IT Outsourcing Models: How to Choose the Right One?
In this article, we compare different outsourcing models. Find out how to choose between IT outsourcing models: staff augmentation, project outsourcing, dedicated team
Why do companies outsource software development?
Large businesses have been outsourcing software development for a long time. But technological progress has now made it affordable for small businesses too. A study by Avasant shows that 55% of companies outsource app development.
The global outsourcing market is expected to reach $405.6 billion by 2027, with 65% of businesses intensifying their efforts to outsource.
Though reasons for outsourcing differ from industry to industry, Deloitte finds there are three main reasons why companies choose outsourcing:
- To cut costs (59% of companies)
- To focus on core competencies (57% of companies)
- To solve performance problems (47% of companies)
The ability to access intellectual capital is another reason why companies choose to outsource web and software development.
Outsourcing provides access to a large pool of talent while allowing entrepreneurs to cut labor costs. One of the best options for an entrepreneur developing a web application is to choose a professional web development outsourcing company. When the product is ready and live, they can then hire an in-house team to manage it.
Benefits of outsourcing development
Here’s a list of the main benefits of outsourcing app and web development:
Cost savings are one of the main advantages of outsourcing software development for small businesses. In addition to the favorable rates of web development outsourcing services in some countries, an outsourcing team doesn’t need to be hired and trained.
With outsourcing, you don’t need to hire an HR manager and office manager, pay rent, or buy equipment and furniture.
Access to a large talent pool
Don’t think that the only reason companies choose outsourcing is the cost. It’s also about finding the best professionals that can bring the project to life. Outsourcing web development allows you to find precisely those specialists your project needs by giving you access to a large pool of talented specialists.
Ability to scale
Outsourcing web development allows you to scale your project faster.
Outsourcing companies have experience scaling and can add more specialists to a development team if necessary. When you have your own in-house team, each new specialist requires lots of resources.
Reduced risks and stress
Outsourcing allows you to have a development team led by a project manager who mitigates development risks. A project manager is responsible for planning your project, communicating with you, and solving problems within the team. Additionally, an outsourcing development team is obliged to meet specific time limits and restrictions and is obliged to follow the contract.
IT outsourcing companies usually sign non-disclosure agreements (NDAs) with their clients, use secure GitLab repositories, and choose reliable hosting services. This way you can be sure your project and web design ideas are safe.
Ability to focus on your core competencies
Outsourcing software development lets you focus on generating profit by committing yourself fully to web design, the user experience, marketing, sales, testing business hypotheses, and other important business processes.
After choosing an outsourcing company, you should settle on the project lifecycle and set time frames. As a client, you only need to approve and comment on your team’s work.
Faster process organization and development
Outsourcing software development lets you focus on marketing and sales. It also offers access to new technologies that would be hard to benefit from with an in-house team. Outsourcing accelerates organizational and developmental processes since outsourcing development teams work according to a development methodology. Because of this, your project will be created fast, efficiently, and with minimal changes.
Thinking over types of IT outsourcing models
Your choice of interaction model depends on your unique situation. However, some unreliable vendors may lead you to a model they’re interested in just because it’s more profitable for them or because they offer a limited set of IT outsourcing pricing models. This is why it’s a good idea to develop an outsourcing strategy before contacting suppliers.
To help you weigh the options in the outsourcing market, here’s an overview of the three most common IT services outsourcing models: full outsourcing, dedicated teams, and outstaffing.
The full project outsourcing model
Full project outsourcing means hiring an entire development team from an IT outsourcing company. This model lets you collaborate with all the professionals you need, including designers, quality control engineers, developers, and project managers.
A full project outsourcing team comprises these specialists:
- Business analyst
- UI/UX designer
- QA engineer
- 1–2 iOS developers
- 1–2 Android developers
- Backend developers
How does project outsourcing work?
In order to offer you, developers, the necessary skills and knowledge, a supplier must analyze your project requirements and determine the way forward during a discovery phase.
Here’s how the discovery phase looks at most outsourcing companies:
After a few meetings with the client, business analysts can determine all project details. They usually pay attention to application features, business goals, the target audience, and the monetization strategy.
Create a specification
This is a detailed document consisting of descriptions of functions, required technologies, and their dependencies.
A wireframe is a simple black and white layout that outlines the size and placement of page elements, features, and navigation. It’s a sketch of your project before any kind of design elements are created and before development takes place.
Perform quality assurance
QA engineers must approve specifications and layouts. This avoids logical errors and violations of recommendations.
Provide a detailed estimate
This document describes the timing and cost of project development.
- Less training
- Easy to scale the team
- Effortless management
- Lower cost
- Security risks
- Slower communication
Advantages of the full project outsourcing model
If you outsource the complete development process, developers don’t need to study your company’s internal processes. They can start developing the project with knowledge of your requirements and a specification.
Easy to scale the team
Outsourcing makes it easy to scale the development team. It means you can increase the team size if you need to speed up development or decrease the number of specialists if there are no tasks for them.
The supplier is solely responsible for managing the team and ensuring the product is ready on time. The team has a project manager who is responsible for managing the development process. This means minimum management effort on your part and more time to focus on your core business.
The region you outsource to can affect the price. North American companies charge the highest rates. In contrast, Asian software companies have the lowest rates, but their customer service is often questionable. In Eastern Europe, you can find relatively low prices along with high quality.
Disadvantages of the full project outsourcing model
Outsourcing projects sometimes suffer from insufficient communication. This can result in a lack of control of the entire development process on the client’s side.
To protect your project idea, before discussing it, you should sign a nondisclosure agreement (NDA) with your supplier. An NDA covers such aspects of development as the collection of, transmission of, and access to data. In addition, software companies must comply with the EU General Data Protection Regulation (GDPR).
Outsourcing can raise concerns about language barriers and communication problems. Also, if you and your team are far apart, you’ll need to deal with time zone differences. To make communication more comfortable, meetings should be planned in advance. There are many good communication tools like Skype, Slack, and Gmail to help you stay connected with your team.
The number of people involved depends on your project. An outsourcing service provider will usually select specialists based on your requirements.
To establish high-quality collaboration, ask for transparent reporting and appoint a representative on your side who will actively communicate with your supplier. Ask your supplier to offer daily on-demand communications and weekly status calls as part of the outsourcing model.
If you have no experience at all in developing specific software or if you’re overwhelmed by other development projects, the full project outsourcing model is the best way to go.
Staff augmentation model
Staff augmentation is ideal for companies that have their own development teams. This model allows you to attract people with specific knowledge (industry expertise, technology) or simply to expand your team. With staff augmentation, companies hire specialists for a specific amount of time to complete a required amount of work — for example, to release a side project or work on a specific function.
Let’s say you have a successful digital product that brings you profit. In order to attract more users, you want to add more features. But your internal team lacks developers or experience. Instead of looking for candidates and interviewing them, you turn to an outsourcing company.
Staff augmentation suppliers offer skilled developers who can help you achieve your goals. Then you, as the CTO or CEO of your company, conduct interviews with each candidate and sign a contract with the vendor.
You should choose the staff augmentation model if you have an established but slow development process or lack rare or advanced knowledge.
It’s also a good choice when you only need one to three specialists and not a full team. To establish effective collaboration, choose a provider who monitors their employees and helps them solve problems, as this will greatly improve the quality of the service you get.
- Less training
- Easy to scale the team
- Effortless management
- Lower cost
- Security risks
- Slower communication
Advantages of the staff augmentation model
With this model, you manage the developers on your side and have complete control over the development process. You or your technical manager can control every detail of the project. For time tracking, you can choose a project management tool so you won’t need to worry about the safety of your product.
It’s easy to increase or decrease the size of your team with staff augmentation. You can hire more specialists to develop a project faster or reduce the number of developers when you run out of tasks. You can get the exact number of required specialists, from 0.5 full-time equivalent (FTE) to 100 FTE and above.
When you’re hiring developers with the right skills and knowledge, it’s easier to integrate them into your company’s workflow.
By choosing the staff augmentation model, you can reduce costs compared to hiring in-house developers. Hourly rates will depend on where your team is located.
According to PayScale, US developers are paid an average of $8,700 per month. In contrast, programmers from Eastern Europe are paid an average of $3,700 a month.
The staff augmentation model is suitable for both long-term and short-term interactions, such as when you’re faced with a specific problem that requires certain skills to solve.
Disadvantages of the staff augmentation model
Regardless of the experience and knowledge of developers, they should still spend some time learning about the company’s workflows. The onboarding period can vary depending on the complexity of the workflow and the onboarding process.
Additional load for C-level management
The more employees are in the company, the more responsibilities top managers have. Managers need to manage a large number of specialists and provide them with a comfortable work environment.
A dedicated team integrates with your internal team or your other suppliers and works on your project while sharing risks and responsibilities for its quality. With a dedicated team, the management team remains on the supplier’s side, and the supplier’s account manager reports regularly to your manager (or product owner) on progress.
Hiring a dedicated development team means hiring technicians from vendors to do specific jobs. For example, say you need specialists for a side project but you don’t want to distract your main team from their tasks. When the side project ends, the collaboration can end as well.
Large enterprises usually hire dedicated development teams because they need specialists for new projects or are facing technical challenges that they lack the experience to resolve.
You should choose this model if you have an established development team and processes but lack resources or domain expertise.
To build quality collaboration, look for a vendor who can take responsibility for seamlessly merging with your development and communication environment and configure all the necessary tools to do so.
- Cut expenses
- Qualified specialists
- Short hiring time
- Saved time on development
- Disruption of the current processes
- Communication issues
Advantages of the dedicated team model
As with the previous IT outsourcing cost models, the development cost depends on the region. But despite the reason, hiring a dedicated team is often more cost-effective than hiring in-house developers.
The dedicated team model allows you to hire experienced developers around the world and avoid the talent war in local markets.
Shorten the hiring time
Hiring a dedicated team usually takes less time than hiring an in-house team.
The dedicated model can save you time and effort in project management while you maintain complete control over the results.
Disadvantages of the dedicated team model
There’s a possibility of disruption to the established process due to new team members.
At the start of the work process, there might be some gaps in communication and difficulties in cooperation.
How much does it cost to outsource web development?
Let’s find out how the cost of software or web development projects is formed. The cost of outsourcing web development depends on these factors:
- Hourly rate of your development team
- Project size and complexity
- Technology stack
- Number of team members on the project
- Time frame
The biggest factor that influences a project’s cost is the hourly rate of developers, and that often depends on the location. For example, an application that costs $40,000 to build in the US will cost around $9,000 if developed by engineers in Ukraine.
Developing your project with a company based in Eastern Europe is cost-effective and gives you access to top talent.
Quick summary of IT outsourcing models
Here are the key takeaways:
- Outsourcing web development allows you to find precisely those specialists you need for your project. It gives you access to many more talented specialists than you can find locally.
- The global outsourcing market is expected to reach $405.6 billion by 2027, and 65% of businesses plan to intensify their outsourcing efforts.
- Large businesses have been outsourcing development for a long time. But technological progress has now made it affordable for small businesses too. A study by Avasant shows that 55% of companies outsource app development.
- If you have no experience developing a specific type of software, or if you’re overwhelmed by other development projects, the full project outsourcing model is the best way to go.
- Choose the staff augmentation model if you have an established but slow development process or lack rare or advanced knowledge. You should also choose this model when you only need one to three specialists and not a full team.
- Choose the dedicated team model if you have an established development team and processes but lack resources or domain expertise.
The most important part of outsourcing is good communication.
- Developing your project with a company based in Eastern Europe is cost-effective and gives you access to top talent.
If you want to outsource your web development project or if you have any questions regarding this topic, contact Mobindustry for a free consultation.