IT outsourcing may be risky. And it’s hard to trust your software product development to a remote team. That’s true. But many successful companies such as Microsoft, Oracle, TuneIn, Gogo, and Shutterstock have benefited from it. They seamlessly integrated new technologies in their operation, reduced time-to-market, and saved development costs. In fact, Deloitte's survey reported that 78% of companies that outsource are happy with their decision. So why do some fail, and others succeed? And what problems of outsourcing should you be aware of to avoid risks and gain a massive competitive advantage?
A devil's dozen of IT outsourcing issues and how to overcome them
As a company working with tech companies and enterprises from all around the world, learning from almost two decades of experience in IT outsourcing, and listening to the stories of our clients, we have created a guide on 13 key problems of outsourcing, and effective ways to solve them. It includes such common yet very painful IT outsourcing issues as a nerve-wracking search for a vendor, a tedious selection process, communication bottlenecks, budget and legal IT outsourcing issues, knowledge transfer troubles, and many others.
1. It's hard to find a reliable IT company that meets all criteria
The key to outsourcing success is finding a vendor that can understand and solve your specific business problems. But how do you find the right one that has the tech and domain expertise you need, fits your budget, and which you can rely on at each step of product delivery?
The first and most important thing to do is to clarify what needs to be done. Understanding your business KPI's and reasons for outsourcing will help you establish what criteria are vital for selecting the trusted software development partner.
If you have difficulty with the selection process, check out our article about the Top criteria for choosing the right software development company. It covers the essential aspects of IT outsourcing in terms of vendor selection. Also, we created a step-by-step tutorial to help you choose the best IT outsourcing vendor and guide you through the journey.
2. Information on vendors is inconsistent
Lack or inconsistency of the information about IT outsourcing companies is among the common problems of outsourcing. Unless you have weeks to manually browse through thousands of websites and contact hundreds of companies, you need a pre-selected list of companies to choose from. Dedicated listings of vendors (a.k.a. directories and catalogues) post consistent and objective information about every company. Typically, large directories verify the reviews left for any company.
Let's take a look at Clutch.co, one of the biggest research platforms with B2B ratings and reviews. This is how a typical profile of a company looks like:
This preview allows you to see the company's location, information about the size of a company, service focus, as well as quickly visit the website or directly contact the firm. You can also see the full profile by clicking on the name of the company. There are also other directories like GoodFirms, TheManifest, and others. However, Clutch has the largest database of companies.
3. I have no experience working with an IT outsourcing vendor
Understanding how things work is vital for successful IT outsourcing. Once you choose a reliable IT outsourcing company, it’s all about setting up clear and reasonable expectations for both the vendor and your engineering team. It includes the vision of the product, development stages, time-to-market or deadlines, as well as the need for further maintenance of the product.
However, a good IT outsourcing vendor will help you by walking through each step of the process. They will help to clarify the requirements and collect all the artifacts, develop an effective product discovery stage, choose the right experts for your project. On top of that, your software development provider should share their expertise and remove bottlenecks, as well as ensure the adoption of the best practises.
Also, regular status updates will help everyone stay on the same page. In addition, constructive and timely feedback can prevent many IT outsourcing issues.
4. I have no expertise with technology I need to outsource
Certainly, outsourcing Java development, for example, will differ from Big Data analytics or embedded development outsourcing. Understanding the difference in outsourcing a specific technology or a type of solution will help you find a vendor that will help you fulfill your business needs.
- Fintech development outsourcing
- Embedded development outsourcing
- BI development outsourcing
- .NET development outsourcing
- Blockchain development outsourcing
- Digital Transformation outsourcing
Another important thing is to find a vendor with expertise in the area you plan to outsource. They need to have a proven record and portfolio. You can look for specific lists of companies with experience in a given field.
- 30 VR development companies with strong portfolio
- Top 10 .NET development companies in Eastern Europe
- Top 10 blockchain software development companies in Europe
- 7 AI development companies in Europe with strong tech portfolio
5. All vendors are too big or too small for my company
Among some common IT outsourcing issues, companies have trouble finding a vendor of the right size. Either the software development company is too small, and they can't scale up or down quickly, or the vendor is too big and does not care about small and midsize clients.
For an enterprise, an IT vendor that cannot staff a team of 10-20 people quickly is an issue, regardless of their expertise. For a startup or midsize company, working with a large vendor can be frustrating, as they may feel like 'just another company' and may not get enough attention.
How do you choose a vendor that will fit your needs perfectly? Choose software outsourcing company of the right size reveals the benefits and problems of outsourcing to companies of various sizes, as well as offers a list of vendors within the same category.
6. Outsourcing may be risky
Outsourcing helps many companies deal with a shortage of tech talent and the lack of necessary expertise. Alas, working with a third party and not having full control over every step of the process may be risky. Will this cooperation be effective? Will the vendor have enough experts to scale up my engineering team? Will they deliver the product on time?
We understand that sometimes, there are more questions than answers. However, with diligent planning, proper choice of the vendor, and right cooperation model amplified by a comprehensive contract, you can significantly minimize the risks.
Find details in How to minimize risks in software development outsourcing.
7. I'm afraid of the legal mess
Confidentiality, liability, data protection, regulation compliance, as well as intellectual property rights – all these aspects can create some problems in IT outsourcing.
Based on the cooperation model you choose (be it a dedicated development team, time and material, fixed price, or any other), the terms will vary. Every cooperation model has its legal terms, so to avoid any legal IT outsourcing issues, make sure to learn more about the subject.
Another vital aspect is the legislation within the country. Some IT outsourcing destinations strive to foster the benefits of IT outsourcing and create business and legal environment that helps tech companies to grow. Others, on the contrary, neglect to support this industry and create more problems than benefits for outsourcing. If you are interested in IT outsourcing to Ukraine, we recommend reading Legal aspects of outsourced software development to Ukraine: key highlights.
8. Complying with regulations
While still on the subject of legal issues, let's talk about regulatory compliance. Why is it so crucial for an IT outsourcing company to be certified and comply with international regulations? Many IT outsourcing issues stem from the company's failure to deal with the requirements, thus having troubles with business processes and access to data, as well as the inability to deliver certain services.
ISO, PCI DSS, and GDPR – the more, the merrier. The right IT outsourcing vendor should have certifications and comply with the regulations mentioned above.
If you are interested in IT outsourcing & GDPR compliance, we recommend visiting Security, GDPR, and IT outsourcing: how to get it right.
9. Finding and keeping people on the project
Fast recruitment and smart retention are two things every company is looking for in their IT outsourcing vendor. A vendor that can attract top software engineers and create a team their client needs always has a thorough and sophisticated approach to every position. Such an attitude allows them to evaluate each candidate and create a well-structured team that can deliver the top-notch product.
Proper retention is another quality of an established company that understands the cost of every expert. Good management, partnership, clear career path, along with clear policies, ensure lower turnover within the firm. Find out more in Employee retention in IT outsourcing companies: Ukraine and the world.
You may also be interested in How offshore development company should manage delivery: people, processes, product.
10. I need to transfer knowledge before and after the project
Why did they do that? Who requested this? Where the new feature goes? These are just a few questions related to problems of outsourcing and knowledge sharing in particular. People come and go, stakeholders and product owners quit, projects grow and evolve, even the vision of a particular software can change with time.
The knowledge that is not shared or documented is lost. To clear things out, we created An effective knowledge transfer plan. In the article, you will find detailed instructions on how to transfer the knowledge base effectively and minimize the knowledge loss. We've based it on the success stories of the leading tech companies.
11. Finding a company that fits my budget
That's a tricky topic to discuss, as one of the reasons companies still choose outsourcing over in-house development is to save money. However, sometimes going for lower costs means you will need to pay a higher price eventually. Often, when planning a budget, companies set unrealistic goals and try to reach them at the expense of product quality, trying to cut corners. To keep the integrity of the final product and keep the costs down, it is vital to avoid budget-draining mistakes. What are those? The wrong choice of cooperation model, unclear and changing requirements, as well as poor management strategies, can significantly raise the costs and cause numerous IT outsourcing problems.
Continue reading How to save your software development budget in IT outsourcing.
12. My vendor is not flexible
We live in an unpredictable world that keeps changing every day. Ten or fifteen years ago, companies could sign lengthy contracts and commit to a long-term partnership with an outsourcing vendor without any changes in the contract. Those times are over. Modern times call for other solutions.
First, the agility of the development process can be achieved by choosing the proper engagement model that fits a specific case best. Also, the choice of a vendor plays a huge role. A small firm may struggle with business processes, while a certified midsize or large vendor can understand and adapt faster. Moreover, companies with 5+ years experience are more likely to be able to reach the balance between the agile processes, quality of the product, and satisfaction of all involved parties.
13. Cultural, communication, and time-zone problems when outsourcing
Companies that are looking for an IT outsourcing vendor are often afraid of cross-cultural problems of outsourcing. It is important to find an outsourcing destination that would be a great cultural fit for your business. It is even more crucial to find a company that can meet your expectations in terms of cultural, communication, and business ethics aspects.
A cultural dimensions theory by Geert Hofstede suggests that every nation has its own set of features that define their mentality and the way they approach business. Some nations are more independent, while others need more guidance, some tend to please the client at all costs, while others are more likely to be result-oriented, regardless of the process. You can find more in our article Ukrainian software developers: culture & communication in outsourcing.
Also, when working with a remote team, you need to handle communication in different time zones, and align schedules, so here are the ky tips on setting up the communication with remote or distributed development teams.
Every day, more and more companies choose IT outsourcing to find the experts they can’t hire locally, boost their development capabilities, access the tech expertise unavailable in their own company, or even bring their products to market faster. Tech giants like Microsoft and Oracle, as well as world-known companies like Reuters, Lebara, or Shutterstock, have chosen to outsource and gained huge benefits from it despite some common IT outsourcing issues.
This article covers the most common problems of outsourcing and offers experience-based recommendations on how to solve them. It will help you find a trusted software development partner, build successful long-standing cooperation, and keep full control at each step of the product development process.
If you have more questions about IT outsourcing issues, contact our experts, and we'll be happy to answer them.