IT outsourcing is a highly popular trend among established enterprises and startups alike. This approach not only helps companies reduce operational costs but also opens the doors to new opportunities for entrepreneurs. A recent Deloitte survey has revealed that the COVID-19 pandemic has already banished the idea that physical co-location is essential for developing a trusting relationship in the workplace. This revelation has further boosted the concept of outsourcing. In this article, we will see various types of IT outsourcing along with its advantages and disadvantages.
But, before initiating this detailed guide, we would like to define IT outsourcing for those who have no idea of this collaboration model.
What is IT Outsourcing?
In layman’s terms, IT outsourcing is a rapidly growing approach in which a company moves a part or the entire software development project outside of its premises. IT outsourcing models are designed to save additional costs while getting complete control over the process. It is like assigning tasks to a third-party vendor and keeping an eye on these tasks. This business practice can bring quicker outcomes without spending a small fortune if you can find the right outsourcing partner for your IT project.
Let’s have a glimpse at some interesting statistics on IT outsourcing.
Top Market Stats of IT Outsourcing
- As per a survey conducted on small businesses, around 59% of businesses outsource projects to save big on their budgets
- The IT outsourcing sector is predicted to be worth around $806 billion by the end of 2025
- The IT outsourcing sector has recorded a steady 10% growth over the past five years
- As per expectation, overall spending in IT services outsourcing will cross $467 billion in 2023
We can classify IT outsourcing into three types depending on the location of IT services providers. Let’s understand these types.
Types of IT Outsourcing
Companies can decide on the outsourcing model as per their business requirements and other aspects. These aspects include budgetary limitations, short-term goals, long-term strategy, and an in-house workforce. Usually, we can classify IT outsourcing models on three crucial factors including the location, the type of partnership, and contract details. Here we discuss the forms of outsourcing based on the location. Here it is fair to mention that companies should opt for a 360-degree IT services provider for outsourcing their projects.
Let’s dig deep into three types of IT outsourcing- Onshore outsourcing, nearshore outsourcing, and offshore outsourcing.
This type is costlier than the other two types. Companies assign their software development projects to the IT solutions provider within the same country in onshore outsourcing. Simply put, in this type, business engagement remains between two companies located within the same region geographically. The key reason why companies prefer this model is it can save time and travelling. Also, companies need not face any cultural differences and problems related to the workflow or holiday lists.
It is similar to onshore outsourcing but the major difference is the outsourcing service provider’s destination is near the geographic location of the company. Here, the citizens of the country or from nearby countries can carry out the outsourced projects. Nearshore outsourcing also promises easier operations than offshore outsourcing. Also, the culture and workflow are much similar to the onshore outsourcing model. However, we can assume that nearshore outsourcing can be cheaper than onshore or same-country outsourcing.
As the name suggests, the client company selects the outsourcing location far away from the headquarters, mostly on a different continent. Such an offshore destination can serve all the business requirements and optimize processes in the most cost-effective way. This collaboration model enables companies to make the most of their budget by enabling them to hire talented resources with a multinational pool and different time zone. This remote working model can give complete control over the dedicated team of software developers with hourly or monthly charges.
Benefits of IT Outsourcing
IT outsourcing services offer many benefits to enterprises. Here is a detailed look at the top five benefits of IT outsourcing for your company.
1. Access to a vast talent pool
IT outsourcing enables you to get access to talented developers from across the world. You can set up a new team consisting of vetted professionals outside your office and work on the project with complete control.
2. Save big on cost and time
Offshore outsourcing can easily reduce expenses especially if you assign the project to any country with lower operational and infrastructure costs. Also, the timezone advantage can save software development time for you.
3. Complete control with 24*7 availability
Your outsourcing partner can offer a dedicated team that is available on a 24*7 basis. There is no need to hire talent from different parts of the world. Once you assign a project to an offshore software development company, its team takes care of your project round-the-clock.
4. Higher flexibility and scalability
Most SMBs and even large enterprises do not need particular IT services throughout the year. It is like once build runs forever kind of model for websites and applications. In such a situation, outsourcing can give you more flexibility and scalability to hire developers as and when necessary.
5. More opportunities with improved focus
IT outsourcing can enable your in-house IT professionals to get rid of maintenance and other trivial activities. As a result, your IT staff and other employees can grab new opportunities over the period. Small businesses can focus more on other core activities as an outsourcing partner manages all the aspects related to the software project.
Disadvantage/Risk of IT Outsourcing & How to Avoid Them
Though IT outsourcing offers many benefits, it is better to remember that it has several risks or challenges as well. But, a reliable software development company can help you mitigate these challenges with proven methodologies and metrics. Here are the most common disadvantages of IT outsourcing with solutions to avoid them.
It is one of the biggest challenges for companies. Apart from cyberattacks, it is necessary to prevent data leaks and other data-related issues. Signing an NDA can be a solution to protect your confidential business data from going into the wrong hands.
Poor quality or underperformance is quite common in outsourcing. Companies that hire cheap labour in developing countries often face these issues in the final product. However, you can assign a project to a reputed and experienced offshore outsourcing partner to get rid of such issues.
Differences in culture and time zone are responsible for the communication gap. When you control a remote team as per their time zone and work approach, it is necessary to stay connected with them. You can use advanced communication techniques to address the communication gap effectively.
IT Outsourcing Cost Benchmark by (Regions/Country/Industry)
IT outsourcing cost benchmark is different by region or countries in line with the hourly rate of developers and other factors. Also, every industry and business has different requirements, which makes the calculation of IT outsourcing cost trickier to estimate. However, most companies need basic services including remote monitoring, updates, server management software, and basic cybersecurity or data protection. Cloud hosting and other IT-managed services can be also a part of the IT outsourcing package.
Clients may need to pay anywhere between $30 to $90 per developer per month depending on the project requirements and hiring models. IT service providers consider factors like location, technology stack, seniority level and experience of developers in the team. It is always better to consult a reputed IT outsourcing company to get a quote for your project requirements.
Common IT Outsourcing Models
Before signing a contract with an IT outsourcing company you have selected, you need to choose a hiring or engagement model. Here we give the most common models along with their pros and cons for your reference. We will start with a project-based model, which is the most basic model of all.
• How it works
Here the company hires a team of professionals to accomplish the part of a predefined work or task. The project manager carries full responsibility for the quality and performance.
• When to use
This model is useful for simple projects with predictable and predetermined functionality.
• Pros & Cons of Project-based model
Pros of a project-based model are clear timelines and quicker execution, rapid hiring process, and absence of micromanagement. Cons are a lack of flexibility and control over your project.
Dedicated Team Model
• How it works
You can hire a team for creating a project and working on it with complete dedication. Unlike a project-based model, a dedicated team has more engagement for your project.
• When to use
This IT outsourcing model works well for early-stage startups with complex long-term projects. If your company has a scalable project with vague requirements or wants to build an MVP to test your idea, this model is highly suitable.
• Pros & Cons of Dedicated team model
More control over the process and high flexibility are two major benefits of a dedicated team model. However, it gives more responsibility to the client and initiates a long hiring process for dedicated developers.
• How it works
When you need developers or professionals for a specific domain or require a couple of professionals, it is better to hire outstaff workers from a software development company.
• When to use
The outstaff model works best for short-term projects and when the requirement is limited to a particular technology domain for a short time.
• Pros & Cons of Outstaff model
The benefits of the outstaff model are you can easily fill the gaps in your project without hiring the entire team. You can get more flexibility as well. However, it may result in a long and cumbersome search for several professionals in a particular domain. As a result, you may have to give more time to onboarding.
Why You Should Use IT Outsourcing
We have mentioned at the beginning of this article that startups and large organizations can leverage the benefits of IT outsourcing. Now that you have a clear idea of what IT outsourcing is, its models, and its pros and cons, it’s time to go through some situations that show the need for IT outsourcing.
When you have a brilliant idea and domain expertise
If you have an excellent idea or a solution for a real problem, IT outsourcing is for you! Here, your primary goal remains to enter the market and find the impact of your idea. You have industry knowledge but you do not have the technical expertise in converting your dream idea into reality. Here, an IT outsourcing partner can assist you to validate the idea with the help of MVP development. You can implement changes based on the feedback received by early users and make the final product eventually.
When your startup is in early stage
Startups have their challenges including financial problems and resource limitations. Early-stage startups can reduce costs significantly by outsourcing their projects or hiring an offshore outsourcing partner. Outsourcing makes it possible to employ full-cycle product development in a cost-effective way while startups can focus on other productive activities to ensure their growth.
When you need technical assistance
It is imperative to keep your solution or application updated in a highly competitive scenario. You may need technical assistance in upgrading your enterprise application. Domains like backend development, UI & UX design, etc. need experienced persons and IT outsourcing can lend a helping hand in addressing this requirement. It saves time in finding qualified staff and operational costs.
Here is the list of IT services that you can outsource-
- Custom software development
- Software testing and QA
- MVP development
- Cloud-managed services
- UI/UX design
- Enterprise application development
- Database Management
- Software maintenance and support
Silver Touch - Your Reliable Partner in IT Outsourcing
Silver Touch Technologies is your one-stop destination for IT outsourcing services. As a reliable and reputed offshore outsourcing partner, we transform technical expertise into organisational intelligence for ensuring seamless business processing for your company. We not only fulfil your talent requirements but also offer you a complete IT outsourcing solution in a cost-effective way.
Our engagement models fit your business requirements and budget. Here are some of the big benefits of assigning a software development project- Working on projects based on a global time zone
- CMMI Level 5 standard operating procedures
- 24*7 Technical assistance with state-of-the-art infrastructure
- Advanced workstation equipped with cutting-edge solutions
- Large talent pool for different domains and technologies
Whether you opt for virtual assistance or remote development, we ensure timely project completion with the utmost security and effective communication.
Increasing competition and ever-changing business challenges have taken a toll on modern businesses. The recent pandemic has also forced enterprises to switch to cost-cutting. In such a troubled time, IT outsourcing models can lend a helping hand with a proven record. We will see more companies opt for offshore outsourcing in the coming years to remain competitive. All you need to hire the right IT solution provider for assigning your projects and get them done on time in a cost-effective way.
FAQs About IT Outsourcing
What is the meaning of IT outsourcing?
IT outsourcing is a cost-efficient approach in which a company moves a part or the entire software development project outside of its premises and assigns it to an experienced IT solutions provider.
What are some of the top benefits of IT outsourcing?
IT outsourcing can save time and effort for modern enterprises. It makes it possible to ensure timely completion of the software project with high-quality and seamless performance in a cost-effective way.
IT outsourcing is beneficial for which companies?
All companies ranging from startups to large conglomerates across different industry sectors can use outsourcing for saving time, effort, and money.
What is IT outsourcing? What are the vital pros of this collaboration model?
IT outsourcing is a cost-efficient approach in which a company assigns a part or the entire software development project to an experienced IT solutions provider. Big savings in time, effort, and cost are some of the vital pros of outsourcing the project. Another key advantage is access to a vital pool of talent across the world
What are the most common pros and cons of IT outsourcing that I should pay attention to?
The most common pros of outsourcing are-
- Complete control with 24*7 availability
- Access to a vast talented pool
- High flexibility and scalability
- Focus on productive activities
The most common cons of outsourcing are-
- Cultural difference
- Data Security
- Communication gap
You need to pay attention to these cons. You can address them effectively with the help of a reliable offshore outsourcing partner.
What can you advise me to leverage the benefits of IT outsourcing?
If you want to make the most of outsourcing and stay away from its disadvantages, you can make your roadmap with the objectives and features of business software. Also, it is always beneficial to consult and assign your project to a reputed IT outsourcing provider company to get top-notch services.