The Fundamentals of Outsourcing in Software Development [Part I]

June 16 12 min read
software outsourcing guide

A step-by-step guide to finding a fitting partner and mitigating transition from in-house to partial or complete outsourcing

As we move deeper into the 2020s and into a century that was virtually built on the concept of tech innovation and speed, software outsourcing entered a third generation in its development. What started as a business model based on solving an HR and tech infrastructure problem for a lower cost, developed across the years into a complex suite of contracting services specifically shaped for different types of requirements, market segments, volumes of work, and degrees of interest in innovation.

All the while, both big corporations as well as SMEs are finding more and more value in multi-sourcing and in prospecting all the right contractors to come together in nurturing their needs to the most granular level. As such, the often invoked myths and misconceptions about outsourcing have been slowly but definitively debunked in the last couple of years.

As a result, clients can now properly count on engineering and software development departments to release their products on time without making compromises on quality, timeline or feature set. But this ideal outcome is only achieved by picking the right partner and by creating the framework for a smooth transition.

If you are contemplating a partnership with an IT outsourcing company, this guide will prove to be an invaluable resource. This first part will cover the essential principles of selecting an outsourcing partner, with the next materials consisting of an overview of how to ensure a smooth transition from in-house development to outsourcing, and a comprehensive cheat sheet covering the key take-aways from the series.

The Principles of Selecting a Software Outsourcing Partner

When it comes to software outsourcing, ”the perfect suitor” lies at the junction between your business needs (internal variables), the in-depth ”resume” of your candidate (external variables), and the grand-scheme economic contexts of the markets you both operate in (market and context variables).

Internal Variables

Assess processes that need outsourcing. A principle pushed by experts is that you should look to outsource those tasks that are critical to your operations but not a vital component of your strategy. This will ensure that your deliveries will be cost-effective and timely, pivoting on seasoned expertise and innovation, while maintaining the core strategic decision within your backyard. Moving forward, it is crucial to have an in-depth understanding of what you need and the whole of the information that you will relay to a potential outsourcing partner when debating your needs and what you intend to draw out of this relationship. 

Assess outsourcing readiness. An Outsourcing Readiness Assessment is meant to ”determine an organization’s receptiveness towards outsourcing, as well as feasibility of the application or process being outsourced”. Dr. Raghu Korrapati developed in his book a checklist designed to help companies assess their level of readiness going through a number of steps including: defining needs, cost and benefits, budget, process documentation, developing a baseline expectation of the performance, designating a ‘success manager’ as a liaison between the company and the outsourcing partner, and delineating a transition timeframe. 

External Variables

Carefully consider the following variables when selecting a software outsourcing partner.

Costs and pricing models. First thing’s first – it’s only healthy to start this research by having a clear understanding of how operations are priced and what kind of costs will be involved in the process so as to properly mitigate this investment long-term. Ask for quotes from various vendors prior to making a decision, and carefully consider all hidden costs associated with an outsourced based business model.

Tech and infrastructure. This is not only about the self-evident aspect of looking for an IT company that can offer you access to the latest and newest technology to work on. You should also keep in mind that the software and tech should be aligned with your own frameworks and licences in order to streamline communication and implementation.

Communication and task management systems. In the same line of reasoning, one myth that needs to be debunked is that a risk taken when opting for outsourcing are issues with task alignment and communication. One of the most effective ways of bypassing this possible hurdle is carefully looking for that one company that can offer a clear and transparent means of communication based on an approach that includes the entire outsourcing team: assess the frequency of the meetings with the project managers and the developers, and count in weekly/monthly status meetings with the executives. The essence of this is the existence of a continuous ongoing dialogue – we can count here various tools that have proven to become invaluable in outsourcing work such as Slack, Trello, Asana, Jira etc.

Moreover, the cherry on top of the communication and transparency cake in outsourcing is the agile model. With its strong focus on teamwork, flexibility, and prioritization, the model demands that an interdisciplinary team works closely together during development intervals of one month or less (sprints), during which they constantly share information, solve problems, and create minimum viable products after maintaining a constant line of communication opened with the client. A good mastering of this communication and management model can make all the difference in the long run.

Experience and expertise. When debating any sort of business relationship, the accreditation and validity, as well as proven experience in the field of interest is one of the most important factors in choosing a business partner. Look for outsourcing firms with transparent and proven experience in the field, measured in successfully deployed product and longstanding relationships with reputable clients (a portfolio will make for the best business card).This will prompt more reliability as the relationship is built and developed. Moreover, samples and references from other clients involved with the same outsourcing company you want to pursue will offer you a clearer view of the processes, implementation technique, and overall quality of the delivered services and products.

Long term prognosis and business strategy. A reliable business partner is one that can offer at any point a transparent assessment of its solvability and revenue forecast for the next couple of years, so as to convey its availability long-term at the same level of quality and involvement you first signed up for.

Security and fraud prevention. Another myth that needs debunking is data security within the outsourcing paradigm. Considering the apparent vulnerability of information when releasing it in the hands of a second party in the context of an outsourcing partner, constant audits, security standards such as GDPR compliance are all small steps to be taken to make sure the company you will work with jumped through all the necessary hoops to safeguard the information you will trust it with.

Delivery history, deadlines, and support. Either by interviewing partners or asking for specific details and point-by-point plans from the software outsourcing company itself, a couple of things should be clear from the get-go. And that is the policy practiced on deadlines and post-deployment support in order to have continuity and ascertain the viability of the product or service delivered with the expert support of the team that delivered the ‘goods’ in the first place.

Company culture and the ‘human element’. Making sure that quality, timeliness, openness, transparency, and reliability are values deeply ingrained within the teams working on your product will make a world of difference. Interview developers as well as PMs and executives need to make sure that you’re entering a space based on sound values and sustainable growth and that it will definitely reflect in the finished product as well. Moreover, turnover rates are a good indicator of longevity and long-term quality of service.

Brand awareness. Knowing that you work with the best can be reflected in multiple ways. A sound placement in the market, both with a strong portfolio, and a bullet-proof marketing strategy will speak volumes about the company’s competence and ability to build performance and growth.

Market and Context Variables

As much as your internal resorts for looking into outsourcing are sorted out and the best candidate for outsourcing slowly separates itself from the competition after the thorough research you’ve conducted, one ‘greater picture’ set of aspects must also be taken into consideration – the macro-economic landscape and the cultural context of the two companies about to embark in a long-term partnership. 

Business analysts pertaining to the company looking to outsource should keep track of:

  • the regulatory landscape and fiscal policies in both countries and regions (especially if the country is looking to offshore candidates). In this context, economic forecast, inflation, and other macroeconomic financial indicators can also speak to the potential instabilities of a company navigating growth in a certain climate.
  • cultural aspects and barriers – to be learned and assimilated in order to make for a smooth transition and communication process
  • time zones and reachabilityhere is where the biggest public debate stands between offshoring and nearshoring and the parallel between the possible lower costs for offshoring compared to an easier adjustment and communication advantages of nearshoring. While technology and straight forward policies can fill in most of these gaps, the different facets of both contexts are still examined and yet to have a definitive winner. But if your math and general analysis check out, you need to opt for the one that fits you best.

We trust that this information will prove to be useful in your pursuit of the ideal software outsourcing partner. Click here to read the following installment of our series, addressing the transition from in-house development to partial outsourcing.

Make sure to also check our piece on software outsourcing in CEE and learn about the opportunities and benefits specific to partnering with Eastern European providers.