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Outsourcing software development is an established business model, with the IT offshoring market expanding consistently and expected to reach $731 billion by 2023. Are you considering capitalizing on this trend? Before you dive in, it’s essential to carefully examine the pros and cons of outsourcing software development and learn effective strategies for efficiently outsourcing your projects.
1. What is software development outsourcing?
In basic terms, outsourcing refers to the act of assigning specific duties to an external vendor, as opposed to utilizing in-house resources. This practice has become widespread across various industries. Within the tech industry, software application development is the most frequently outsourced IT function, as reported by Statista.
2. Why should your startup outsource software development?
Historically, software outsourcing has been challenging to execute successfully, and it has often been associated with negative emotions and perceptions.
However, the perception of outsourcing began to shift a few years ago with the advancement of technology, and more people began to realize that outsourcing can benefit not only large corporations but also startups.
As we move into the new decade, custom software development is becoming increasingly accessible and straightforward. Therefore, I believe that startups should consider outsourcing their software development for the following four reasons.
2.1 Big tech companies are leveraging software outsourcing
It may come as a surprise, but it is true that many large corporations take advantage of outsourcing. I was also taken aback when my friends, who interned at many big IT companies in the US, informed me that many businesses outsource a substantial portion of their software development from Viet Nam
Upon conducting my research, I discovered that several prosperous tech startups, such as Slack, WhatsApp, and Skype, utilized outsourcing to aid their growth and success. Here’s an intriguing article I came across that delves into how these companies leveraged outsourcing.
If prominent tech companies are utilizing outsourcing as an advantageous strategy, then why can’t small tech startups follow suit?
2.2 Cost efficiency of software outsourcing
Undoubtedly, one of the primary motivations for outsourcing software development is cost-saving and enhancing operational efficiency for startups. Due to the high expense of software human capital in the US, most startups cannot innovate freely. According to Glassdoor, the average salary for software engineering in the US is approximately $107,000 per year, excluding additional benefits such as healthcare, 401k, and paid time off.
By hiring a full-time dedicated developer (160 hours/month) from the ONextDigital Partner Network, the cost amounts to only $2,000 per month or $20,000 per year. This fee encompasses not only a full-time developer but also quality assurance and project management.
In addition, all clients of ONextDigital gain complete access to the ONextDigital Platform and a devoted ONextDigital Outsourcing Strategist, who assists in devising an effective outsourcing strategy.
The concept of software outsourcing has also gained popularity among investors across the country. As a startup founder seeking to secure investment capital, informing investors that extensively scrutinized overseas developers developed your product not only impresses them but also demonstrates your financial prudence.
2.3 Newly available technology makes software outsourcing more viable
A significant reason for the unfavorable reputation of outsourcing in the past is the absence of appropriate technology that can streamline the outsourcing process. However, in the past 4-5 years, the advent of new software technology has significantly enhanced the efficiency of software outsourcing.
Just imagine communicating with your outsourcing team solely through email or, even worse, managing a software project utilizing Microsoft Excel. The mere thought of it is an absolute nightmare!
Luckily with tools such as Slack, Asana, and Wise, communicating, managing, and remunerating your outsourcing team has become a seamless process. Furthermore, clients can enhance the transparency of the software development process by incorporating accessible APIs offered by all of these platforms.
2.4 Software outsourcing helps you scale by freeing up your in-house team
As an ONexDigital Strategist, I have collaborated with several in-house development teams to help them increase their software development capacity. Many CTOs and Heads of Products that I have worked with decide to leverage software outsourcing not only to take advantage of the cost-effectiveness but also to prevent burning out their in-house developers.
If you have an in-house development team and are undecided about software outsourcing, here are some helpful tips:
- Keep your core technology in-house. This includes vital functions, algorithms, and even UI/UX design.
- Keep your in-house development team small. This entails having a CTO, a lead engineer, and a few developers on staff.
- Delegate all secondary and non-core responsibilities to your offshore team.
By adhering to these guidelines, you can scale your product much more quickly while only incurring a fraction of the cost of expanding your in-house team.
3. Four possible risks of outsourcing development work
While software engineering outsourcing has many benefits, it also comes with its own set of risks and challenges. Being aware of these challenges in advance can help you make an informed decision and outsource your software projects without any hassle.
3.1 Making the right choice with the Vendor
The primary challenge in outsourcing software development services is finding a trustworthy vendor, whether you are a mature company or a startup. Nevertheless, if you make the right selection, the likelihood of encountering other risks associated with outsourcing development is significantly reduced. With a reputable outsourced software company on board, you can rest assured that your development team will have the required expertise, and your project will be completed on schedule and launched with no bugs. Additionally, you can be confident that there will be no issues with data security, and that the overall collaboration will be transparent and efficient
3.2 Project control
One of the primary concerns of business owners when outsourcing software development is the potential loss of control over the project. However, this can be mitigated by discussing communication and reporting practices beforehand. Development vendors often encourage project owners to stay engaged in the development process, communicate directly with the Project Manager and team, and provide frequent feedback. This way, the project owner can maintain a sense of control and ensure that the development process aligns with their vision.
3.3 Sensitive data safety
To ensure the confidentiality of your business and innovative ideas, it is essential to sign a Non-Disclosure Agreement (NDA) before the first consultation with your software development vendor. When outsourcing software development, you will be sharing sensitive information about your business, and an NDA will help protect your data and business reputation.
3.4 Hidden costs
Outsourcing IT development also poses the risk of hidden costs. To mitigate this risk, it is important to carefully choose the engagement model and corresponding contract type, request detailed estimates, and agree on reporting and billing methods in advance. We will provide further details on these engagement models later.
4. Software development outsourcing models
Before outsourcing your project, it is important to consider certain fundamental factors. In this guide, we will focus on the client-provider relationship model, as it is a key driver of business success. A healthy relationship can overcome the challenges of distance. Here are three main models based on the client-provider relationship:
Project-based model: In the project-based model, the outsourcing provider takes on the majority of the responsibility and owns the project from start to end. They complete the development projects according to the client’s specifications.
Managed team model: This outsourcing model is a collaborative effort where both the client and the outsourcing provider share responsibility and ownership, and clearly define which responsibilities belong to each party.
Staff augmentation model: The staff augmentation model allows you to retain full control of your project from start to finish. As the client, you take on the majority of the responsibility and hire additional tech talent from an outsourcing company to supplement your existing team for the development of your projects.
5. How to develop your outsourcing strategy?
Developing an outsourcing strategy involves several steps. Here are some key steps you can follow:
- Define your goals: Determine why you want to outsource and what you hope to achieve. Examples of goals include cost reduction, access to specialized skills, or increased efficiency.
- Identify your outsourcing needs: Determine which tasks or projects you want to outsource. Look for tasks that are time-consuming, repetitive, or require specialized skills that your team does not possess.
- Research potential vendors: Look for outsourcing vendors that have experience in your industry and offer the services you need. Check their track record, references, and client reviews.
- Evaluate vendors: Develop a list of criteria to evaluate potential vendors. Consider factors such as experience, skills, price, and communication.
- Develop a budget: Determine how much you are willing to spend on outsourcing. Consider both the initial cost and the ongoing cost of maintaining the outsourcing relationship.
- Develop a contract: Create a detailed contract that outlines the scope of work, payment terms, deadlines, and communication protocols.
- Manage the outsourcing relationship: Regularly communicate with the outsourcing vendor to ensure that they are meeting your expectations. Track progress, provide feedback, and address any issues that arise.
By following these steps, you can develop a solid outsourcing strategy that meets your business needs and helps you achieve your goals.
6. How is software development usually done?
Every software product, regardless of its complexity, should be flexible and easy to maintain and upgrade. This can be achieved by planning each step in advance, from ideation to maintenance. While the phases of the software development life cycle (SDLC) may vary slightly, at Relevant, we follow the following steps:
6.1 Ideation
Every project commences with an idea, yet ideas don’t just materialize out of thin air. The first step is to recognize a business requirement and contemplate approaches to actualize it. Typically, the project initiation phase encompasses the following tasks:
- Validating the idea using PEST analysis (Political, Economic, Social, and Technological factors), SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats), Porter’s Five Forces, and conducting focus group research to minimize potential risks.
- Establishing the project’s boundaries or scope.
- Identifying the deliverables, which are the anticipated outcomes of the project.
- Defining the stakeholders, who are the individuals or entities impacted by the project.
- Creating a business case that rationalizes the rationale for embarking on the project.
- Developing a statement of work that outlines the project’s objectives, scope, and deliverables.
6.2 Planning
The planning phase of a project typically involves a series of steps, including:
- Creating a comprehensive project plan.
- Building a cohesive team.
- Identifying the responsibilities of each team member.
- Estimating the budget required for the project.
- Ensuring that everyone has the necessary resources, including hardware and software.
- Anticipating potential risks and developing risk mitigation plans.
- Gathering the Software Requirements Specifications (SRS).
A crucial element of success is having well-organized documentation throughout the project. Consistent documentation at every stage is essential for effective communication, work processes, reporting, and fostering collaboration among team members.
It is highly recommended to summarize the planning phase by creating a Software Requirements Specification (SRS), which outlines what the product should accomplish and how it should be developed.
6.3 Design
The software development process progresses to the next phase, which involves preparing a preliminary design for the software based on the requirements specified in the previous stage. The system design phase aids in defining the necessary hardware and system requirements, as well as establishing an overall system architecture in software.
The design specifications produced during this phase serve as the basis for the subsequent stage of the software development model. During this stage, testers develop test strategies by specifying the items to be tested and the methods for verifying them.
6.4 Coding
Upon receiving the software design documents, the subsequent work is partitioned into distinct units and modules. This marks the initiation of the coding phase, during which developers concentrate on producing high-quality code. This phase is typically the most protracted in the entire software development process.
6.5 Testing
To fully comprehend software development, it is essential to comprehend the testing phase. This stage is critical for developers since any mistakes or errors identified during testing may necessitate repeating the coding process, thus prolonging the development cycle until completion. The testing phase comprises various forms of functional testing, such as integration testing, unit testing, system testing, acceptance testing, and non-functional testing.
6.6 Deployment and Maintenance
Once the testing phase is completed without any bugs or flaws, the product is released to the market for beta testing. During this phase, the support team gathers user feedback, and the development team resolves any issues that arise.
After the product is fine-tuned based on real-world feedback, it is launched to the market. The product’s life cycle does not terminate there but continues with regular updates to enhance performance and meet the evolving requirements of its users.
If you are interested, you can also learn about hiring an iOS or Android development team.
7. Choosing your perfect software development vendor
Selecting the right software development vendor can be a challenging task, and it requires careful consideration of several factors to ensure that you find the perfect fit for your business needs. Here are some essential tips to help you choose the right software development vendor:
- Determine your specific requirements: Before starting your search for a software development vendor, make sure you have a clear understanding of your specific requirements. Knowing what you need will help you narrow down your search to vendors with relevant experience and expertise.
- Check the vendor’s portfolio and experience: Look for vendors with a solid portfolio of successful projects similar to yours. Check their track record, client testimonials, and ratings and reviews on third-party websites to assess their credibility and reliability.
- Evaluate the vendor’s expertise and skills: Ensure that the vendor has the necessary skills and expertise to deliver your project successfully. Assess their technical skills, project management abilities, and communication skills.
- Consider the vendor’s development methodology: The development methodology used by the vendor can impact the quality, timeline, and cost of your project. Discuss the vendor’s methodology and ensure that it aligns with your project goals.
- Assess the vendor’s scalability and flexibility: Choose a vendor that can scale their services according to your business needs. Ensure that they can adapt to changing requirements and provide timely support and maintenance services.
- Review the vendor’s pricing and contract terms: Compare pricing and contract terms with other vendors in the market. Ensure that the vendor’s pricing and contract terms are transparent, fair, and competitive.
By considering these factors, you can make an informed decision and choose the right software development vendor for your business.
Conclusion
Outsourcing software development can be a cost-effective solution, but it can also pose some challenges. However, with the proper selection of a service provider, careful contract negotiation, and clear communication of your business needs, you can benefit from extensive technical expertise and proven development methodologies without any additional overhead expenses.
Our team- ONEXT DIGITAL is well-equipped to help you build a successful development team, provide valuable technical insights, and take your project from concept to a groundbreaking market disruptor. Contact us today to discover how software development outsourcing can benefit your business!