Software outsourcing is a popular business solution that many organizations rely on for their technical needs. It continues to thrive because of its ability to deliver significant value to stakeholders and enable businesses to remain operational even amidst disruptions. Involving an external partner in the project welcomes expertise and loads of experience businesses use to create an upper hand in the industry.
However, navigating the world of outsourcing can be a complex and confusing process. From choosing the right vendor to ensuring the quality of work delivered, there are many challenges that arise when outsourcing software development.
That's where this comprehensive guide comes in. In this article, we will take a deep dive into the world of software outsourcing, exploring different types and models of outsourcing and the challenges they can help overcome.
By the end of this article, not only will you know all about the cost of outsourcing and when it's the best solution, but you'll also have some actionable strategies to help you overcome any obstacles and reach success. Plus, we'll give you the inside scoop on the best software outsourcing companies for 2024.
The Real Definition Of What Software Outsourcing Is
Software outsourcing is a technique where a software development project is delegated to external development experts rather than using in-house manpower. This can involve outsourcing just specific tasks within a software development project or delegating the entire undertaking to a software development outsourcing company of your choice.
As the need for digital presence grows, software outsourcing evolved to be a norm that remedies the technology gap while at the same time cutting down project costs. This strategy is flexible enough to handle the abrupt demands of scaling the development up or down.
It helps startups and large-scale businesses alike to stay competitive in the market while being cost-effective. It allows any kind of organization to tap into a global talent pool of programmers, coders, and other software development experts to ramp up their efforts to stay relevant in the digital world by ensuring the project gets the latest technological software solutions possible.
Software outsourcing brings with it competitive advantages not available with in-house teams. With software development services, development costs are cut down while taking advantage of a global talent pool of software specialists. You can hire from India, Ukraine, and other parts of the world that have the DevOps experts you need. With in-house teams, tech stack talents are limited within the locality.
Delivery time is also faster with outsourcing because development teams are committed to working on the outsourcing project alone, in-house teams need to handle in-house tasks. Lastly, it allows for the flexible scaling of teams to suit the current demands.
Here at Aloa, we offer vetted developers and teams with proven expertise and experience to help you produce high-quality software that fits your vision. Cost isn’t only cut down, project quality is assured.
4 Common Types Of Software Outsourcing
Software outsourcing comes with different options. Here are the main kinds you can choose from.
- Homeshoring: this involves delegating the project to a software development team within the city or country you’re in. With close proximity, the teams can be invited to face-to-face meetings.
- Nearshoring: this type involves tapping an outsourcing company to work with that’s located in a nearby country. It comes as a good option if you prioritize skill set expertise, cost-effectiveness, and minimal to no timezone difference.
- Offshoring: offshore outsourcing work is commissioned to distant countries. It can entail large timezone distinctions and language barriers but gets you access to more expert developers that might not be available for the first two options.
- Onshoring: the last type of software outsourcing involves bringing back a software development team to the organization's home country.
What Are The Basic Outsourcing Models?
Added to the different types of IT outsourcing are three different outsourcing models to choose from.
- Staff Augmentation: this model involves giving the outsourcing company the job of putting together the software development team, handling day-to-day operations, and bringing the project to completion. However, the client can have a call on who to hire and fire, how big the team should be, and how the responsibilities should be distributed to each developer.
- Dedicated Team: with this model, the outsourcing services handle every aspect of the project, and the team is retained for future projects.
- Project-Based: unlike a dedicated team that works with a client long-term, a project-based model, as the name suggests, works with the client on a per-project basis. The outsourcing services handle most of the decision-making aspect of the project and the client simply gets updated through progress reports.
Leveraging software outsourcing comes with a set of benefits for CTOs and product managers. Let’s now consider the challenges software outsourcing can solve for them.
Challenges Software Outsourcing Can Solve For CTOs And Product Managers
Many organizations choose to hire a chief technical officer or a product manager to handle all the software development needs of the company. Others are managed by the owners. In this section we’ll list down the challenges software outsourcing can resolve for both department heads. Some, if not all listed below apply to owners who handle the software needs themselves.
4 Challenges For CTOs
A CTO takes care of all the aspects related to technology in an organization, including software development projects. Whether for a startup or an enterprise, a CTO ensures technical maturity for digital transformation and deals with the resolution of any technology-related disruption.
Specifically, here is a list of challenges software outsourcing services can help solve for CTOs:
I. Recruiting Software Developers
The best developers an organization can hire are those who already have proven expertise. However, not every country has a wide pool of experts available. They can be too expensive to hire, ending up in the organization settling for moderate to low-skilled developers who would unlikely deliver the high-quality output expected.
Software outsourcing opens the door for CTOs to tap into a global talent pool of development team members to produce quality software.
II. Promoting Tech Innovation
As mentioned at the outset, CTOs hold responsibility for tech innovations which means they have to be constantly up to speed with tech trends and new ideas. With many responsibilities at hand, CTOs may not have the skill set or the time to learn emerging and recent software trends. Also, if there's a need to embrace new technologies like machine learning, IoT, artificial intelligence, and blockchain, this can be a big challenge.
Software outsourcing allows the CTO to tap into software engineers with vast technology stack backgrounds and who already have expertise in the latest tech trends and technologies. These experts can bring in new functionalities, state-of-the-art features, and suggest or share the latest software development process with the organization.
III. Meet Deadlines
Meeting deadlines is always a pressing need for CTOs. More responsibilities mean a bigger challenge to be on time. Add that to the limited resources they have access to that could hamper the quality of the project.
With software outsourcing, a huge weight will be lifted off the CTO's shoulders. Workloads will be shared and deadlines will be easier to meet without compromising on the project’s quality.
IV. Complex Projects
If you currently have an in-house development team, it’s safe to say that you're aware that adding more workload to developing new software or functionality will be too much to handle with the current resources.
Hiring more team members would mean increasing operational costs and especially if you need certain expertise, you still don’t have to manage the complexities of the project. After the project is over, the additional team members might not be needed anymore needing you to downsize again.
However, with software outsourcing, you can easily tap into specific expertise and have the flexibility to scale up and down the software development team’s size.
3 Real-Life Challenges For Product Managers
There are also unique challenges present for product managers handling startups, SMEs, and SMBs that software outsourcing can fix. They are:
1. Insufficient Tech Understanding
Product managers know what product to build but they may lack the in-depth understanding and expertise needed to make it happen. Unless they have tech stack proficiency and access to the library and framework, the project might be too much for them to handle.
With software outsourcing, technical expertise is readily available to tap. The outsourcing company can even assist as a technology partner, later on, mature in all technical aspects, and handle other tech-related challenges.
2. Inadequate Planning
To ensure the software completion falls within the deadline and the specified budget, prior planning is a big factor to take into account. A well-strategized plan will ensure the project’s development process.
By working with an outsourcing provider, the project can follow the ideal approach with agile practices in place. Everything will be mapped out to ensure seamless execution and progress.
3. Inefficiency To Scale
With a new project at hand, resources, technical expertise, skills, and experience might be inadequate. Not every project manager can fill the role to fill the gap and hiring more team members, again would be too costly.
Whereas when outsourcing marketing is tapped, each phase of the entire software development process will be handled with optimum efficiency and results. Again, also allows the freedom to scale up or down depending on the current needs.
Challenges You Might Face With Outsourcing
There are always two sides to the coin. While software outsourcing is generally designed to simplify the physical and online business process and take care of the complex elements in between, it also comes with some challenges. They might not be super daunting, but they are worthy to know about before deciding to tap into the outsourcing market.
A. Poor Communication
Outsourcing software development to a service provider means you might be dealing with people with different languages and cultures. Language is a barrier you must first address to ensure you communicate the vision of the project and that the outsourcing company’s development team can communicate back clearly any concerns and clarification.
Company culture must also be considered, a huge gap between the outsourcing provider’s culture and that of your organization will pose challenges when not dealt with early on. This also involves incompatible ways of working if each party insists on implementing methodologies to get the work done.
B. Regional Difference
When outsourcing a software project to a nearshore or offshore service provider, the time difference and distance might cause some challenges. Of course, they can be discussed early on to avoid any untoward miscommunication along the way. For one, team meeting schedules should be discussed early on, daytime for a client might be nighttime for the outsourcing company.
C. Limited Idea On Business Context
While avoidable, this can pose a challenge when not discussed at the outset. The client should be able to communicate the vision of the software project more thoroughly. Sharing the context on the market, demographics, target users, and the value you want to provide will help the outsourcing team deal with the project in a way that goes in line with those goals.
Generally, to avoid development potholes, clear communication of expectations and vision should be discussed beforehand, especially for custom software development. The outsourcing partner should also provide comprehensive knowledge about the output post-development to help implement and run it seamlessly.
Last but not least, outsourcing faces a challenge due to the absence of efficient project management tools and templates. Employing free project management templates online aids in streamlined communication and task tracking, enhancing collaboration and outcomes.
Considerations For Implementing An Outsourcing Strategy
A well-planned strategy involves identifying gaps and key factors before jumping to the development phase. Here are some things to consider:
I. Identify Technology Gaps
Pinpoint technology gaps before reaching out to software product development companies. By not doing so, you might risk the project going out of the time frame allotted to it and going in the wrong direction. It will also help you avoid wasting resources and budget.
One of the main benefits of outsourcing is that it allows you to plug in the latest tech trends to increase the quality of the software whether it's for mobile app development or web development. Identifying gaps will put this advantage to maximum use, help you become digitally advanced faster, and provide a seamless implementation and launching.
II. Determining Goals
The second thing to consider is your short-term and long-term goals. The short-term goals can include seamless onboarding and ensuring day-to-day seamless operations and communication.
For the long-term goals, it can include assigning in-demand support or developer for maintenance and future developments. Long-term goals can also comprise planning for developer demand spurts to cut down on overall costs compared to abrupt hiring where candidates can demand a higher rate.
With these considerations determined, it’s also easier to identify when you’ll need an outsourcing strategy. Let’s now consider five scenarios when you need to work with an outsourcing service.
5 Common Scenarios When Outsourcing Is Needed
Scenario 1: When There’s A Demand For Specific Tech Specialists
Your current core in-house development team might lack some expertise needed to create the software project at hand. Depending on the need, you can hire specific tech stack experts together with project managers, QA testers, and other experts who specialize in certain fields within the software development process.
Scenario 2: When There’s A Demand For An Entire Development Team
Current in-house technical teams might already have a lot on their plate and a new project might be too much to handle. If you have periodic projects, you can hire an entire development team with competencies to handle each phase- from start to finish to avoid overwhelming in-house team members and CTOs.
This also allows easy scaling up and down of members to meet current demands compared to hiring full time which can hinder cost savings.
To get the project going you might need:
- Project manager
- UI/UX designers
- Quality assurance testers
- Quality assurance specialist
- Web developers or mobile developers (depending on the project)
Setting up this fully dedicated team will speed up the software or application development.
Scenario 3: When You Need To Entrust Full Development
This scenario would likely happen for smaller team sizes. When there’s just too much work at hand, this initiative will be advantageous for all people involved. From ideation to development to scaling, you can entrust the whole process to an external development team provided that they keep you updated with regular progress reports to see if the project is hitting the time frame allotted to it.
Scenario 4: When Scaling Or Modernizing An Existing Software Or Application
If you already have a mobile application or software at hand that is starting to become obsolete, hiring a development team to implement new tech trends and functionalities, especially with safety and user experience features will be beneficial.
Scenario 5: When There’s A Need For A Technology Partner Or Co-Founder
If you’re a startup tech company, you might need to tap into an outsourcing partner to take care of specific aspects of the projects that are out of your expertise. You might know about the tech hardware but need someone to handle the software side of things.
To sum it up, when should you consider software outsourcing?
- When your team or your region doesn’t have the required tech experts
- When your core in-house team is running at full capacity
- When you need to scale or modernize an existing software
- When you can’t focus on other aspects of the business
- When you want quick project-focused development that allows for cost savings
How To Estimate The Cost Of Software Outsourcing
The cost of software outsourcing is not just about the hourly rate. It requires a comprehensive understanding of the different factors that contribute to the final cost. Let’s take a look at those factors. It will help you make an informed decision and ensure that you are getting the best value for your investment.
A. Identify Your Requirements
The first step in calculating the cost of outsourcing software development is to identify your requirements. This includes:
- Scope of the project
- Timeline for completion
- Features you want to include
- The platform you want to develop for
Knowing your requirements will help you get a better understanding of the resources and skills needed to complete the project and this information will be useful when you begin to receive quotes from software development companies.
B. Determine The Hourly Rate
The hourly rate is a critical factor in determining the cost of software development outsourcing. The hourly rate depends on several factors such as the location of the software development company, the level of experience of its developers, and the cost of living in the region. On average, the hourly rate for software development outsourcing can range from $25 to $200.
C. Estimate The Number Of Hours
The next step is to estimate the number of hours required to complete the project. This estimation is based on the complexity of the project, the experience of the developers, and the size of the development team of the software outsourcing company. For example, if the project requires 10 developers working full-time for 12 weeks, the number of hours would be 10 x 40 x 12 = 4800 hours.
D. Calculate The Development Cost
To calculate the total cost of outsourcing software development, multiply the estimated number of hours by the hourly rate. For example, if the hourly rate is $50, and the estimated number of hours is 4800, the total cost of outsourcing software development would be 4800 x $50 = $240,000.
E. Project Management Fees
The project management fee covers the cost of project management, communication, and coordination between the software development outsourcing company and the client. This fee is an essential component of the final cost and can range from 5% to 20% of the total project cost.
This fee helps to ensure that the project is managed effectively and that the client's requirements are met. The project management fee includes the costs of:
- Quality control
- Project planning
- Project reporting
- Risk management
F. Infrastructure & Technology Costs
Access to the right tools and technologies is essential for outsourcing software development. The cost of licenses and subscriptions to these tools must be factored into the final cost. For instance, the cost of a software development platform, a project management tool, or a bug-tracking tool should be included in the final cost.
G. Maintenance & Support
Software development outsourcing companies often offer ongoing maintenance and support services. The cost of these services must be factored into the final cost to ensure that the software continues to run smoothly and efficiently.
Maintenance and support can include bug fixing, performance tuning, software updates, and technical support. The cost of maintenance and support can range from 5% to 20% of the total project cost, depending on the level of support required.
7 Outsourcing Strategies To Achieve Better Outcomes For Finding And Working With The Right Developers
To succeed in your software outsourcing initiative, here are a few strategies to keep in mind.
1. Determining What To Outsource
Not every aspect of the project needs to be handed over to an external team, outsource those that just need the expertise you lack and if you lack enough team members to work on certain points in a project. This can mean doing some case studies on your first few projects to see which can be kept in-house or must be outsourced to be more cost-effective.
2. Ensuring Seamless Onboarding
It’s safe to assume that the outsourcing team, with all the expertise, already knows everything about the vision of your project. However, this presumption can be damaging. Communicate clearly how and when you want things done and share pertinent information about the company, the team members, the culture, and the project vision so that everything goes smoothly.
3. Start With A Trial
An outsourcing team can have remarkable expertise but blockers might occur in work culture and relations. It’s best to start with a trial period to ensure the work relations are good on both ends and also to see if they can deliver output promises.
4. Take Advantage Of Communication Tools
It’s easier to communicate with someone in proximity so when working with remote developers, take advantage of video communication tools to ensure you get clear instructions across and also help develop rapport among team members from the in-house side and the outsourced side. In the long run, they might know how to work together for the project’s maintenance and development so good work relations should be developed. Other communication tools, such as an interactive flipbook maker, group messenger or workflow charting solution will also prove useful.
5. Be Proactive
Keep tabs on what’s going on even if you outsourced the whole development project. Assuming that everything is going smoothly might cause some untoward blockers. Without micromanaging, keep posted on the progress to ensure everything is moving the way it’s expected to be.
6. Establish Dependencies
Establishing dependencies means communicating what’s expected to be delivered and when. This will eliminate the blame game that occurs when no one takes responsibility for certain tasks.
7. Encourage A Healthy Feedback
Your processes won’t be right all the time or you might be able to see areas in the current development methodology that can be improved to make it more seamless, communicate your suggestion to see if it benefits the project. Also, encourage feedback to acknowledge the outsourcing team’s knowledge on the matter.
To also help you get a quick view of an outsourcing company that is a good fit for your need project needs, here’s a brief checklist to go over:
- Technical Skills: Do they possess the tech stack knowledge required in the infrastructure?
- Response Time: How long do they respond to initial emails, calls, or texts? Do they provide an estimated time frame for their availability to respond to messages?
- Partnership Mindset: Do their engagement models cater to your project needs? Do they offer developer freelancers, dedicated teams, full-time team members, or staff augmentation?
- Intellectual Property Rights: Are they reliable? Can they offer confidentiality protection and sign an NDA without any apprehension? Do they have previous or current theft issues?
- Budget: Do they fit the budget set for the project?
- Portfolio And Social Proof: Can they present samples of their work and reviews from previous clients regarding their work relations and work output?
6-Step Proven Software Outsourcing Process
Here is our recommended 6-step outsourcing process.
Step 1: Determine The Need For Outsourcing
Identify why you need to outsource software development. Do you lack the expertise or the manpower? Specifying your reasons will help you find the right fit and determine the appropriateness of people to onboard.
Step 2: Select An Outsourcing Company
Decide on the model and type of outsourcing you go for. After getting a shortlist of qualified candidates, send a request for a proposal. This document will help outline the parameters.
The document should include:
- Project scope
- Company background
- Conceivable roadblocks
- Schedule of deliverables
- Software project vision and goals
- NDA or non-disclosure agreement
- Outsourcing company expectations
- Software development project overview
Step 3: Procure A Binding Contract
Before moving on with the software development project, ensure that a binding contract is signed by both parties. This will reinforce the agreed details and protect both parties. Outline the project duration, timeframe, budget, and other important details.
Step 4: Implementation
Time to start the projects. Start with proper onboarding and establishing communication channels and progress report expectations. If agreed on, give a trial period. Additionally, employ a risk management strategy, and walk through the software development lifecycle before starting the testing phase.
The common SLDC you can follow is:
Here’s an agile methodology to consider too:
Step 5: Progress Monitoring
Other than requesting progress reports have a monitoring system in place. Check for day-to-day productivity if it goes in line with the agreed daily work hours.
Step 6: End The Contract Or Renew For Another Project
Depending on the organizational needs and the current project performance, you can communicate when the contract is ending or if you’d still be working with them for future projects. This will allow them to make room on their schedules for your requests.
Now let’s take a look at some companies that are widely recognized as some of the best for software outsourcing.
7 Best Software Outsourcing Companies Of 2024
Here are the 7 best companies with established a reputation for providing top-notch software outsourcing services and have a strong track record of delivering successful projects for their clients.
1. Aloa - Top Pick
If you are looking for the best company for software outsourcing, look no further than Aloa. We have a rigorous vetting process which means that you don't have to spend countless hours searching for the right fit – Aloa has already done the hard work for you.
We police our processes and standards to ensure that each project is delivered to the highest standards. We take quality control seriously so you can be confident in the work that you receive.
The transparency and control that Aloa offers are second to none. We understand that outsourcing can be a leap of faith so we provide clear and regular updates on the progress of your project. This allows you to have a clear understanding of where things stand and to make any necessary changes or decisions along the way.
2. Mphasis - Ideal For Financial Services
Established in 1998, Mphasis has been providing top-notch software outsourcing services to clients worldwide for over two decades. With a global footprint and deep domain expertise, Mphasis is a trusted name in the industry.
Mphasis transforms enterprises through its proprietary FRONT2BACK framework which prioritizes a customer-first perspective. This framework harnesses the capabilities of cloud and cognitive technologies to deliver highly personalized digital experiences to clients and their end-users.
3. Binmile - Leveraging Next-Gen Technologies
Binmile is a software outsourcing company that is taking the industry by storm with its impressive approach to software development. It's an ISO 9001:2008 & 27001:2013 certified company, ensuring that quality and security are at the forefront of its operations.
One of the key reasons why Binmile is a great option for software outsourcing is its Global Delivery Model. With offices located in India, the USA, the UK, and Indonesia, Binmile offers its clients the best of both worlds with its unique Global Delivery Model - local presence and cost-effectiveness.
This allows its clients to take advantage of the technical expertise and lower costs offered by its offshore team, while still maintaining close relationships with its onshore team.
4. Flatworld Solutions - A Trusted Name In Software Outsourcing
Flatworld Solutions, established in 2002, is a one-stop shop for all your outsourcing needs. With its ISO certification, you can be assured that the company operates with the highest standards of quality and professionalism.
The company has a widespread presence with over 10 delivery centers located in countries such as India, the UK, the USA, Colombia, and many others. The 5-stage outsourcing process of Flatworld Solutions is another factor that sets it apart from its competitors. The process is designed to ensure seamless and efficient delivery of projects, right from the requirement gathering stage to post-deployment support.
They have a dedicated Project Management, Transitions, and Customer Engagement team that is available 24 hours a day. The team works closely with clients to understand their requirements and ensures that the projects are delivered on time and within budget.
5. Qubit Labs - Innovative Solutions, Personal Touch
Qubit Labs is an ideal software outsourcing partner because of its strong track record of delivering quality results. They understand that the success of your project depends on the people working on it so they adopt a very personal approach to hiring and take the time to carefully screen and select each and every team member.
Qubit Labs also have a wide range of expertise to draw from. Whether you're looking for help with game development, eCommerce, automotive, or healthcare, they've got you covered. They believe in being upfront about pricing so you know exactly what you're paying for and what you can expect in return. No hidden fees, no surprises.
6. SumatoSoft - Partnering For Progress
With over a decade of experience in the industry, SumatoSoft has established a reputation for delivering high-quality software solutions that meet the needs of its clients. One of the reasons that make SumatoSoft a great choice for outsourcing is its impressive customer satisfaction rate of 98%. This is a testament to the company's commitment to providing top-notch services that exceed their clients' expectations.
SumatoSoft makes use of project management systems like Jira and Confluence to keep their clients informed of the development progress at all times. With these tools, clients can track the progress of their projects, review the status updates, and provide feedback as needed. They have a team of dedicated project managers who work closely with their clients to ensure that their needs and expectations are met.
7. Belitsoft - Elevate Your Technology
Belitsoft is a well-known software outsourcing company that provides top-notch software development services to businesses of all sizes. One of the key features that sets Belitsoft apart from its competitors is its ease of working with. Belitsoft’s team is highly responsive and always available to answer any questions or concerns, ensuring a smooth and seamless experience for clients.
One of the most critical factors in outsourcing software development is the stability and reliability of the development team. Belitsoft has an impressively low employee attrition rate of 12% p.a., ensuring that their clients' projects are not impacted by frequent personnel changes. They have a customer retention rate of 90% which speaks volumes about their quality of work and customer satisfaction.
There you have it, an in-depth and eye-opening guide for software outsourcing. Follow the strategies and steps given above to streamline your selection process and expedite your project development.
Outsourcing a software project can seem scary at first especially if you aren't equipped with the knowledge and experience to shortlist and pick an appropriate developer for your needs. At Aloa, we understand the challenges involved in the software outsourcing process, including the time-consuming task of finding and selecting the right programmer.
That's why we are here to extend a helping hand and offer you a pool of pre-screened and talented programmers to streamline your hiring and selection process. Get in touch with us at [email protected] to help you find the perfect match for your project requirements.