Last Updated on 2024-10-11
Software development outsourcing is one of the best approaches to building a software solution.
But before you decide if software development outsourcing is right for your business, you must understand all the pros and cons.
Let’s find out in this article.
What is Software Development Outsourcing?
Outsourcing is one of the most sought-after approaches to maximize business efficiency.
It has been around for decades—used by small to large software enterprises to offshore a portion of their business.
In 2020, the global market size of the IT Outsourcing industry is roughly $92.5 billion. And it shows no signs of stopping. So, what motivates a software company to go with outsourcing as a business model?
For one, the huge cost-savings it brings is a huge enough reason for tech companies to outsource.
Similarly, software development outsourcing allows founders access to a wide pool of talent that is otherwise unavailable in-house or within their location.
While outsourcing has several benefits, it also brings some challenges. Outsourcing agreements not implemented seamlessly may lead to poor quality output, loss of trust, and no return on investments.
This is why it’s important to thoroughly know both the advantages and disadvantages of software development outsourcing.
Pros and Cons of Software Development Outsourcing
Before outsourcing software operations, you may need to consider the possible benefits and issues you may face.
Here are the pros and cons of software outsourcing.
Pros
1. Reduce Costs
This is the number one factor why most startups outsource their business. To achieve sustainability and growth, a startup must minimize operational costs.
With software outsourcing, there’s no need to recruit and manage a development team directly.
Likewise, it offers cost benefits on payroll taxes, bonuses, training and development, and employee benefit packages. All these can burn a huge hole in your startup budget when added together.
While outsourcing is not cheap per se, it is still cheaper than hiring employees, purchasing equipment, and renting office space alone.
An outsourcing vendor calculates the project’s total cost and divides it into monthly bills.
In this way, there are no hidden surprises, and you can pay your monthly and yearly expenses ahead of time.
2. Find a top-tier skillset
Software development outsourcing fills the gap caused by the glaring shortage of skilled software developers in the US, Australia, and Europe.
As a startup founder, you will build business relationships with software experts who have dedicated their careers to technology.
They have solid experience and expertise working with different software applications.
In addition, it allows business organizations access to fractional skill sets that they don’t have or may not need to hire full-time.
3. Focus on core competencies
Do you want to focus your time on sales and marketing? Or does research and development require more of your attention?
In this case, outsourcing your software development process helps you to dedicate your energies to other core competencies such as customer service or product distribution.
As a result, you can dedicate your efforts to creating strategic core tasks in the future. For example, you may downsize your business or re-assign it to a different business goal.
4. Scale up or down
Any sudden change while developing an app may prove costly for a startup.
However, an expert software house can help you manage changes affecting your company’s operations.
Scalability is one of the reasons why companies choose to outsource through a third-party software development company. It encourages you to stay flexible for any changes as you go.
That being so, scalability allows you to hire more people or add resources if you see a demand for it. All this without creating a huge dent in your budget.
Moreover, an outsourcing vendor will no longer charge you once the project is completed and launched.
You will be charged for any additional costs unless you decide to remain with the partnership for additional product development and support.
5. Deliver high-quality output
As the demand for software development services soared, outsourcing companies learned to up the ante when providing their services. They ensured that their skill sets were upgraded and that employees were trained regularly.
Likewise, they always prepared a stellar portfolio to impress potential clients.
With software development outsourcing, vendors are responsible for meeting the product’s requirements and quality standards.
They are also responsible for preparing a contract that regulates payments and penalties on both sides.
The vendor should also explicitly outline other areas of the partner agreement, such as intellectual property rights. This will protect the interests of both parties.
Cons
1. Communication Barriers
While software development outsourcing has several benefits, it also has disadvantages.
One of its cons is the communication barrier.
Time zone delays, video call issues, and cultural differences are just a few of the downsides to expect, especially when communicating with an offshore vendor.
So, before signing that partnership agreement, ensure they can understand your language.
If your in-house team speaks English, insist that your outsourced team speak the same language. This ensures they know what needs to be done and can easily raise any issues and feedback to your team.
2. Differences in Business Philosophy
Companies work at their own pace that suits their business. There’s nothing wrong with this, but your outsourcing partner may see it as unusual.
In contrast, your startup may use certain tools and management styles that would take other companies some time to adapt.
As a client, differences in business approach should bear more weight when outsourcing. You want to be able to have some control over the decision-making and management process of the operation.
Discussing your ideal business process at the onset of the partnership is a must to avoid conflicts. This ensures that you and your software outsourcing partner will meet its expectations.
3. Data Theft
Software development outsourcing does not come without risks. When you share your ideas and data with an outsourcing provider, they can borrow or innovate.
Even if your outsourcing team has signed a nondisclosure agreement, who can guarantee they will uphold the contract?
Hence, you won’t have infinite control over your project. Some nefarious characters can still steal or replicate your ideas for whatever reason.
Additionally, if the vendor’s database is leaked, your confidential data and privacy will be vulnerable to hackers.
To avoid this, read reviews or feedback about each vendor before hiring them. Explain the penalties or legal repercussions involved once this agreement is breached.
In addition, include intellectual property rights in the agreement to safeguard your company against possible copyright infringement cases.
4. Adjustment Period
Depending on the project duration, the adjustment period may take some time. You need to consider how well the requirements are discussed and the level of expertise needed to complete the project.
Keep in mind that the workflow will improve over time. We recommend that you be realistic with your timeline. Ideally, you should be flexible with every project phase.
As long as both teams properly communicate their progress, then there’s a great chance they can work seamlessly together.
5. Hidden Fees
There is a risk that you might get hidden fees on top of what you already paid for. This is especially true if you offshore your software operation in another country.
These hidden costs can come in the form of additional consultations, travel, and phone call expenses. When these hidden costs pile up, you’re in too deep to back out from the project.
Always ask for a transparent report on all costs involved so there will be no unexpected surprises. Use tracking apps to monitor the tasks and the time spent on each task.
How to Effectively Manage Outsourcing Risks
1. Choose the Right Partner: Conduct thorough due diligence to choose a software development company with a robust track record, good communication practices, and strong security measures.
2. Clear Communication: Establish clear communication channels and regular updates to align all parties. Consider overlapping working hours and using project management tools to streamline collaboration.
3. Quality Checks: Implement multiple quality checks throughout the development process. Regularly review deliverables against benchmarks to ensure they meet your standards.
4. Legal Framework: To safeguard your interests, create a comprehensive contract that includes clauses for confidentiality, data security, and intellectual property rights.
The Road to Software Success
Software outsourcing is an effective approach to focusing on your core business, reducing costs, and accessing software experts. The key is choosing the best outsourcing vendor.
However, it is not risk-free. Hence, we encourage you to weigh the pros and cons before deciding.
By learning its advantages and disadvantages, you can take several steps ahead in building your core business with a trusted outsourcing partner.
Focusing on cost savings is not the only factor to consider. It’s also important to have top-notch tech expertise and vendor management available.
Avail Full Scale’s Software Development Outsourcing Services
Whether it’s for a one-off or long-term software project, our team at Full Scale is your reliable partner for everything software outsourcing.
From recruiting and onboarding tech experts to forming an offshore team, we help our clients scale their startups for growth. We have junior- to senior-level software developers and engineers to work on your web or mobile solution.
Build your team of software development experts with Full Scale today!
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Matt Watson is a serial tech entrepreneur who has started four companies and had a nine-figure exit. He was the founder and CTO of VinSolutions, the #1 CRM software used in today’s automotive industry. He has over twenty years of experience working as a tech CTO and building cutting-edge SaaS solutions.
As the CEO of Full Scale, he has helped over 100 tech companies build their software services and development teams. Full Scale specializes in helping tech companies grow by augmenting their in-house teams with software development talent from the Philippines.
Matt hosts Startup Hustle, a top podcast about entrepreneurship with over 6 million downloads. He has a wealth of knowledge about startups and business from his personal experience and from interviewing hundreds of other entrepreneurs.