A company can save up on labor and production costs when it hires talent from another country. Software companies, specifically, take on remote teams for their development projects. But how does that work exactly? If you’re a startup owner wanting to assemble your own remote team then you’ve come to the right place! Read on to learn about how businesses outsource their software development.
Outsourcing of software development started during the 1990s. Businesses saw the opportunity of expanding their business processes and transferring them to another location. But how did offshore outsourcing of business processes and production come about? How did they strategically outsource a software development process?
“Software is eating the world”
Software programs are great assets for a lot of businesses and organizations. But it has not always been that way. Gadgets and technologies used to be isolated among the information technology community. However, the following years led to IT consumerization. Gadgets and technologies, such as laptops and desktops, are heavily utilized by industries outside of IT.
Because of the prevalence of the modern Internet, businesses are now only a click away, through online services run by applications and software. In 2016, nearly 290 million people in the United States used the internet; mostly through mobile phones. How did they do this? Using mobile applications. Facebook makes it possible to socialize and connect with people from all around the world without leaving your couch, Amazon lets you “shop ‘til you drop” with a few clicks, and you can binge watch your favorite shows anytime, anywhere with Netflix. All of these are run by software programs. These programs created by geniuses from the IT industry, boost the income of Facebook, Amazon, and Netflix by mountains every day.
We may not realize it, but software is slowly becoming an essential part of our lives. To quote a 2011 essay by Marc Andressen, “Software is eating the world.”
How businesses benefit from offshore outsourcing
Since the rise of software in the market, a lot of businesses saw the benefits it brought. From desktops to mobile phones, software applications have gone through a lot of innovations.
Looking at the statistics, the demand and usage of applications are predicted to generate $188.9 billion in revenue by 2020. With this immensely high number, it is safe to say that applications play a very important role for businesses and organizations to remain competitive in the digital era; increasing the demand for software developers. Now this poses a problem; there seems to be a talent shortage for software developers in the United States. After discussions, debates, and considering all possibilities, organizations have found the answer: offshoring. If you can’t find developers with the right skill set in your area, then expand your search to another country.
Aside from its immense benefit of addressing the developer shortage, offshoring has other winning qualities: cost reduction and increased efficiency. It has been brought to light that offshoring business processes to a foreign country is more affordable for companies in the United States.
No wonder offshore outsourcing has been very popular and is still in demand even to this day. Looking at these benefits alone, it would really entice startups, small, and medium businesses to invest in offshoring.
Strategies for outsourcing software development
So, are you planning of building an application for your business? Before you choose a software development company, here are three strategies that you need to know about the outsourcing of software development.
Identify what business function to outsource
In offshoring, you don’t simply decide and plunge into the risk, you will most likely drown and fail in your venture. The first thing you need to do is to identify the business function that you may need to outsource.
Application development – This development process consists of developing a fresh application, system architecture design, low-level coding, quality assurance, and additional features within an existing application. The client provides the requirements for the application while the service provider builds the system in accordance with the documentation provided by the client.
System integration – The process of connecting an existing application or physical and virtual components to create a unified system. This is done to achieve certain functionality.
Database management – A service provided wherein the service provider organizes and maintains data processes.
The business function you wish to offshore can be your basis in choosing an offshore development company. There are a lot of offshore development companies in the market, more than you can ever imagine. By identifying what function to offshore, you can narrow down your search. If you are planning to offshore application development, you should look for a company with excellent performance reviews of their development process.
Identify your offshore model
Software development outsourcing is more complicated than others might think. Once you’ve identified the business function you want to offshore, the next step is to know the offshore model that will suit your preference.
Onsite model – In this outsourcing model, a team of skilled software developers are located on the client’s premises and communicates closely with the client. The onsite team’s work goes from data gathering to implementation. The onsite team also works alongside the client’s employees personally. This model works best for clients who want direct communication. With this model, it would be much easier to implement changes on the project when there is a need.
Offsite model – The service provider for an offsite model resides near the client. Unlike onsite where the team works within the premises, an offsite service provider works outside the organization premises but their office is located near the client. This model works best in the event that the project requirements are not comprehensively defined.
Offshore model – With this model, the software development team is neither within the client’s premises nor anywhere near their location. Rather, project development is done in the service provider’s premises outside the country. In using this model, the client provides detailed project requirements for the development team to work on. Since the offshore software developers are located countries away, personal interaction between the service provider and the client are near impossible. The two parties communicate through email, phone, and video calls.
Onsite/Offshore model – As the name suggests, this model is a fusion of both the offshore and onsite outsourcing model. The outsourcing work is distributed between the offsite team and the offshore team. Between the two, the onsite team has direct access and communication to the client so they are in charge of data gathering and maintenance. The offshore team’s role in this process is to ensure that the outcome of the project goes in accordance with the project’s requirements and give undoubted support to the onsite team.
Offsite/Offshore model – This is a combination of the offsite and offshore model. The offsite/offshore model is similar to onsite/offshore in so many ways. The offsite team has direct communication to the client and the offshore team acts as a support group to the offsite team. Their only difference—onsite/offshore and offsite/offshore—is that the offsite software development team does not work within the client’s premises but in their office located near the client.
Global delivery model – If there are two models with different fusions of the first three models, there is also a model with the combination of all three in one, the global delivery model. This model is quite complex. The client has an onsite team of developers but it also has an offsite and offshore team of developers. Similar to onsite/offshore model, the onsite team of developers interacts directly to the client. But this time, the offshore team is no longer in one location but in various locations in different parts of the globe.
Knowing your offshore outsourcing model is very important. Not one model works for every outsourcing need. As an organization leader, you should know which model perfectly fits with the business function you want to outsource.
Familiarizing the offshore outsourcing formula
Outsourcing of software development has a lot of tricks and turns. All it takes is a lot of research and experience. Matt DeCoursey, one of the founders of Full Scale, shares what he developed as the “offshore formula” in his book Million Dollar Bedroom.
But what is the “offshore formula”?
The concept is quite simple; a software developer paid for $100 an hour should deliver 4x more than a developer paid for $25 an hour. You can hire a software developer $100 an hour in the US, but this is never a guarantee that the developer is adequately skilled. To top it all, there is a problematic shortage of expert developers in the US. Hence, the conception of offshoring. Not only does it solve the problem of scarcity of skilled developers but reduces cost as well.
Matt DeCoursey’s tip is not to offshore 100% of your development. Have a local developer onsite and hire an offshore counterpart of that developer. Let’s say, you want to delve into outsourcing software development to the Philippines, a Southeast Asian country. Asia’s average hourly rate for a senior developer ranges from $30–$42, if you have an onsite developer for $100 per hour, you can hire two skilled offshore developers from the Philippines. That’s having two developers of the same skill level without doubling the hourly rate. This is a formula that works perfectly.
Listen to Episode 26 of the Startup Hustle Podcast – How I Ended Up in Cebu City
Software programs are slowly taking over the world and a lot of businesses are witnessing how software is changing the game in business. If you are a startup leader that is slowly easing your way towards success, these strategies may help you every step of your way.
If you need skilled developers at an affordable price, there’s no need to look further. We at Full Scale can help you scale up your business. Don’t hesitate. Contact us now for a consultation. We will be glad to hear what you envision for your business.