In 2019, every 8th global company spends more than half of its software budget on custom IT solutions which means that it has a great need for development experts. How many of them could be outsourced? According to the recent statistics, as much as 300,000 jobs are outsourced in the US. And the United States is not a single developed country where companies are willing to grab the best experts regardless of their place of living for their projects.
What advantages of IT outsourcing can you name? First of all, the outsourcing approach can reduce project development costs for non-digital companies. Second, it is an opportunity to hire niche specialists for a single task. However, there are plenty of disadvantages of IT outsourcing too. In our article called How to Hire a Dedicated Development Team? we described all the types of IT outsourcing, and here, let’s move to key IT outsourcing pros and cons.
Benefits of IT Outsourcing
Digital outsourcing consists of software development, remote e-commerce execution, data operations, design, and support services. You may also choose an appropriate outsourcing scope. For example, you can leave your order in a full-cycle company or outsource just particular development tasks.
Why do companies choose to outsource IT? Well, that development strategy is cheaper, faster to perform results, and usually gives you a chance to meet your quality standards. However, there are even more benefits if you look at this form of cooperation from the management or marketing point of view!
The LANARS experts came up with 10 advantages provided by the IT outsourcing business strategy.
#1 Easy to find experts with rare skills
Although you might have extremely talented teammates, no one can be an expert in all IT areas at once. Soon or later, you’ll need expertise on markets or upcoming digital solutions you’ve never worked with. The very first IT outsourcing benefits is an opportunity to get access to skilled resources.
#2 Focus on core-competence of the organization
Task outsourcing enhances the power of your team which is important for small and medium enterprises with limited non-IT resources. Their workers may concentrate on those tasks they are especially good at and leave other types of work for remote experts. That will help your company to strengthen and improve major business activities as well as to execute the development strategy.
A good idea for companies working in the non-IT sector is to outsource all IT-related tasks with the help of one service vendor.
#3 Scale or improve effectiveness easily
Why outsourcing IT is good? Using freelance or digital vendor’s resources is not only about executing your regular business tasks well but also about trying to achieve more in your market area!
To scale your non-digital company you’ve got no need to share your upcoming IT tasks between existing specialists that are experts in other fields. Let them achieve more in their basic departments and dedicate your digital goals to remote developers’ team.
Avoiding in-house development means leaving your existing team alone so that it can accept professional challenges, as well as saving space in the office and working hours of the HR manager.
#4 Lower organizational complexity
With IT outsourcing, you can get rid of entire departments and focus your management resources on production. Digital vendors will propose you to redirect corporative IT support tasks and goals to their remote teams. You may choose to be an active party of the project and even let your in-house project manager control the remote team, or you may work with orders and results only.
#5 Fight against lack of available skills in your region
That is a fact that companies from developing countries working for local markets have fewer chances to reach success than ones from well-developed regions. Same works for enterprises from urban and rural areas.
The problem is — the smaller your city is the harder it is to find the right professional help there. Digital outsourcing provides you with access to a large talent pool regardless of where your office is!
#6 Reduce costs
This paragraph could be placed in the first position, however, we believe, that IT outsourcing is something more than just money — it is a style of making business more effective. IT outsourcing costs less than in-house development if your company doesn’t have a constant need for similar IT projects development and is based in an expensive region in terms of IT development (the US, Australia, Canada, etc.).
#7 Faster development performance
Any work will be done quicker if you split it into functional parts, dedicate tasks to experts, and hire an effective project manager to control the process. Outsourcing is all about it. Your teammates may live in different countries, but you’ll be sure they are the best possible candidates to solve your IT problem. Or, you can work with IT development vendor and spend no time at all on task splitting. That will do the company. Another good news about it — the outsourcing team can work around the clock.
#8 New skillsets development
Outsourcing labor gives you a chance to test service MVPs and decide whether it is worth your further attention or not. You may propose to your customers something new and hire dedicated developers to execute first orders. That strategy helps you to plan your marketing campaigns as well as product development carefully and reduce risks.
#9 Responsibility share
One more advantage of IT outsourcing comes only with tasks completely redirected to offshore digital vendors (cooperation with full-cycle IT agencies). In that case, your IT support provider can share your service outage risks, provide you with disaster recovery services and data security or revenue insurance.
If you are not sure about the quality of the vendor’s remote team work, we advise you to include into your agreement some paragraphs as for the consequences of task failure and the amount of fine.
#10 Better equipment without buying it
IT outsourcing vendors invest their resources into finding the best equipment, software, and specialists to propose to you. With their help, you will get better quality of IT products developed on your to request and meet higher security standards without spending money on software and hardware you’ll probably need for completing one task per year.
How to choose between in-house and outsourcing development?
Contact us and we will help you
Risks of IT Outsourcing
Not every company can benefit from digital outsourcing. To figure out your IT outsourcing benefits, think of your IT task frequency, compare outsourcing pricing with funds you might spend on in-house development, and evaluate your current digital development potential.
There are several IT outsourcing risks you may face working on your custom IT product. Learn them to make a smart solution below or find more information in our article on dedicated development team.
#1 The issue of trust, intellectual property, and security
Offshore or nearshore outsourcing means you’ll share your business process information and database with third-party companies or freelance workers. They may use your commercial information in the wrong way both intentionally and unintentionally. First example — freelance workers can sell your new product feature idea to other companies before release. Second example — your remote workers may have low-quality data protection software so your data may be stolen one day.
How to overcome risk — check what other IT provider’s clients say on their trustworthiness and include privacy regulation terms into your contract.
#2 Lack of inside expertise
Domain expertise is an important advantage of in-house development which outsourcing doesn’t have. Your remote team is likely to have no practical experience gained while executing real tasks inside your company.
It also works vice versa — outsourcing team experience gained during working out your project idea will stand outside of your company. In other words, you’ve got no chances to spread that knowledge among in-house interns.
How to overcome risk — study vendors’ expertise and try to find the one with experience close to your project area. That is also important to stay in close relations with your current remote team. Let your in-house workers learn outsourcing IT company experience before your cooperation ends.
#3 Work time and rhythm synchronization
There are a couple of international outsourcing types — remote freelance, dedicated in-house development (service provider sends workers to your office), and offshore development (you left an order for a development company and come back for your ready-to-use custom product). And if you choose any kind of remote cooperation, your team will need to get accustomed to other teammates’ time zones, style of task execution, and work rhythm. Any lack of synchronization will lead to time waits and money losses.
How to overcome risk — choose partners that live in your timezone and have the same workflow terms. Another good idea is to include paragraphs for the frequency of communication sessions into your agreement.
#4 Hidden and uncertain costs
Why outsourcing IT? Working with a trusted service provider does result in cost savings. However, you can’t be always sure about how much you should pay in the end.
Sometimes, the development process can go unexpectedly — your company may change requirements or the executive team may face additional troubles while jumping into project details. In most cases, freelancers work with task modules and you know their constant hourly rate only. In that case, monthly bills could differ depending on how hard the month task is.
How to overcome risk — try to avoid flexible goals and set clear tasks to your remote team. That is also important to pick an experienced vendor. The more experience in the same tasks execution it has, the more precise your budgeting is.
#5 Loss of control and workflow instability
You may lose management control of business workflow working with freelancers or IT service vendors as you’ve got fewer tools to monitor general team performance and delivery while outsourcing.
Project execution instability is the other side of the problem. There are always some risks that the outsourcing company has low project management level. And if your IT updates are critical to your company development, any kind of workflow stuck has negative effects on business efficiency. Example — you outsource key business functions launching a startup.
How to overcome risks — check the quality of outsourcing information technology PMs before you get started and decide which in-house worker will guide the outsource development team.
#6 Quality drawbacks
The potential project expectation gap is the most common reason why companies prefer in-house development instead of outsourcing. The problem becomes even more critical if your company has no experts in the digital field and can’t evaluate the development vendor’s results. In that case, your company may figure out that the product has vulnerabilities after it was paid.
How to overcome risks — pay attention to due diligence and work standards of your outsourcing team. Check their clients’ feedback and let an independent expert evaluate the quality of dedicated team results.
#7 Negative impact on your company culture
Although not all of IT outsourcing risks are critical, some of them may have negative effects on your business in a long perspective.
That is a bad idea to replace in-house experts with remote freelancers as other in-house workers may get stressed thinking of losing their jobs. Another example is gaps in salary rates. Your constant team may get to know that remote experts get more than they and lose their productivity.
Finally, that is hard to maintain company culture if only half of your team is gathered in the office.
How to overcome risk — set the right goals. If you want to keep healthy relations inside your office, stay in contact with your in-house workers and try to understand their fears. You may also invest resources in building bridges between your in-house team and dedicated developers.
Corporations worldwide assumed that the main advantage of IT outsourcing was the fact that it helped them to get a great competitive advantage.
In 2019, India, China, and Malaysia are considered to be leading outsourcing destinations in terms of cost-effectiveness. However, South Eastern countries, such as Ukraine, are best regarding pricing and quality delivery.
Why does outsourcing approach work well? First, with outsourcing helping hand, your in-house team can finally focus on its direct tasks. Second, you save costs and time. Third, you release resources to make a step forward — launch a new service, improve your product quality, or continue niche research.
It depends on context, but you’ll hardly find a company that can not benefit from hiring a dedicated development team. Exception — companies that have a constant need for custom IT solutions or plan long-term digital projects. In those cases, it is better to invest in a regular IT department.
Naturally, there are some disadvantages of IT outsourcing connected with dedicated teamwork instability and a lack of direct management tools. Security risks, project delays, hidden costs, low final product quality — that is how key risks sound.
But don’t treat possible negative effects like something inevitable. With a thoughtful approach to service provider search, meticulously written contract, independent quality control, and proper distribution of tasks you might maximize your business efficiency and minimize risks. Ultimately, more than 78% of companies in the world are satisfied with their outsourcing mates!
Outsourcing refers to the process of transferring an aspect of the company’s operations to a third-party firm. This may occur within the same country or result in a cross-border transfer of work. Additionally, the outsourcing may be permanent or linked to a fixed-term contract for the performance of services.
A company offshores its operations when it transfers them to another country to achieve certain benefits, such as cutting costs, reducing its tax burden or being able to ship products more easily to market. The decision to offshore does not necessarily mean that the work will be performed by a third party. While that can happen, the company may also choose to maintain direct control of its operations in another country.
Outsourcing is a strategy by which an organization contracts out major functions to specialized and efficient service providers who ultimately become valued business partners. In some cases, outsourcing involves the transfer of employees from the company to the outsourcing company.
Offshoring means getting work done in a different country. Outsourcing refers to contracting work out to an external organization. Offshoring is often criticized for transferring jobs to other countries. Usually companies outsource to take advantage of specialized skills, cost efficiencies and labor flexibility.
A striking example of personnel outsourcing is call centers in large organizations. Keeping your own staff of managers is unprofitable - it is necessary to provide jobs, equipment, and comply with safety requirements.
How to choose between in-house and outsourcing development?
Contact us and we will help you