What is Outsourcing and Why Outsource?
Outsourcing is a business practice to hire a party outside of your company, either local/ international, for performing some business activities and processes on your behalf. Depending on the location of the outsourcing service providers (“Vendors”), outsourcing can be classified as onshore (within their own country), nearshore (to a neighboring country or one in the same time zone), or offshore (to a more distant country).
In the past, organizations typically used outsourcing to improve back-office operations through cost reduction and downsizing. Organizations have also been outsourcing so as to focus on core business activities.Today, outsourcing is seen as a means to generate innovative solutions for enabling competitive advantage , gaining capabilities that are not available internally, accelerating time to market, implementing lean programs & streamlining operations. As per Deloitte’s 2016 Global Outsourcing Survey, the primary reasons why companies outsource are – cost-cutting, enabling core business functions, and solving capacity issues.
IT outsourcing focuses on working with Vendors to handle some information technology functions. The common functions that are outsourced include software development, application support and management, IT security, helpdesk/technical support, data center operations, infrastructure support among many others. The supply of IT specialists and expertise is low as compared to demand in The USA, Canada and Western Europe. Cities like San Francisco, NYC, Seattle, San Jose and Boston are among the most expensive places to hire a software developer in an entire world. IT outsourcing helps to overcome this demand-supply gap and ensures access to IT professionals at lower costs.
" Do what you do best, and outsource the rest" - Peter Drucker
The benefits of outsourcing vary by every business case but it is important to note that none of the benefits can accrue unless the process is well thought of and implemented properly. While it may seem easy, outsourcing is difficult to implement, and the failure rate of outsourcing relationships remains high. So let's have a look at which initial hurdles you have to cross in order to convert your outsourcing story into a SUCCESS STORY!
1. Determining the Need for Outsourcing and Benefits to Achieve
Outsourcing will fail if it is pursued only as a "quick fix" cost-cutting maneuver rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage. A reason for many IT outsourcing failures is the inability to answer these simple questions –
- - Is there a genuine need for outsourcing?
- - What benefits do we desire to achieve from outsourcing exercise?
While this may seem obvious, it’s a tricky part which many organizations fail to give due attention to. What is it that you want to do better? What would it take to do it and do it well inside the company? Why is that option not viable? Few reasons why in-house work may not be feasible include lack of experience with IT operations, limited budget for building internal team, shortage of required skills and talent in the local marketplace, long hiring cycles, a backlog of feature requests/ enhancements, etc. Unless you know the specific reason and anticipated results from outsourcing, you will not be able to make the right decisions in the future with regard to vendor selection, drafting of the outsourcing contract, implementation, and measuring outsourcing impact. Thus, the first step for ensuring outsourcing success is to define the project elaborately.
2. Freelancers or Developer Teams: Whom to Choose?
Once you know there’s a genuine need for outsourcing, you will start searching for people who can accomplish the work. Here comes another decision to make. Should we hire multiple freelancers or software teams and companies?
The answer will depend on your project details. Freelancers are better suited for one–time, low risk, and low ticket-size small projects. Why? - Because in comparison to Developer Companies, they are available at a much lower cost and can get your work started quickly. However, it’s difficult to find the right freelancers. Many of them have vague qualifications and have paid/ fake reviews on freelancing websites. Also, it’s difficult to have control over the work of freelancers as they undertake multiple client projects at a time. They won’t even have any data protection systems in place putting your IP and trade secrets at risk. Remember low-cost can also lead to producing low-quality code.
In our opinion, working with freelancers can be a hit-or-miss venture, and hiring a freelancer isn’t always your best bet, especially when it comes to larger projects. Always plan to work with experienced software teams and not a bunch of freelancers you have to find and manage. Reasons for these are -
A. Good software companies recruit and train skilled developers and also create a productive and innovative environment for them.
B. Backup developers are always available on the bench to meet any unexpected increase in service demands.
C. Professionalism, enhanced credibility, and experience of handling enterprise clients.
Do note that taking these initial steps correctly can determine the fate of your outsourcing project. To know about how to find the right IT outsourcing vendor for your project, read our blog post here