IT project outsourcing is a proven way to boost your capabilities and scale easily. But how do you find a reliable company and develop a strong, lasting technology partnership?
To help you, we've compiled a comprehensive guide on outsourcing software development projects. It covers such aspects as how to select the most suitable cooperation model for your spesific case (with real-life examples), what outsourcing destination to choose, legal aspects, knowledge transfer, and more.
- Signs it is time to outsource your IT project;
- Choosing the right model of outsourcing IT projects:
- Best locations for outsourcing: Eastern Europe;
- Best locations for outsourcing: Asia;
- Best locations for outsourcing: Latin America;
- 3 things to consider before outsourcing;
- Wrapping up.
Opting for a partnership with a third-party service provider is not an easy decision to make for any business. However, there are several clear signs that it is time to outsource your software development.
- Lack of in-house talent. Too many tasks can quickly make your team feel overwhelmed. With outsourcing, you can easily improve the overall velocity and delegate some tasks to an outsourced team.
- Difficulty finding the right talent. Spending weeks or even months looking for a candidate with the required skill set is a clearcut sign that you need to expand your search area. Outsourcing grants access to a huge talent pool where you can quickly find the right candidates. What's more, experienced IT outsourcing vendors usually have a large team of recruiters and a large internal base of candidates.
- Carryovers and failed timeline. Meeting deadlines on a regular basis has significant importance to the success of any project. If your team is struggling to keep up with your roadmap, scaling or adding a separate team may be the solution you are looking for.
- Difficulty tackling complex projects. An experienced outsourcing partner can provide the necessary expertise to develop any project, no matter how complex.
- Lack of tech expertise. With software projects outsourcing, you can see your idea brought to life even if you do not have the technical expertise. The right partner can take care of developing your project completely, from an initial feasibility study to development, customization, and support.
- Need to optimize costs. An experienced outsourcing partner can help you implement the best development practices (choose the best tech stack, architecture, streamline DevOps, etc.) while optimizing costs. Moreover, such partnership will help you avoid recruitmet, HR, and administration overhead as all these tasks are hanled by your outsourcing service provider.
There are three cooperation models of outsourcing software project development, each with its own specific characteristics. It is important to select the one that suits your business needs most.
Extended Team (or outstaffing)
This model is a good fit if you need to expand your core team of engineers with additional developers or experts with particular technical knowledge. They integrate with your development processes and communicate with you on a daily basis. As a result, you have a good sense of control, since management, task assignment, and progress tracking are handled on your side.
The Extended Team model is valued for its high flexibility when it comes to scaling up or down. However, it usually involves a longer staffing process, since you have to take part in interviewing and evaluating each candidate. In addition, it requires establishing effective communication and knowledge sharing with your outsourced team.
Activities like these require more effort from your side. Therefore, it often makes sense to delegate them to your outsourced team as well. A reliable tech partner by your side can take care of staffing, interviewing candidates, day-to-day team management, and technical guidance, allowing you to focus on core business tasks.
Besides lifting the burden off of you, this also creates possibilities to form more advanced, longer-lasting partnerships.
Real-life example - Fluke.
Fluke Digital - a business unit of the Fluke Corporation that designs and develops electronic measurement equipment - manages an entire ecosystem of connected solutions and tools. One of its branches, SCHAD Mobile Work Management, started its Extended Team partnership with N-iX before being acquired by Fluke.
The added development capacity provided by N-iX helped SCHAD maintain all of their existing products, as well as develop several new ones. The partnership continued after the acquisition as well, only under the umbrella of the Fluke Corporation.
This project is the perfect example of how outsourcing software development projects can change and evolve over time. A group of 8 software engineers is now a full-fledged development team that consists of 22 experts. These include QA engineers, a tech lead, a data scientist, a DevOps expert, and more.
The team has been working on the development of various solutions for Fluke. For example, we have developed Fluke Mobile - a solution that enables performing work order management and inventory management tasks from mobile. Additionally, the team has contributed to the development of the Fluke data platform. This IoT software platform provides insight into asset conditions and helps take immediate action when issues arise.
After years of cooperation, the N-iX team now operates as a separate development unit within Fluke. What started as a regular Extended Team partnership between N-iX and Fluke has transformed into a more advanced form of outsourcing, called Managed Team.
Choose this model of IT project outsourcing if you need to delegate part of your product development to a separate, self-sufficient engineering team integrated with your delivery organization. The team size and composition are tailored to the specific requirements of your project. Your outsourcing partner also provides a dedicated project manager who takes care of day-to-day management and ensures good team performance. As a result, Managed Teams require less involvement from your side, with business reports and reviews happening once in a quarter, on average.
The biggest advantage of a Managed Team is its ability to work as a separate unit while still being integrated into your delivery process. Forming such a team is quicker since the entire recruitment process is handled by your outsourcing partner. In the case of N-iX, for example, it takes about 4-6 weeks to fill a position with the right talent. Moreover, such teams always have a dedicated project manager who monitors their performance, progress, and daily processes.
Partnerships like this last longer, as compared to the Extended Team, and can result in more benefits. Indeed, such projects usually boast high employee retention, allowing you to obtain teams that will provide long-lasting support for your company.
Furthermore, such partnerships often evolve over time with the Managed Team taking on new responsibilities. With knowledge and experience accumulated over the years, such teams can provide valuable advice about best practices and technologies that can improve your project. In a way, they become your personal IT consultant, making sure that you keep with the latest tech trends.
Real-life example - Lebara.
Lebara - one of Europe’s fastest-growing mobile virtual network operators - began their partnership with N-iX back in 2014. The company was looking for an outsourcing partner that would take care of developing and maintaining their new products. During the first years of cooperation, N-iX experts have delivered many projects, such as website development and migration to the cloud.
Initially, Lebara held complete control over project development. However, as the cooperation continued, the company began to hand over more control over processes and project management to N-iX. Eventually, Lebara gave 100% control of R&D capabilities and part of project management to N-iX.
As a result, the team that initially numbered several developers has grown into a full offshore R&D center that counts 100 engineers. The center develops various types of solutions, from mobile to Big Data, that help Lebara provide additional services for their customers.
Additionally, in 2019 N-iX took on the role of the IT consultant for Lebara. The N-iX Solution Group performed an extensive audit of performance, architecture, business operations, and more. Lebara obtained a detailed data-driven report that helped create an effective IT strategy to address all pain points and bottlenecks.
While Extended and Managed Team models work in the scope of a particular project, Custom Solution Development operates on a scale of the entire business.
This model is best utilized for resolving business problems such as expanding market reach, undergoing digital transformation, or developing full-fledged products. It is especially useful for companies that want to focus on other aspects of their business and are looking for a partner that will take care of their problem or need completely.
Custom Solution Development encompasses the full cycle of project design and development. It starts with an extensive Discovery Phase performed by Business Analysts, System Architects, Tech Leads, and other experts. The team makes a detailed analysis of your business and internal processes to validate your idea, choose the best stack and architecture design and provide you with all the deliverables needed for a successful kick-off of the project. Moreover, they can also research your competition and the market you operate in.
After the Discovery Phase, your outsourcing partner takes care of hiring top talent for your project and providing workspace for your team that will focus solely on your project. The project is managed by a dedicated PM who regularly shares roadmap progress updates, major milestones, and releases to keep you informed about the status of development.
Such partnerships often grow into the formation of entire offshore R&D centers that become an inseparable part of your company. They help you scale up your business, expand customer reach, and accelerate digitization.
Real-life example - car dealership company.
A leading car dealership company from the UK (under NDA) partnered with N-iX to digitize the warranty data exchange and management between car manufacturers and mechanics.
First, N-iX performed an extensive Discovery Phase to prove product idea feasibility and mitigate risks. This phase included a detailed analysis of existing systems, interviews of end-users, and the design of the solution. The N-iX team created a UI/UX scope from scratch and cooperated with the client to build the solution’s product design.
After the initial phase, N-iX provided a full team that performed end-to-end solution development and testing. Our team created a cloud-based application that streamlines warranty case handling, eliminates errors and unnecessary paperwork and saves costs.
The N-iX team helps the company develop new features and maintain the solution. Moreover, it also assists with scaling it to the client’s partners, such as Audi and Mercedes-Benz.
Let’s now move on to where you can find partners for outsourcing software projects, starting with Eastern Europe. The region is one of the most popular destinations for software project outsourcing. Its 1M IT talent pool holds some of the most talented experts in the world. Indeed, 3 out of the top 10 countries with the best developers are located in Eastern Europe, namely, Poland (5th), Belarus (6th), and Ukraine (7th), according to TopCoder.
Engineers from Eastern Europe are valued for their high technical skills, wide domain proficiency, and experience with enterprise-level projects. Also, local companies generally offer one of the best (if not the best) cost-to-quality ratios.
Finally, cultural similarities and good knowledge of English help local outsourcers establish strong and long-lasting partnerships with companies from Western countries.
When looking for an outsourcing partner in Easter Europe, make sure to check its experience and qualifications. There are many choices to pick from but not all of them will be able to meet your needs. Here are some tips that will help you find the best Eastern European IT outsourcing company for your project.
Country in focus: Ukraine
Ukraine is the largest country in the region, and thus holds the largest talent pool available for IT project outsourcing. There are nearly 200K engineers and 850 software companies in Ukraine, according to Clutch.co. Furthermore, over 30K ICT and STEM graduates enter the talent pool annually, making it one of the most rapidly growing markets in the region.
Ukraine has a long history with software project outsourcing. There are many experts that have been working in the industry for 10 or 20 years, and sometimes even more. As a result, finding a reliable partner that will meet the quality standards you require is not that difficult, especially compared to some other countries.
Asia has been the go-to destination for outsourcing software projects for many years. Countries such as India and China have enormous IT talent pools, making it easy to find experts with the required tech stack at considerably lower rates than, for example, in the US or Europe.
However, these benefits often come at the cost of communication. This is a common challenge that most outsourced software development projects have to face. There are two sides to this challenge: a cultural one and a technical one.
- Cultural. There are significant differences between the work ethics in Eastern and Western countries. Additionally, a significant portion of the local engineers may have low English proficiency.
- Technical. Internet quality in the region is somewhat questionable, especially compared to the US or Europe, for example.
As a result, establishing effective communication with your local outsourcing team can be quite difficult. It will require time and effort from both sides, and may not always yield desired results.
Country in focus: India
With nearly 5M programmers, India holds one of the world’s largest IT talent pools. TopCoder ranks India as no.11 in the list of countries with the most skilled developers. In 2020, India accounted for more than half of the global IT and BPM outsourcing services. Additionally, the value of exported software and IT services has reached $149B in the same year.
However, IT projects outsourcing in India is known to suffer from the previously mentioned challenge more than most. Both you and your partner would have to work hard together to establish trust and understanding which are required for project success.
Engineers in the emerging software outsourcing market of South America (and Mexico) already number close to 1M. Countries such as Brazil, Argentina, and Mexico have recently been recognized as well-established destinations for software projects outsourcing. This is much due to the effort of local governments that look for new ways to battle economic instability.
Lower rates, a large talent pool, and cultural similarities are making South America a popular outsourcing destination, especially in the US. However, it has its own specific set of challenges caused by being a relatively new market, as well as political and economical specifics of the region.
- Inefficient outsourcing processes. Young companies that lack experience are a common occurrence in new markets. Latin America is no exception. A significant number of businesses expressed frustration about their outsourcing partnerships in the region. Common complaints include a lack of punctuality and commitment from their partners, as well as delays in project development and delivery.
- Political instability. Many countries in the region have been struggling with political instability for years. Such conditions can have a direct impact on your cooperation with local companies. As a result, all outsourced software development projects come with some degree of uncertainty.
Country in focus: Brazil
With close to 500K engineers, Brazil homes nearly 40% of the Latin American IT market. It is the fastest growing and the 6th largest IT market in the world, according to Accelerance. In the list of countries with the best developers, Brazil is ranked no.19 by TopCoder.
The challenges of being a new market are quite prominent among Brazilian software companies. Most local engineers have little to no experience communicating in English, making it difficult to establish clear communication.
Furthermore, because of the immense size of the local IT market, finding a trustworthy partner can be harder than it seems. There are many cases when businesses without previous outsourcing experience have fallen victims to unreliable service providers.
Finally, there are a few things you have to decide and keep in mind before taking advantage of IT projects outsourcing. Let’s take a brief look.
Choosing the right pricing model
There are several outsourcing software project pricing models you can choose from. Namely, Fixed Price, Time & Material, and Dedicated Team. Each model is best used for a specific type of project. Therefore, it is important to pick the correct one.
- Fixed Price. Your vendor commits to deliver a project within the exact scope, budget, and time that you agreed upon. The model allows mitigating most risks but also offers the least flexibility. In simple terms, you get exactly what you pay for. Small, short-term projects (up to 6 months) will get the most out of this model.
- Time & Material. You pay an hourly rate for an expert with the specific skillset that you requested. If you have a particular task or a short-term project phase that needs completion - this model is a perfect choice. However, in long-term partnerships, this model can be quite cost-inefficient. Moreover, your vendor cannot guarantee that the expert will solely focus on your project, making knowledge accumulation problematic.
- Dedicated Team. The vendor forms an entire team that will be completely dedicated to your project. This is the most flexible model of all since everything can be adjusted during the development process, from team size and composition to project scope and budget. However, this model is best used only for long-term partnerships (1+ years), as it brings little value for small projects.
Signing a win-win contract
It is very important to protect your business with a contract that covers all potential risks, from liability clauses to penalties and data protection rules. We have already prepared a full list of tips on how to sign a win-win contract.
Effective knowledge sharing plan
Knowledge accumulation and sharing are critical, especially on longer projects. Any unsaved knowledge on the project will eventually cost you both time and money. Therefore, never settle for an outsourcing partnership with a vendor that does not have a robust knowledge plan. Here is an article that will provide more insight into the importance of knowledge sharing.
Even though there are many things that you need to consider before outsourcing IT project, the benefits that you get make it well worth the effort. By knowing how to find the right partner and how to form the right type of cooperation, you can accomplish anything you set out to do.
Why choose N-iX as your partner for outsourcing software project?
- N-iX have been providing top-quality outsourcing services since 2002
- From Big Data to Embedded and Cloud development, we offer a wide portfolio of services & expertise that can cover any development need;
- We have a long record of successfully delivering projects for companies in FinTech, Telecom, Retail, Finance & Banking, Healthcare, Hospitality, and many other industries.