Why You Should Outsource Software Development in 2024

Introduction

Why should I outsource software development?

This is a question that I’ve been asked lately by one of our potential clients. The first quick thought of mine was, you should outsource a project anytime you don’t feel to be an expert at something and/or you don’t have enough time to solve the related problem.

Outsourcing is like delegating tasks – if you will not learn it, you will not find enough time to grow your business. Learn to let go and find experts either in-house or offshore/nearshore to build the best possible software for you.

Working with software development company will help you to solve three things:

• How to reduce fixed costs
• How to speed up/scale your development team
• How to find skilled developers fast

You can say that today software development outsourcing is a kind of external SaaS tool to grow a technology behind your business.

Reduce software development cost

Have you ever wondered, what is your true employee cost? Based on research from Joe Hadzima, a senior lecturer from MIT, the true cost of your new in-house developer could be 2.7x the base salary. If you cover all employment taxes, benefits, rent, equipment, and all non-billable hours (organization, meetings, trainings, business trips, team integration events etc.), you could pay, for a full-time developer, not only $100k, but it could add up to $270k!

Toptal, which is a platform for freelancers, made a tool to calculate the true cost of an employee and consultant. Based on their research, the base rate for an internal employee of $50 per hour will double to up to $100 per hour if you add all the costs. For a consultant, the cost of the same hour for $50 will in the end cost no more than $60.

It’s a huge saving per one in-house developer.

Reduce your hiring mistakes

Hiring the right people is extremely hard, even for experienced recruiters or leaders.

<blockquote><p>Welch also maintains that if you get the hiring right over 50% of the time, consider yourself talented at executive search consulting and recruitment services. </p><p>– Jack Welch, ex-CEO of GE</p></blockquote>

As a leader of a company (even though you’re probably not finding the candidates yourself), you will need to spend time interviewing them – and you have to pay somebody to find the right candidate. In the end, while hiring, you’ll need someone to handle the on-boarding, get the paperwork done, somebody to buy/configure a new computer and much more….

Based on a report from DevKillers, it takes around 43 days to find a new developer (often they have a 3 month period before leaving a company) and this will cost you between $22k-$32k (depending on whether you are doing it in-house or using an agency to do it for you).

It’s a lot of money before you will get a Return-On-Investment. Remember, that this could cost you around 50% of all the costs mentioned above.

Answer yourself, is it worth it to always hire in-house developers?

Increase your team skills at any time and scale the team

Outsourcing (it doesn’t matter if we talk about custom software development outsourcing, content marketing, or sales) is almost like an on-demand service. You know clearly your costs per hour or man-day for each outsourced consultant or developer.

It’s like using one of Amazon’s Web Services to scale the capacity – just drag-and-drop a trigger to scale your external team and their skills you need at the moment.

Of course, it takes time (more or less 1 month), but it’s still a faster and cheaper solution than hiring new resources to help you.

Today, you can add/switch developers on a project. If you need more front-end or backend or UI skills you can do it easily with an external development partner.

So, next time before you decide to hire an in-house developer to be sure that you really need one in-house.

Working remotely is becoming a worldwide standard

Last week, I read about another company, Automattic (WordPress creators worth over $1 billion), who closed an amazing 14k square foot office in San Francisco, because most of the time the team of 550 people was working remotely…

GitLab from day one is a fully remote company. Almost 160 people are working together on a platform for developers and none of them are sitting in the same office (watch the interview with Sid Sijbrandij GitLab’s CEO)

Why am I telling you this?

Because the location of your software development team is becoming more and more irrelevant for your business. If such huge and successful companies are able to run their businesses without an office or in-house team delivering high-quality products – there’s no reason why you can’t do the same.

You don’t have to bother about the difficulty of finding a software developer in your city, you can now search for them globally.

Focus on your core business

I’m not saying that you have to outsource the whole IT department or all of your software development activities like Fab did by working with a fully outsourced software product development team of 300 people. They did it to focus only on their core business and those things that they are best at – you should do the same.

• If you are great at marketing automation – you don’t have to develop the product on your own,
• If you are great at selling real estate – you don’t have to develop a system to gather leads online,
• If you are an amazing musician and you have a huge network in the music industry – you don’t have to build and develop the next Spotify on your own.

Focus on your strengths and outsource all other things. Building a software development department/team in your company is like building a company inside your company.

Think about this way – Do I want to build a software development company or build a business that I am currently running?

Corporates outsource to get things done faster

If you worked in a corporation before or even a bigger organization of >250 people then you probably know that getting new things done takes a lot of time. You have great ideas to optimize business costs, implement a new CRM system, or build a mobile app that customers of your company will love.

However, in many cases, it could take months before making a decision about it, because in most cases, using an in-house software development team might be quite expensive for your company.

We worked with two great corporations, National Geographic and Eurocash, to help their ideas become real. In both cases, we were responsible for building a whole product from the conception phase to implementation and maintenance.

In the case of National Geographic, thanks to lean startup processes, we decreased the software delivery time by 80% compared to internal National Geographic IT resources.

Even if you are working at a corporation, you can always act as an Entrepreneur, by becoming an Intrapreneur.

How IT outsourcing can help increase competitive advantage?

IT outsourcing directly contributes to increasing competitive advantage through several mechanisms:

1. Access to Specialized Expertise: IT outsourcing provides access to a diverse pool of specialized skills and technical expertise that may not be available in-house. This expertise allows your company to develop and implement innovative solutions, creating products and services that stand out in the market.
2. Faster Time-to-Market: Outsourcing IT tasks such as software development or application deployment can significantly reduce development cycles. This speed-to-market advantage allows you to introduce new offerings ahead of competitors, capturing market share and customer attention.
3. Cost Efficiency: Outsourcing helps streamline costs by eliminating the need to invest in expensive IT infrastructure, software, and in-house expertise. These cost savings can be redirected towards enhancing other aspects of your business, such as marketing or research and development.

Next steps

If you'd like to give outsourcing a try, start with evaluating your business operations and identifying areas where outsourcing could be beneficial.

You can also check out the offshore software development rates (comparison for the USA) or analyze the ranking of the top custom software development companies.

FAQ - Why outsource software development

What are the benefits of outsourcing software development?

1. Cost Savings: Outsourcing software development often results in lower costs due to access to skilled talent in regions with lower labor costs.
2. Access to Expertise: Outsourcing provides access to specialized skills and technical expertise that may not be available in-house.
3. Focus on Core Competencies: By outsourcing software development, companies can focus on their core business functions and strategic initiatives.
4. Faster Time-to-Market: Outsourcing allows for quicker development and deployment of software, enabling companies to bring products to market faster.
5. Scalability: Outsourcing partners can scale resources up or down based on project requirements, ensuring efficient resource allocation.
6. Reduced Development Time: With access to experienced developers, software development cycles can be shortened, leading to quicker project completion.
7. Access to Advanced Technology: Outsourcing partners often have access to cutting-edge tools, technologies, and infrastructure, without the need for a significant upfront investment.
8. Resource Optimization: Outsourcing reduces the need for recruiting, training, and managing in-house teams, optimizing internal resources.
9. Reduced Management Overhead: Outsourcing reduces the need for extensive project management and supervision, freeing up internal resources.
10. Easier Scaling: As software projects grow, outsourcing partners can quickly allocate additional resources to meet increased demand.

What are the risks of outsourcing in IT?

While outsourcing IT can bring numerous benefits, there are also potential risks to consider. Some of the risks of outsourcing in IT include:

1. Data Security and Privacy: Outsourcing may expose sensitive data to external parties, increasing the risk of data breaches and privacy violations if proper security measures are not in place.
2. Quality and Communication Issues: Poor communication and misaligned expectations between your company and the outsourcing provider can lead to subpar quality of work or misunderstandings.
3. Vendor Lock-In: If the outsourcing provider uses proprietary technologies or practices, transitioning away from their services in the future could be challenging.
4. Communication Barriers: Language barriers and communication difficulties can lead to misunderstandings, affecting project clarity and success.
5. Intellectual Property Concerns: Without proper legal agreements, there's a risk that your intellectual property rights might not be adequately protected, especially in cases of custom software development.
6. Cultural and Time Zone Differences: If outsourcing to a different country, cultural differences and time zone gaps can lead to communication challenges and delays.

How to choose the best one from IT outsourcing providers?

Choosing the best IT outsourcing provider requires careful consideration and a strategic approach. Here's a step-by-step guide to help you make an informed decision:

1. Define Your Requirements: Clearly outline your project requirements, goals, and expectations. Understand what specific IT services you need and the skills required.
2. Research Extensively: Research potential outsourcing providers thoroughly. Look for companies with a strong reputation, relevant experience, and a proven track record in your industry.
3. Check Portfolios: Review their portfolios and case studies to assess the quality of their work and whether it aligns with your project's scope.
4. Expertise and Skills: Ensure the provider has the required technical expertise and skills to handle your project effectively. Consider the depth of their knowledge and the technologies they specialize in.
5. Client References: Request references from the provider's past clients. Contact them to gather insights into their experiences, communication, and the provider's ability to deliver results.
6. Cultural Fit: Assess whether the outsourcing provider's work culture, values, and communication style align with your company's culture and expectations.
7. Communication Skills: Effective communication is crucial for a successful partnership. Evaluate the provider's responsiveness, clarity, and willingness to understand your project's details.
8. Scalability: Consider the provider's ability to scale resources up or down as your project evolves, ensuring that they can accommodate changing needs.
9. Data Security: Inquire about their data security measures, protocols, and compliance with data protection regulations to safeguard your sensitive information.
10. Quality Assurance: Understand their quality assurance processes to ensure that your project will be delivered with minimal errors and high standards.
11. Technological Expertise: Check if the provider is up-to-date with the latest technologies and trends in the IT industry, as this can impact the quality of the solutions they provide.
12. Service Level Agreements (SLAs): Discuss and clearly define SLAs for project milestones, deliverables, timelines, and performance metrics.
13. Legal Considerations: Have a legal expert review the contract to ensure your intellectual property rights, confidentiality, termination clauses, and dispute resolution mechanisms are adequately addressed.
14. Visit Their Facilities: If possible, visit the provider's office or facilities to gain a better understanding of their working environment, infrastructure, and work culture.
15. Cost Transparency: Discuss pricing models, cost breakdowns, and any potential additional charges to ensure transparency in financial matters.