The IT outsourcing services around the globe have reached almost $100 billion in the year 2020, making the size of this industry totally mammoth. However, the question that still looms over many minds is – what is outsourcing, what kinds of outsourcing mainly exist, and most importantly, why should businesses adopt it at all?
IT outsourcing – know it all
In IT outsourcing, you delegate the responsibility for all your process-related work to the IT to a third party, which will allow you to address their incapacity in expert and internal resources and helps business growth plus digital transformation.
IT outsourcing is usually a generic term that talks about processes that range from development to a specific solution to all about the execution of disparate IT functions. Most of the time, companies depend on third-party providers that perform the under-mentioned business processes and operations:
- Implementation of project
- Support and maintenance
- Upgrading and migrations
- Audit and quality assurance
- Enabling IT infrastructure
By entrusting IT operations to some of the external vendors allow businesses to gather huge benefits. There are:
Focusing on core objectives of the business – Companies can now focus on the first-priority objectives of the business while IT responsibility is entrusted to the vendor.
Deeper expertise on the subject matter – To develop the needed skills might just take years at an end, while when you outsource to someone expert, it goes done in no time.
Cost-effective – Building, plus training along with the support from the in-house staffs along with addressing the related difficulties reduce the cost mainly if a company needs just one project.
Shorter lead time – businesses will be able to begin projects quickly and almost immediately without needing to build and also train an internal IT team.
High competition – Companies are now able to implement the latest technologies in their businesses resulting in high cutting edge services and product delivery.
Managing the issues quickly and minimum downtime – A highly professional team coming with rich experience of outsourced experts allow them to be proactive in anticipation of problems and immediate solution.
24 by 7 support and monitoring – With the help of IT experts, a company could keep a vigil on its workloads at all times.
Limitations – These services may come with limitations in certain ways. These could be:
Issues related to communication– If the client is at a remote location from the outsourced team, the time difference could create a hindrance in communication.
Language and cultural barriers – The cultural difference along with language barriers could significantly create complications between the teams of the clients and the service providers.
Security breach – Third-party access to sensitive data and assets could be a threat to security.
Lacking in control – If the IT experts are working from remote locations could complicate the monitor and control.
Loss of time due to adjustment according to the client specifics – Also the service providers who could focus on a specific industry or a special business function need to adapt to a client’s specifications.
Hidden expenditure – Benchmarking plus analysis, selection of a business partner, transferring of the business process plus the knowledge to any kind of external provider, and staffing support could lead to unexpected expenses.
Models of IT Outsourcing
Having a project in vision, the CTO maps the projects and works out if the in-house IT team could handle the needed scope of work. Based on the situation, one out of the three models of outsourcing could be chosen.
Even known as full-process outsourcing, the said model is highly popular in outsourcing. The IT vendor is given total control plus responsibility for the project, which includes stages of the process, managing the team, results, and risks.
The client usually forms a unit of development that comprises the experts of the vendors. Full-process outsourcing can help businesses build lasting relationships with business partners.
- Minimum client involvement that enables the clients keep focus on the first-priority processes and tasks.
- Prudent results and clear plus predictable incomes provided by the SLA.
- Access towards knowledge and expertise that these IT vendors possess that enables the possibility of realizing ideas of complexities.
- Vendors responsible of any kind of difficulties and risks
The limitations of project-based
- The client will find hardly any control of the process of development
- It takes more time for project kick offs compared with the other models
- We highly recommend the option if there isn’t enough IT expertise or if the IT resources are engaged in other software deals.
This model is recommended if there isn’t enough IT expertise or in case your IT resources are considered by other software projects. This kind of cooperation makes sure there is continuity and only suits those businesses that are in need of long-term services.
In order to build easy and transparent cooperation under this kind of model, the clients would appoint a project manager so that he/she could communicate with the PM of the vendor and control workflow and reporting as often as needed.
The agreement is made before with the client on project requirements and then for further reference provided within their specification. The vendor remains responsible for the entire project with its management, and particularly for the deliverables that are consensually agreed along with the timeline.
Another name given to them is the managed team this outsourcing model has the vendor working with the IT in-house team of the client on a specified scope within the assigned project. The dedicated team would work independently as it doesn’t get completely integrated into the client’s staff.
The team gets managed by the project manager of the vendor and the communication gets conducted by the vendor and client’s PMs. Responsibilities plus risks get shared between these two parties.
There are similar advantages of using the dedicated team as that of full-process outsourcing:
- You can quickly ramp-up and upscale as teams that are dedicated and assembled by the vendor before, while their structure is thoroughly planned yet easily adjusted to the requirements of projects.
- Hardly any time and effort is invested in the PM as that is the responsibility of the vendor.
- Higher control of processes plus deliverables, because the in-house specialists remain involved as well
- Access to the best of expertise and practices of the vendors
- It might take some time to start as the workflows and processes are getting set up
- There may be issues of collaboration and communication
- It does not suit short-term cooperation
It is therefore recommended to use a dedicated team if you can afford an in-house IT department along with tested procedures. However,
- They remain insufficient for the said project
- The project needs some expertise that may be the team is not skilled with
- If you are reluctant about hiring a new team
- You want to be involved in complete decision-making
This model is a perfect match when your in-house developers remain engaged with the core products plus there is a side project running parallel. It is a good option when a business is in need of software support and maintenance. For instance, while working with the managed team, the client has to prepare the requirements from before to enable the vendor to assemble the staff accordingly.
The model is also called extended workbench, team extension, and outstaffing, where the name is highly descriptive: your client adds the vendor’s specialists into the IT team also manages the team. Usually, it’s temporary cooperation. External experts work parallel with the experts of the clients so that certain positions can be filled and the client can be made completely responsible for the said project.
- It is flexible and cost efficient as the client close down the resources without having the need of hiring full-time experts
- Quick plus easy upscaling of the team according to the requirements of the clients
- Getting access to skills that in-house experts lack
- Total control over the project, with your client being in charge and experts from third-party vendors working as the staff members
- The client will take complete responsibility of all the deliverables and processes
- Problems in cooperation plus communication
- High risk that turnover with the extended staff
We suggest staff augmentation in case you have:
- Created a clear cut and established development processes
- An IT department plus tech leaders that is in-house
- Resource or even skill shortages that the third-party experts could supply
- This method works rather well for shorter and longer-term projects
Each of the three mentioned IT outsourcing models could be applied whether or not the client likes nearshore, offshore, or onshore delivery model. Let us check the three service delivery models in IT outsourcing:
The onshore model is based on engaging your local talent. The geographic proximity no doubt encourages seamless communication along with onshoring that comes with high labor costs and few experts.
While using an offshore vendor, businesses take advantage of the skills and experience vendors have at the same time ignoring the location. Offshoring will allow companies to pick from the global pool of talent and create access to the best experts at a justifiable price. Most offshore companies have experts who can fluently speak English, can adjust their working time according to client needs, or keep offices in separate time zones so that 24/7 communication is enabled.
There is an intermediate option called nearshore development that vendors opt for being located in nearby or neighboring countries. The advantage is lower cost and a larger pool of talent.
Pricing of the Outsourcing/Contractual Models
The option of using a pricing model is a significant part of the financial effectiveness of a project. Generally, the relationship between clients and outsourcing service providers lies in one of the below-mentioned pricing models:
As the price is fixed at the beginning of the project and payment is done only on the achievement of the significant milestones, contracting on fixed-bid places the vendor at financial risk. The vendor has to provide the required service at the price promised, no matter how much of the resources are spent. The fixed pricing model works fine when goals, requirements, and scope are defined clearly. A clear definition of requirements and criteria of acceptance is a must as it allows the client to accurately calculate deliverables. Estimations get placed on the basis of results of the initial phase of analysis, something that typically works under a designed contract, where any changes in the deadlines and scope have to be registered within additional agreements.
How you can outsource effectively
You must work with a reliable, experienced, and experts vendor to drive efficiency and success. Some tips for finding an official partner:
- Search good partners: Ask all your business associates, partners, or associates to recommend you. The best way of checking reliability plus reputation is grapevine.
- Check ratings and listings – Some sites like DesignRush, Clutch, etc. will provide you an idea of the background of the company, its experience, client references, and expertise.
- Create a standard analysis – Time and money would get well spent on deep research: where the more surplus you come with research, the more likelihood of finding an ideal partner.
- The moment you have outlined the specific needs, you need to communicate with each of your enlisted companies you think can be potential partners such that you could develop a complete picture of each of the company.
This would include the following significant steps:
- Look out to learn first-hand regarding the experience of the company and expertise and further request for references to ensure your potential partner possesses what is required for partnership.
- Negotiate with the principles of engagement so that you could decide on which models will work best for both the parties.
- Ask for an estimate based on the specifics of the project
- The final step works in comparing information that you collected and pick that company which satisfies the needs in terms of engagement models, internal culture, expertise and budget to highest possible extent.
There are many IT outsourcing companies existing in developing countries and the developed countries equally. While your business develops multi-folds with the help of these companies, due diligence is a must before entrusting your essential business to one. As long as you are in the hands of a good vendor you can ensure that your job will be done and in excellent fashion.