In these uncertain times of an economic downturn, looking into software development outsourcing can prove more vital to your business than ever before.
Outsourcing offers limitless, previously unavailable possibilities to C-level executives. Thanks to the internet, you can have people from all over the world working on your software project, giving you access to talent you would normally be hard-pressed to find.
But finding expert developers in limited time to meet fast-approaching deadlines is only one side of keeping your development moving forward. Amid the coronavirus shutdown, maintaining an in-house team has become much more difficult—and far less cost-effective.
A remote, outsourced team will improve your cash flow and increase your efficiency, allowing you to scale up or down whenever you need without firing or hiring your team members. While your competition may struggle to survive the current financial crisis, your development will continue uninterrupted.
But before you can take full advantage of outsourcing, first you need to know how. The practice isn’t as straightforward or intuitive as it may seem.
That is why we’ve compiled this comprehensive guide to outsourcing. If you wish to learn about the various aspects of the process and prepare for the challenges it can bring, you’ve come to the right place.
We’ll take it step by step, starting with a comparison of in-house development and outsourcing.
Let’s begin by defining the most basic concepts we’ll be using throughout this entire guide. Custom software development is an immensely layered process and there are two main ways you can go about it: in-house development and outsourcing.
In-house development has been a tried-and-tested option for many years now. Outsourcing, however, is a more recent development that has seen a significant boom recently. In 2020, outsourcing is projected to reach a revenue of $220 billion—that’s how huge the market currently is.
But what exactly is in-house development and outsourcing, and how are they different?
In-house development essentially means using the resources you have available on hand. You build the software engineering team you need by finding, hiring, and onboarding your own employees.
The biggest draw here is that this development method gives you a lot of control over how your team members operate. You get to communicate directly with all of them and make sure each and every one is there because you believe they’re the right people for the job.
That said, in-house development is the more expensive solution of the two, mostly due to the very involved recruitment process you simply don’t get with outsourcing. Plus, let’s not forget that your potential talent pool is limited compared to outsourcing, since you’re only casting your net in your immediate vicinity.
Outsourcing involves commissioning an individual or a group outside your company to handle some or all of the workload. There are many benefits to this, the greatest one being saving time and money. Since you’re dealing with freelance contractors, you don’t need to give them the employment terms your in-house team would require. You also get to scale up or down faster without hurting your company’s brand and improve your cash flow.
But the real value of outsourcing is its unlimited potential; you can basically hire anyone from anywhere in the whole world. So, while you might be able to get the best graphic designer within driving distance from your company through in-house development, outsourcing gives you access to top-notch design experts who live on another continent.
Naturally, you don’t get to maintain the same level of control with an outsourced team that you would with an in-house one, but it’s a small enough price to pay for better results.
Once you decide to outsource your software development, you can either go with nearshoring or offshoring.
Nearshoring involves looking for people relatively close to you—say, within a time zone or three. This gives you a greater variety of talent to choose from while still making communication relatively easy.
With offshoring, the distance isn’t considered a factor. You don’t care if your specialist lives on the other side of the globe and you might not be able to ever communicate in a synchronous manner—that person’s expertise is all that matters.
It’s fair to say that choosing between in-house development and outsourcing—or even some mixture of both—largely depends on your needs. However, outsourcing is the best way to cut down on costs and time, while also increasing the general talent pool available.
We’ve already covered some of the most compelling reasons why it’s a good idea to give nearshoring a try. But before you do, consider the following:
There are several bases you need to cover when choosing nearshoring, but if you’re well prepared, everything should work out fine.
A crucial step in starting your software development outsourcing journey the right way is evaluating different vendors.
Hours of talks and negotiations will leave you with an extensive choice of price lists and estimations. Sometimes, their variety might shock you.
But where do the price differences come from and how to assess them?
First of all, you need to keep in mind that every software project is different (at least “under the hood”) and the development process is never set in stone. Therefore, the scope tends to be difficult to predict during the first phase of negotiations. This is why you and your vendor need to be able to plan carefully and communicate clearly.
Additionally, the cost assessment should vary depending on whether you’re after team extension or end-to-end development services.
When outsourced developers join your existing product team, you’re dealing with team extension. Since this type of service tends to be based on hourly or daily rates, comparing vendors is relatively easy. However, don’t just go with the cheapest option right away; there are a few crucial factors to consider:
Everyone wants the very best for their project, but there’s a catch: a balanced team with appropriate competences is better (and probably cheaper) than a randomly put together, all-senior group. Don’t get too wrapped up in the job titles and choose wisely.
Make sure the developers assigned to your project will work exclusively for you.
Some countries are just cheaper than others, which will affect the rates without affecting the quality. Also, if you plan on meeting with your team in person, consider the distance between you.
It might sound insignificant at first, but miscommunication is the last thing you want.
The hours the developers spend on their company’s matters should be paid by the vendor.
To put it simply, it’s the vendor’s job to assess their employees’ skills, not yours. You shouldn’t have to waste time on technical interviews.
Make sure you know exactly how the hourly rate is structured.
Before starting your cooperation, you and your outsourced partner will need to agree on a ballpark estimate of the overall cost. It’s wise to always consider your absolute financial limit, since estimates tend to change throughout development.
The usual components of a ballpark are:
But what are some other things you should pay attention to in order to pick a reliable vendor and ensure smooth cooperation?
They have to be aware of what you expect the final result of your cooperation to be. Are you after an MVP or a scalable, fully ready product? You also need to agree on the exact deadlines and budgets. Without this knowledge, you’re heading for a communication disaster.
If your vendor sends you a ballpark before a proper business talk, it’s a major red flag. Analogically, don’t expect your vendor to make assessments based on pre-existing products that aren’t yours—no two products are the same, so the estimation won’t be reliable at all.
At the same time, you need to realize that some of them are necessary. Which additional type of work should you expect to see in an estimation? Environment setup and application deployment, team meetings, testing and reviews, spikes, production monitoring, and the involvement of a Product Owner should all be expected—and welcome.
Don’t just go for the cheapest option. Carefully consider what the potential costs entail and make educated decisions. Remember about the importance of the non-functional requirements listed above, and always insist on a realistic, flexible estimation. Also, don’t rush things if you don’t have to. It’s advisable to always run a solid background check on your future vendor.
We’ve already mentioned one of the key benefits of outsourcing software development: the fact that you don’t need to hire people as full-time employees. Instead, you can rely on hired contractors, which can significantly cut the costs of your project.
However, you’ll still be signing contracts with your outsourcing partners, and IT contracts can be quite tricky. Navigating them is no easy feat, and if your legal department isn’t up to date with all things IT, even they might miss some important details.
We’ve identified five main areas where outsourcing contracts frequently tend to cause trouble. Being aware of them should help you avoid glaring holes in the documents you sign with your contractors.
As long as you pay attention to those important areas, you should have no difficulty preparing and signing a contract that will take care of all the legal needs of your cooperation with an outsourcing partner.
With all this talk of contractors, we also need to consider the exact kind of contract we want to sign with them. Once again, the choice is something to ponder for a second.
When it comes to software development outsourcing, there are two types of contracts you can choose from: fixed-price and time-and-materials. It’s important that you decide on one early on, as changing the terms down the line will cost you a lot of time and resources.
Fixed-price and time-and-materials contracts each offer distinct advantages, so your best bet is to familiarize yourself with both and pick the one that’s best for what you’re hoping to accomplish.
With a fixed-price contract, you pay for a specific product to be delivered within an established time and budget.
The upside here is that you set the duration, price, and scope of the project in advance. The downside is that getting your project off the ground may take longer, since you’ll want to spend some time on those decisions to make them count.
However, the main issue with fixed-price contracts is that, well, more than the price is fixed. This type of contract doesn’t really make much room for playing things by ear. Should your plan change—and it will—you are bound to set off a chain reaction that will lead to you requesting a change in the work of your contractors.
This, in turn, will more than likely cause delays, and you’re going to have to renegotiate the entire deal every time it happens. In other words, you’ll be forced to start planning pretty much from scratch and have a bureaucratic nightmare on your hands.
Since you can’t predict with pinpoint accuracy what your project will demand, the rigidity of the fixed-price contract may actually turn out to be more of a detriment than a benefit. However, if you’re prepared to deal with some delays and extra negotiations, the firm foundations the contract offers may be just what you need.
A time-and-materials contract has you pay for exactly what it says on the tin. Instead of paying for the entire predicted scope of the project upfront, you compensate the team for the actual work and expertise they put into your project.
This type of contract essentially means painting in broader strokes, which may be less specific than the fixed-price option, but it also gives you a lot more freedom in managing how your team arrives at the goal you want them to reach.
Not adhering to a strict end date set beforehand means you’re free to alter the terms of the cooperation with relative ease. Rather than waste time struggling through red tape, you simply send your team off to work right away.
Working on a time-and-materials basis provides an opportunity to be much more reactive to the process and make adjustments to the workflow on the fly. You can change priorities quickly and give regular feedback in response to what is actually happening, as opposed to making wild guesses based on more-or-less reliable stats.
Both fixed-price and time-and-materials contracts are viable legal solutions. Deciding which works better for you really depends on your personal preference and needs.
In a way, nearshoring is the comfortable middle ground between offshore outsourcing and in-house development. The talent pool is broader and you still have a pretty high chance of sharing calls with your contractors.
However, there’s a lot more to nearshoring logistics than meets the eye. The process of ensuring everything runs smoothly can be broken down into three main points.
Last but not least, remember to establish communication channels you and your team will be using. Set up dependencies between the team members and your company’s employees. This will guarantee a far more organic transition once the project is ready to be handed over to you. This usually means preparing code repositories and account accesses, among others. Make sure someone is there to help handle the hosting, cloud systems, testing environments, production environments, and so on—especially if your project started out with no requirements for internal infrastructure.
Preparation is the key to fruitful cooperation. Setting everything up right from the get-go significantly reduces the workload as your project evolves.
Before work on your outsourced project commences, you need to make sure everyone’s on the same page regarding all the project requirements. To that end, client onboarding is an indispensable step.
During the onboarding process, both sides detail the conditions of their partnership, establishing the right course of action and setting expectations. No outsourcing project should begin without thorough onboarding.
Cooperation with your outsourcing partner will go smoothly from day one if your onboarding process is both comprehensive and flexible. It lets your partner know exactly what to expect from you and your company, strengthening your work relationship and making it much easier to establish the logistics, budget, and timeline of your project.
Having said that, there’s no one-size-fits-all method to successful onboarding. Make your process bespoke and take into account everything you want your partner to know.
Consider how you’ll handle the budget and paperwork, how long you want the onboarding to take, and all the remaining formalities with that specific partner in mind.
How much ground you should cover throughout the onboarding process largely depends on the degree to which you’re going to be relying on your outsourced team and whether they’re going to be starting work from scratch.
Especially in the latter case, it really pays off to include the software house you’re partnering up with in the design process. This will allow you to come up with better solutions together.
Onboarding can take anywhere between a day and a couple of weeks. This depends entirely on the complexity of your project.
The goal of the onboarding process is for the team members to acquire all the information necessary to understand the goals of the project. Your job is to make sure they have everything they need.
Since you’re the client, you have the deciding voice on the general flow and structure of the project. You can make things considerably less chaotic by introducing the outsourcing partner to your company’s business context.
Any technical documentation you’re willing to share—backlog, source code, development environment automation—is welcome, since the extra data will make the job of your outsourcing partner much easier.
You should also be ready to address any concerns your own developers may have, if the outsourced software house serves as an extension of your in-house team. Tensions are not uncommon and it’s up to you to make sure the members of both teams manage to overcome any potential differences they may have and work together as a single entity.
A sound onboarding process is in the best interest of every single person working on your software project. For your outsourcing efforts to be effective, it is invaluable.
With outsourcing, you give up some of the control you normally have over an in-house team, but that doesn’t mean relinquishing all of it. Just because your team is far away doesn’t mean you can’t communicate with them to ensure that all your expectations and requirements are met to your satisfaction.
Here are some of the aspects you should pay attention to in order to properly manage your outsourced development team.
Contact is the single most important tool for managing outsourced teams. You need to establish how closely you want to work with your team and how often you wish to communicate with them. We recommend staying in touch on a daily basis, although that really depends on the overall flow of your project.
There are five main means of contact you can choose from. Naturally, whether you opt for just one or even all of them is entirely up to you.
Tools like Slack are perfect for frequent real-time communication.
Usually lasting around 15 minutes, catch-up calls serve as quick progress updates.
These are regular meetings meant to clear up any difficulties and evaluate new developments in the project.
In Agile software development, which is divided into Sprints, Sprint reviews take place after each Sprint to see what went wrong or right, what could be improved, and the like.
These may be the most difficult to organize, especially if your team is located really far away from where you are. However, such visits are worth arranging every once in a while to build rapport instead of just following up on details all the time.
Aside from staying in touch with the development team itself, you should also consider contacting the Service Delivery Manager regularly. They’re the person charged with making sure your project is carried out to the highest possible standard. As such, they’re also the point person for nurturing your outsourcing partner’s relationship with you.
Manager calls typically happen every two to four weeks, unless your project requires some additional attention in the meantime; for instance, when there’s a change in the team’s composition, a deadline fast approaching, and so on.
While the specifics of your relationship with your outsourced team will vary from team to team, it’s almost always a good idea to keep in touch with them frequently or at least have the means to contact them quickly should the need arise.
No matter the reason, there may come a time when you’ll want to move the development of your software back in-house. This is by no means unheard of; sometimes, clients only turn to outsourcing to overcome specific challenges at a certain stage of development.
Making the move back in-house can be the most optimal choice for some companies. However, it’s a delicate process that takes thought and preparation to ensure a smooth and pain-free transition.
Here’s what you need to do to make it happen just so.
If you make the move back in-house at the wrong time—too soon or too late—you may create new problems for yourself instead of solving old ones. Usually, the best moment to start the handover process is simply once the work has concluded.
Sometimes, though, the smarter play may be to do it earlier. This can happen when the development process slows down and shifts to a more stable maintenance status, for example.
Basically, if you feel you have both your feet firmly on the ground, you’re probably ready.
There is no single, universal way to make the handover process painless, but there’s a high chance one or several good practices will do the trick.
You can meet your contractors face to face and work through the process of handing work over to your in-house team step by step, so that everyone is on the same page. Alternatively, you can do the same remotely—the internet makes pretty much anything possible (including recording things, something you should rely on heavily here).
Make sure that all the proper documentation is taken care of, since you don’t want to be left with a piece of code that doesn’t come with any manual. Many software houses opt to provide this in the form of a wiki, which is a very practical way of going about it.
One last tip: scale the development down before you start the handover. For rather self-explanatory reasons, it’ll make the transition much smoother.
The question is a bit difficult, but not impossible to answer. As we’ve stated several times here, it all depends on the project. The more complex your system’s architecture is, the longer handing it over to you will take.
In most cases, though, it’s pretty safe to assume it’ll take about a month or so to complete the handover process. This estimate actually holds true for both a full handover and scale-down, so keep that in mind.
A software project handover might be just what your project needs when it’s fully or nearly fully developed. Don’t be afraid to go down this road if you’ve made the necessary preparations.
Well, here it is: all the essential information you need if you’re thinking of outsourcing your software development.
Follow the advice we’ve outlined for you in this practical guide, and you should have no problem getting fast business results with outsourcing.
There’s a whole world of possibility out there—you just need to reach out for it.
We’ve been in the software development outsourcing business for more than 18 years now, with well over 800 projects successfully delivered under our belt.