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March 21, 2024

Why Do Companies Outsource Software Development?

Why do Companies Outsource Software Development

There are two things that tech-enabled companies need more than anything else: speed and control. Speed is needed to get a product to market fast, and control is needed to keep costs within budget and ensure that resources and capabilities are effectively managed. Simply put, business organizations want custom software development projects done quickly and efficiently, ultimately putting them in the best position to succeed.

In today’s globally competitive landscape, achieving desired results when you need them often calls for proactive measures. Companies must continuously evaluate and adjust their work to achieve a cost-effective, time-efficient, and operational business model. Maintaining the status quo won't cut it if you want to stay ahead in the game.

When struggling to find the sweet spot for maximum productivity, common questions often arise;

  • Is software development outsourcing a viable solution?
  • When should my company take the leap and outsource software development?

In this article, you will learn the five most important reasons why software-dependent enterprises opt for software development outsourcing. While the arguments presented below apply to software outsourcing generally, remember that there is no one-size-fits-all model. There are several ways to collaborate with a service provider.
In general, software development outsourcing is the way to go when your organization wants to:


Explore cost-efficient strategies and reinvest your savings

A complete in-house IT staff is expensive, no question. As software developers gain experience and in-demand skills, rates increase, and the staff becomes far too pricey. Other than staff expertise, company location also plays a role in the pay scale that an IT professional commands. For example, a junior developer in the US costs more than a senior developer in the Philippines.

In addition, developing software is costly in more ways than just a programmer’s salary and benefits. Development tools, licensures, insurance, hiring, onboarding, possibly office space and resources, equipment, employee retention programs…the list goes on and on. These expenses will only grow as the team expands.

By contrast, there aren’t many overhead costs when outsourcing custom software development to third-party contractors. Often, these vendors offer full-cycle development services at significant cost savings, especially in cost-effective regions like South Asia, Latin America, and Eastern Europe. Partnering with an outsourcing company in one of these areas allows any company to deliver more with the same budget, using a pool of project-specific resources without compromising proficiency level or quality.

Remember that this is not a short-term financial fix for a budget shortfall. It's a long-term strategy with a fixed budget that allows you to explore cost-savings strategies without compromising quality. Outsourcing projects will cut internal costs by up to 70% compared to hiring in-house


Access a wide range of skill sets

In today's rapidly evolving tech landscape, the need for specialized skills is paramount - and increasing. Staying competitive demands that your development team is equipped to handle cutting-edge technologies like AI, large language models, machine learning, IoT, and a constantly expanding array of programming languages and frameworks, to say nothing of evolving communication and project management tools. However, this constant learning and upskilling is a major internal challenge for many tech enterprises. Completing regularly needed work for your core business while mastering the new tools and skills that seem to pop up every week now requires more hours than exist in the day, never mind the standard work week. We're in a phase of exceptional growth in tools and skills, and no in-house team can stay on top of it all while managing regular business needs.

  • The Talent Bottleneck: Your access to software development talent shouldn't be determined by who lives near your headquarters or other office location (or is willing to relocate). Highly specialized tech talent is often scarce in local markets, even in places like Silicon Valley. Recruiting the right team members becomes costly and time-consuming, potentially leaving critical projects bottlenecked and hindering innovation. In contrast, your HR team tries to find the best available talent at anything resembling an affordable rate.
  • The Urgency of Agility: Outsourcing provides on-demand access to a global pool of talent possessing the exact niche skills you need when you need them. This agility allows you to take on ambitious projects confidently, explore new technologies, and respond rapidly to shifting market demands without the delays inherent to in-house hiring. You can upsize your team without any human resources issues or procedures to follow, project by project.
  • Beyond Rare Skills: Working with a software outsourcing company isn't just about the bleeding edge. Reliable development partners offer depth in core competencies as well. Whether it's experienced full-stack engineers, quality assurance specialists, web developers, or project management veterans – they can augment your internal team at critical junctures, freeing them to focus on your highest-value initiatives.
  • The Innovation Catalyst: An outsourced team brings more than technical expertise; they bring fresh perspectives. Cross-pollination of ideas, exposure to different methodologies, and the challenge posed by an external team collaborating on your product can drive innovation far beyond what your in-house team might achieve in isolation. Everyone improves from the collaboration.

Strategic outsourcing unlocks a world of talent options to augment your onsite team:

  • The Right Tool for the Job: Match specific skills to specific projects, whether a deep-learning specialist for a new AI feature or a seasoned DevOps engineer to revamp your build pipelines.
  • Scalability at Your Fingertips: Ramping up development efforts for a major release? Your outsourcing partner can provide resources on demand, allowing you to scale quickly and back down without shouldering ongoing personnel costs or wasting time trying to find the right person locally.
  • A Culture of Continuous Learning: A precious outsourcing partnership also elevates your in-house team. Knowledge sharing, exposure to new working methods, and the push to collaborate effectively with diverse external experts all contribute to a more capable and future-ready internal development organization.

In short, think of outsourcing as your key to unlocking the full spectrum of skills your business needs not just to survive, but truly excel in the dynamic tech landscape. 


Speed up development while staying flexible

The success of any tech business hinges on its perceived trustworthiness by both investors and its customer base. Launching products on time is a cornerstone of building this trust. Here's why:

Market Confidence: Missed deadlines signal disorganization, technical problems, issues in the development process or overpromising. Investors get nervous, and early adopters – vital to establishing market momentum – may turn to competitors. Timely launches, on the other hand, demonstrate execution capability and instill confidence.

Competitive Edge: The tech landscape is relentlessly fast-paced. Being first to market with a compelling product can secure significant early advantages. Delays open the door for competitors to seize opportunities and outpace innovation.

Resource Efficiency: Protracted development cycles drain resources. Engineering teams become demoralized, marketing budgets are underutilized, and the costs of extended hiring processes mount. On-time launches maximize the return on investment in these critical areas.

Risk Mitigation: Delays often expose unforeseen business issues: features more complex than anticipated, security vulnerabilities, or scaling challenges. Addressing these earlier, within your planned timeline, mitigates the risk of high-pressure, crisis-mode fixes that compromise product quality and further damage public perception.

Brand Reputation: Customers place their trust in your ability to deliver. Consistently meeting deadlines reinforces a reputation for reliability, essential for long-term customer loyalty and growth in the tech sector.

In short, timely launches aren't just about hitting a date; they're a powerful display of competence that builds the trust upon which your business thrives.

Operating like well-oiled machines, outsourcing companies can counter emergencies and allocate new resources to projects quickly, so you can still complete them despite tight deadlines. Outsourcing providers have the best setup to anticipate and eliminate potential risks due to a fast-paced development cycle, effective development methodology (Agile methodology is the most popular, based on the 12 fundamental principles of the Agile Manifesto), proper documentation, and the right technologies. Sometimes, a third-party software development company can bend further and adjust working hours to optimize project delivery.

A long-term dedicated team model typically offers substantial flexibility, with the option to scale a team up or down as needed (depending on your specific SLA, of course).


Leave your development in trustworthy hands

So why do companies outsource software development? It’s a given that outsourcing software development can provide much-needed tech talents, heightened expertise, and a vast knowledge base as an outsourcing company continues to work with specific industries and various software products.

For example, You’re building a web app (say, a payment processing system), and you need to build a team to create what you need when needed. Maybe you have a very competent in-house team, but if a project requires a distinct set of skills, such as product development, you must seek out those team members elsewhere. That's where offshore software development and global talent comes in.

Partnering with an outsourcing provider allows your company access to IT talents with deep industry knowledge of complex technologies, no matter your software development project needs.  The right-fit outsourcing company will have senior architects, UI/UX designers, quality assurance specialists, and business analysts who already have the technical understanding, specialized skill sets, and experience you need on hand so that your core team won’t go in blind. Plus, using a software outsourcing company means you don’t have to hire these specialists full-time — only for the duration of your project.

When choosing your outsourcing partner, you mustn’t just consider the capability to provide the right technical people––reliability matters as much. Include a background and track record check as a crucial step in finding the right software development partner.

Focus on your core competencies – this principle doesn't just apply to internal resource allocation. Outsourcing carefully selected aspects of software development frees up your in-house team to excel at the heart of your business. This translates to a sharper strategic focus that can drive innovation and competitive differentiation.

  • Customer-Centricity: Liberated from the complexities of ongoing development tasks, key personnel can dedicate more time to deeply understanding customer needs and pain points that drive your core business. This fuels insights for better product roadmaps, more compelling user experiences, and targeted features that truly provide value.
  • Strategic Agility: The tech landscape shifts relentlessly. Outsourcing enables you to respond quickly to market opportunities – scaling development efforts up or down, pivoting features, or allocating your best talent toward emerging trends. You become more nimble without the need to manage all those operational details.
  • The Power of Partnership: Your outsourcing partner isn't just a task executor; they're an extension of your capabilities. A well-chosen partner brings specialized skills, diverse perspectives, and deep talent pools that can complement your strengths and the needs of your core business. This collaborative dynamic can lead to breakthroughs you might not have achieved in isolation.

Of course, there are a few additional critical points to emphasize:

  • Your Team Needs to Have 'Skin in the Game': Even with outsourcing, your onsite team must retain some level of development expertise. This 'skin in the game' mentality fosters better communication, informed decision-making, and alignment between your onsite team and the outsourced experts.
  • Process and Communication Are Paramount: A smooth outsourcing partnership is built on crystal clear processes. Define development methodology, quality standards, communication channels, and how you'll handle change requests and escalations. Invest upfront in this alignment to prevent costly misunderstandings and delays later.

By wisely leveraging a trusted outsourcing partner, you gain time, flexibility, and access to global talent – all of which will help position your company for long-term leadership in your industry.


Focus on core competencies

If you’ve given a check to most or all of the reasons above, then software development outsourcing is likely a good fit for your enterprise. And why not? Outsourcing software development projects offer a solution for businesses looking for both time and cost savings while efficiently filling in their expertise gaps. It allows you to focus on growing your business while lowering your time to market. Your product remains in capable, trustworthy, professional hands while you get to focus on running your core business.

Outsourcing software development should be considered a strategic partnership, not a simple hand-off of duty to a third party. It can deliver unparalleled speed, agility, and cost savings, but only with the right mindset from the beginning. With our certified network of partners and approach to team alignment, before work begins, you can build collaborative relationships where you feel no difference working with an expert, whether across the table or thousands of miles from you. Contact us to get connected today.

Tag(s): Best Practices

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