As per Statista the global market size of outsourced services was 92.5 billion USD in 2019. Why is it such a huge and popular segment? Why do companies opt to outsource their work? What are the gains?

What is IT outsourcing?

Outsourcing is a practice in which a company avails the services of an external company to get its job done. In the field of information technology (IT) this practice is most prevalent for the immense benefits it brings to the table.

What are the benefits of outsourcing?

The most striking advantage of IT outsourcing is cost-benefit. For companies in the US and Europe, onsite development is expensive owing to the high wages of employees, higher costs of living resulting in high expenditure for logistics. When offshore teams offer the same skill set for a much lower price, it makes financial sense to outsource the work to these teams. Additionally, organizational complexities are also reduced to a great extent.

Finding developers with rare skills and competency is a near to impossible task. This is solved with outsourcing to companies that specialize in rare skill sets.

Repetitive tasks in an organization can also be outsourced. This will enable the company to focus more on its internal core competencies and innovations. Hence the bandwidth needed for executing repetitive tasks can be utilized in a better fashion.

Types of IT outsourcing - Outsourcing models

IT development can be done either in-house or it can be outsourced to off-shore or near-shore consultants.

In-house development is when the project is completely developed by the full-time developers hired by your company. Here are some of the best practices to hire good software developers for your organization.

Offshore consultants implement your project from remote locations that are usually in a geographic location far from yours. For example, if a US-based company outsources its work to a consulting firm in India, the Indian team becomes the off-shore team. In this scenario, the two teams work at different time zones and bring in the benefit of cultural diversity into the project.

Near-shore consultants work from a geographic location very close to yours. The advantage of having near-shore consultants is that all stakeholders of the project work in the same time zone (or at a slightly offset timezone of one or two hours) thus making the communication and synchronization quicker.

Staff Augmentation

In this outsourcing model, consultants like Pace Wisdom provide you with a few skilled resources whom you can manage directly. These resources could either work offshore or can work on-site. This model is suitable if your team is short of say, 2-3 resources.The benefits of adopting this model are:

  • You have the flexibility to upscale and downsize the team depending on the volume of deliverables
  • Rare skilled resources with specialist expertise can be easily hired with this model

Drawbacks of this model are:

  • You need to pay special attention to maintain uniformity of internal development processes
  • There is a management overhead to synchronise augmented resources with the internal team and timelines
  • The drawbacks of this model can be overcome with another outsourcing model, the dedicated team model

Dedicated team outsourcing model

Here, the consulting firm provides an entire team to you. The team would include all roles needed to execute a part of the project. When a part of the project is outsourced, responsibilities of quality and timelines are shared between all teams that execute the project. The manager of the outsourced team also helps in the synchronization and co-operation between the teams.Benefits of this model are:

  • Reduced effort on project management
  • Availability of diverse skill set and different levels of expertise
  • When adapting this model, there is a slight risk of communication gap between the on-site team and the off-shore/near-shore team. A full project outsourcing eliminates this.
IT outsourcing with dedicated team

Full project outsourcing model

Full project outsourcing model is the one in which the entire project is executed by an external consultancy, off-shore, or near-shore. In this case, there would be no in-house development team for that particular project. All activities of the software development life cycle would be carried out by the outsourced team.This model is beneficial in the following aspects:

  • Reduced management overheads
  • Development process is more efficient since the team has the full experience of handling projects and follows its own set of best practices

Which is the best IT outsourcing model?

There is no one size fits all approach when it comes to IT outsourcing models. Based on the use case, the best-suited outsourcing model can be picked.

For instance, if you have a business idea that would need a mobile application and you have no in-house development team, you can adapt the full project outsourcing model. Here, consulting companies can take on the responsibility of developing your app on both android and iOS platforms. Further on, they can also look after the maintenance of the database related to the apps.

Consider a scenario wherein you decide to add some additional features to your product midway through the development. Hiring new developers for this, training them, and then extracting work output from them is a time-consuming procedure and could disturb the planned release timelines. In this situation, based on the number of additional features, you can opt-in for either the staff augmentation model or the dedicated team outsourcing model.

Final word

By all means, outsourcing is a beneficial step for a software firm. Companies can benefit from the timezone advantage of offshore teams and also enjoy the cost savings that come with it. When timezone is a matter of concern, companies can go in for nearshore teams and still enjoy the savings in training costs.