What is the number one factor holding software businesses back from scaling up and growing faster? Access to skilled software engineers, in short.
A 2020 Gartner study among CIOs worldwide identified that finding the needed technical talent was on top of their priority list.
The European Commission estimated a shortage of 500,000 IT professionals across Europe, for 2020.
Looking at our home country, Denmark - the 3rd most digitalized nation in the EU according to the DESI Index, and a blooming hub for tech startups: the country faces future scarcity of an estimated 19,000 ICT specialists by 2030 (Højbjerre Brauer Schultz). Denmark benefits from all the right factors to be a thriving technology hub: government funding and backing, private funding, a favourable business climate - but the skill gap in IT is still an issue to be solved.
While more and more software companies are considering outsourcing as a solution to overcome it, we want to argue that there are some business scenarios that are a better fit for outsourcing than others.
The rate of failure in IT outsourcing remains fairly high: 1 in 5 outsourcing collaborations fail within 2 years and almost 50% fail within 5 years.
The culprit? Mainly going into an agreement with the wrong mindset and expectations (among other factors such as selecting an unfit vendor, company culture misalignment & more).
So what are the best use cases for software outsourcing?
1. You are a start-up building an MVP
When you build a Minimum Viable Product, your focus is on getting that first version of your software product out the door as soon as possible, so you can get feedback from real users.
Hiring and getting an internal development team off the ground takes valuable time.
On the other hand, hiring an experienced software outsourcing provider that has built applications from scratch time and time again can speed up the process.
An experienced provider already has software development and testing processes in place, they have experts who can advise you through the entire development cycle (from creating the software product’s architecture to the best technologies and tools to use, to implementing the right Agile methodology).
If your product takes off, you can then create an internal team in-house that can continue working with the outsourcing provider or internalize the development entirely.
The combination of saving time on hiring specialists, increased efficiency, and the flexibility of an outsourcing setup make outsourcing a great choice for tech start-ups.
Skype, Slack, WhatsApp, Basecamp are just some of the most successful software start-ups that were built with outsourced partners.
2. Hiring internally takes a lot of time and you need to grow your team fast
This is usually the case with small or mid-sized companies that are looking to scale up and launch new product features. But in order to build more functionalities and expand their product, they also need to grow the team and hire for different technical roles.
This is a common situation we see most of the time, growing companies are caught between the imperative to grow faster than their competition and the difficulty to actually hire on time.
Depending on how large your recruiting team is and how experienced they are with recruiting and organizing technical interviews, the selection process can take 3-6 months.
On the other hand, working with a software development provider you can ramp up a team in 1 to 3 months: a software outsourcing company has specialized recruitment teams that scan the local market for talent all the time.
Once you finish adding new functionalities you can change the scope of the collaboration to maintenance or downsize the outsourced team with a reasonable notice period, which is easier to do than laying off people.
3. You are building a software product but software is not your core business
It’s more and more common for non-software companies to build software products to support their business growth. For example, HR consulting businesses building HR management software or training companies building virtual events platforms.
While such a company understands the ins and outs of its industry and how the software product should work, they usually know close to nothing about software development, quality assurance, Agile, setting the development environment. It’s essentially uncharted territory, a completely different industry.
Building an entire development team from scratch for a one-off project is costly and time-consuming. Not to mention that it is difficult to motivate software engineers to join, knowing that when the project will be completed there is no other exciting project coming up.
A safer bet, in this case, is working with an experienced software development company, project-based - where you clearly define all the requirements of the application and the deliverables expected and let them handle the project management, software development, and quality assurance.
4. You need to add technologies that are beyond your competencies
When your internal needs require working with new technologies, you have the option to:
- hire experts in that field
- have people on the team learn the new technology
- work with a specialized provider in that technology
Let’s assume you need expertise in areas such as security, database, cloud, DevOps. In this case, it is optimal to collaborate with contractors who have already done the same configurations for multiple projects and have advanced skills in these. Therefore, the effort and cost of learning these don’t affect the organization.
Also, the need for these roles might make sense in certain stages of the project. For example, you will need a DevOps expert at the starting phase of your project. Then, once your CI/CD pipeline is set up and everything is automated, the need for the expert diminishes.
In this scenario too, outsourcing is the better choice: it’s faster and cheaper to contract an expert who has proven experience and knows the not so obvious details related to implementation, than training your own team from zero.
That being said, what are the scenarios when you are better off not outsourcing?
1. Your main driver to outsource is cost reduction
While it’s true that outsourcing software development can also help you save up to 20% more than hiring internal developers, outsourcing solely for cost reduction is a bad strategy.
If you go for the vendor with the lowest rates and ignore important aspects such as the company’s experience in the field, technology skills, the processes they have in place, how they document their work, whether they have a good employee retention rate or not - you run a high risk of going into a collaboration just to discover 3-6 months later that work is not being delivered at the quality you expected, not on time or both.
The cost of bad outsourcing is higher than not outsourcing at all.
2. Misfit between the scope of work and the type of outsourcing model
The key to successful outsourcing is to identify what needs to happen and communicate that very clearly.
You also need to understand that depending on the scope of your project, some outsourcing models are a bad fit.
If you have well-defined requirements that are not likely to change, a project-based collaboration can serve you best: you get predictability on budget and delivery timeline, but of course with the downside of less flexibility to changing requirements along the way.
On the opposite end of the spectrum, if you have a fairly good idea of the direction you want to take your software product in, but don’t have detailed requirements as they may very likely change, a fixed project collaboration will end up being expensive. In this case, you most likely need a partner for long-term development and the best setup for you could be a dedicated team of software engineers.
A dedicated software team will immerse into your business, understanding more than the tech side of the project: how your business and industry works, how users will interact with the software product, why a certain feature should work in a particular way. It’s a setup that requires spot-on communication and transparency and that can yield a ton of benefits when done right.
We created in-depth material on how to set up such a dedicated software team and what to look for when choosing an outsourcing partner, so go check it out.
Before considering the benefits of software outsourcing, look at your internal context, the core driver for outsourcing, and what you hope to achieve: you might end up outsourcing for the wrong reasons and end up on the unhappy side of failed collaboration statistics.
Or you might discover that outsourcing is indeed a great fit and you will operate from the right mindset in choosing a collaboration model and a partner that will create business value.
Interested in exploring the different software outsourcing strategies and if they can be a fit for your business? Then let’s connect over a free consultation call.
