detail a few software outsourcing examples to see how these pros and cons apply in real life examples of companies who strategically decided to leverage software outsourcing.

Software Outsourcing Examples

Here, we will briefly detail a few, well-known software outsourcing examples to better understand the impact of using software outsourcing.

Logitech: Logitech is a leading global manufacturer of peripheral equipment for personal computers, specializing in video conferencing technology. They are committed to enhancing video quality and offering diverse functionalities for their video cameras. To ensure the high quality of their products and speed up the development process by strengthening their onsite team, Logitech chose outsourcing. They turned to Svitla more than 5 years ago, and since then, a variety of innovative projects were developed together, e.g., their well-known video conferencing software with machine learning algorithms.

Alibaba.com: Alibaba is known worldwide as one of the leading Chinese websites, considered the world’s biggest online marketplace. Back in its earliest days, Alibaba hired a software development company in the United States to handle its website development. At the time, developers were short in supply in China and they weren’t capable of overcoming all the Chinese internet restrictions. To this day, while mainly located in China, Alibaba continues to use outsourcing partners for software production.

GitHub: GitHub is one of the most well-known tools in the world of coding. Back in the day, GitHub was birthed as the three founding members of the idea attended a Ruby on Rails meetup in San Francisco and hired on the spot an outsource contractor to fully develop and code the idea behind the plan. That outsource contractor, Scott Chacon, is now the CIO of GitHub.

Opera: Opera is a lightweight internet browser born as a result of a research project of Norway’s largest telecommunications company: Telenor. Back when Opera was a startup project, they relied heavily on software outsourcing to protect investment, reduce costs, and more, by hiring developers in more than 25 locations across the world to create and implement the platform in a level of what we know today.

How to Outsource Software Development Effectively?

According to this Business article, there are 5 suggested ways to ensure success when outsourcing a software project:

1. Define the reasons and objectives for outsourcing.
2. Guide the extended team.
3. Set realistic milestones and track progress.
4. Be flexible and have an exit plan.
5. Have realistic expectations.

While there’s no fool-proof way on how to outsource software development successfully, it is important to recognize that the use of the aforementioned steps helps make the process smoother. Additionally, we recommend using an Agile methodology for the software project to swiftly work during a project’s life cycle, to use project management tools that foster the management of project tasks, calendars, threads, and more, to focus on the user experience design to translate the client’s requirements into real-life functionalities and visuals of the software application.

Key Svitla's Models for Successful Software Development Outsourcing

At Svitla Systems, we have numerous years of providing software outsourcing services successfully under our belt. The key to our service offerings lies in our comprehensive and detailed statement of work that accommodates clients’ needs to transform them into a vivid reality.

Over the years, Svitla Systems has gained the expertise and confidence to take our client’s software projects to the next level. Here, we detail the Svitla Systems proposals for successful software development outsourcing under our working models.

Managed Team Extension

With this model, our team becomes an extension of your team. The extended team works solely and dutifully on your project, becoming an integral part of your team during the entire project. We carefully select each team member based on your requirements and the expertise you need. They immerse themselves in your project, maintaining your company culture and working in line with your strategic goals.

The managed team extension works best for developing new modules or applications, long-term cooperation projects, ongoing bug fixes, and support, providing quality assurance expertise, staying within budget, and saving time and resources.

We've developed a unique recruitment process, based on industry best practices, that enables our recruitment team to find the best experts in the market. This vital part of a project life-cycle ensures a successful result. The typical candidate search is completed in 2 weeks.

The managed team extension process at Svitla Systems is comprised of these stages:

1. Identifying client needs.
2. Defining the job descriptions by assigning an HR specialist to work on openings, clarifying and analyzing job role requirements, estimating a budget, and involving technical experts as needed. Resources are assigned immediately as they meet the overall criteria.
3. Fulfilling the Svitla Quality Search by selecting team members within an internal database of potential candidates that fully meet the project and the client’s criteria, selecting unique recruitment methods, and conducting HR interviews to ensure candidates match the professional and soft skill criteria.
4. Performing an internal technical interview to evaluate a candidate’s technical skills to present the best candidates to the client.
5. Sending the selected candidates to client review so they can assess if they are the right fit for their needs.
6. Covering all HR onboarding procedures such as workplace arrangement, hardware equipment, social benefits, insurance, and more.
7. Providing 24/7 support to solve any issues that may arise.

With the managed team extension, the project life-cycle does not end once the software has been developed and launched. At Svitla Systems, we take care of your project by continuously testing and incrementally improving it as your needs and requirements change.

Case in Point: A US FinTech Expanded the Capabilities of Its Core Product with Managed Teams

AgileSquads

Under Svitla Systems’ model of AgileSquads, companies can hand over software challenges to teams with a proven track record to deliver successful software solutions. In this model, we offer established teams with experienced Project Managers who develop products from scratch according to your requirements, time, and budget. 

This solution is the best fit for clients who want to create a software product from scratch, avoid project management risks, leverage a hand-over approach, and implement innovation to speed up development and/or integration of a project.

The development process is the core part of a project life-cycle. At Svitla Systems, we have developed a process based on the industry’s best practices, thus enabling teams to deliver projects of outstanding quality.

The AgileSquads software application process at Svitla Systems is comprised of these stages.

1. Understanding requirements and user stories to cover the software development aspects of all business needs.
2. Evaluating the project scope and approach to estimate the number of hours allotted to the project.
3. Developing the code for the software application while also pushing it for incremental review during the development stage.
4. Delivering frequent updates about the project status, while introducing and phasing out resources as the project moves forward. This ensures constant communication about any arising issues or revisions for basic quality assurance.
5. Reviewing code prior to final deployment.
6. Deploying the software solution to production servers.
7. Testing the software continuously and incrementally to improve it as requirements change.

Software Consulting

Svitla Systems consultants are capable and competent to assist companies with the task of designing and developing a technology strategy that aligns technical and business requirements. It provides consulting services primarily via short-term, on-site engagements where the team of consultants showcases their expertise and experience in numerous business domains and the latest technical areas such as DevOps, cloud infrastructures, and cloud-native architectures.

Software consulting at Svitla Systems is geared for companies that look for specialized expertise, temporary help during a one-time project, external advice and recommendations, and trusted partners for all technological needs.

The software consulting process at Svitla Systems is comprised of these stages.

1. Identifying the client’s needs and objectives to fully understand the situation and the desired business outcomes.
2. Gather information by facilitating meetings, presentations, and interviews to elicit an inflow of details about the client and the issue to solve. Additionally, software consultants look for the client’s current capabilities and cultural aspects to ensure the applicability of recommendations.
3. Review the collected information to analyze and validate against documentation and expected inputs in order to address engagement goals. Any discrepancies drive more information gathering to ensure all details are understood before moving forward.
4. Action plan development to design a comprehensive strategy and a clear path to achieve the desired business outcomes.
5. Seek approval from the client after a thorough evaluation of the strategy and action plan to define metrics and applicable milestones of the project so future performance can be properly measured and managed.
6. Report the complete result of the software consulting engagement to the client.
7. Provide support to review progress and revisit strategy and plan for the future as the client moves forward and conditions change.

Why Svitla?

Svitla Systems is fully committed and dedicated to providing the best-in-class software outsourcing services for all types of client needs. Our goal is to provide the best and highest value to our clients through our service outsourcing portfolio of offerings. We hope to help you assess how valuable software outsourcing can be for your business and how Svitla Systems can help you get there successfully.

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