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Pros and Cons of Outsourcing your Software Development Project

It’s a complex and costly decision to outsource vs. hiring a team. Both paths have both pros and cons and depending on the maturity of the project and it’s crucial to find a trusted partner to succeed.

Here are some pros/cons of outsourcing your software project and how to overcome some of these issues.

Pros

There are many advantages for outsourcing a project to a third-party team.

Cost Savings

Outsourcing can often lead to significant cost savings, as it allows you to tap into a larger pool of talent at a lower cost compared to hiring a team in-house.

Team members can be hired from all over the world and, since they are generally paid on an hourly basis and don't have benefit requirements, can often have cost advantages over hiring domestic employees.

Access to a Wider Pool of Expertise

Outsourcing can provide access to a wider pool of expertise, including specialized skills and experience that might not be available in-house.

Often, internal team members work on the same projects year-over-year. They have limited access to new innovations unless they devote their free time to continuous learning. Consultants regularly need to learn new tools and technologies for new projects and have a diverse background of types of projects and integrations they have created.

Increased Efficiency

Outsourcing can increase the efficiency of your software development process, as it allows you to tap into the resources of a dedicated team that is focused solely on software development.

Internal teams have balance production support vs new project work. New projects are often a secondary priority and the project schedule is delayed when competing against critical production issues.

Focus on Core Business Activities

Outsourcing can free up time and resources, allowing you to focus on core business activities, such as marketing and sales, rather than having to manage an in-house software development team.

Managing software teams is a complex process and takes years to master. By having an expert IT leader such as a product manager lead the project, they can knock down problems, help guide the team to solutions, and can help improve the decision-making skills of the team.

Flexibility

Outsourcing provides greater flexibility in terms of the size and composition of your development team, allowing you to scale up or down as needed.

You can bring on additional resources to help improve timelines on the project without committing to an annual salary and benefits.

Time-to-market Advantage

Outsourcing can help you bring your products to market more quickly, as a dedicated team can work on your software development project on a full-time basis.

It can take weeks or months to find the right person for a specific role within the team. If you are starting a project from scratch, to assemble a team and ensure the quality of all the team members can take months. Often consulting teams have worked together on many projects, so the forming, norming, storming, performing process has already been completed. To learn more about best practices for software team roles, click here.

Access to Cutting-Edge Technology

Outsourcing can provide access to cutting-edge technology and development methodologies that might not be available in-house.

Internal teams operate within a number of constraints. Often innovation is an afterthought in corporate environments and there are barriers to implementing new solutions to existing problems such as change management, budget planning, and even things like solution ideation. Consultants aren't bound by internal politics and can propose solutions that may be more effective than what has been delivered by the team in the past.

Cons

While outsourcing software development can bring many benefits, it can also present several challenges. Here are some problems with outsourcing and ways to overcome the issues that can plague outsourced projects.

Time Zone Differences

Time zone differences can make it difficult to coordinate activities, leading to delays in projects and disruptions to the development process.

To combat this, the software process is a crucial aspect of project success in addition to the timezone of the team members. With nearshore providers, meetings can be held during the day and information can be shared readily. For offshore providers, documentation is crucial to avoid delays. A story is assigned to a developer offshore. The developer reviews the story and has questions - there's a 1-day delay on starting. The product manager reviews the questions, answers it, then assigns it back to the developer, there's a 2-day delay on the start. This cycle repeats depending on the quality of the team and the quality of the requirements.

Working with a nearshore company can greatly reduce the delays of communication and facilitate wider times to meet during US hours instead of nights and early mornings that offshore projects require.

Communication and Culture Issues

Communication can be a major challenge when outsourcing software development, as it may be difficult to ensure that everyone is on the same page, especially if there are language or cultural barriers.

Cultural differences can impact the effectiveness of the outsourcing relationship, leading to misunderstandings and difficulties in collaboration.

To combat these issues, it's important to understand the cultural differences of the teams you are working with. Countries like India have a "head bobble" that can be vague and indicate they heard and agree, but in reality can mean they are declining without saying something directly. If you video conference without your camera on, you are missing this subtle communication pattern.

For communication issues, documentation and knowledge transfer is key.

Hidden Costs

There may be hidden costs associated with outsourcing, such as the need for additional management resources to oversee the outsourced team.

First, it's important to hire a trusted partner to contract with. This company should be transparent about it's pricing, resource utilization, process, and project management processes.

This issue can also arise in fixed-bid projects. A team is expected to deliver on a project with incomplete requirements. As the requirements are finalized, the scope of the project changes and new requirements are identified, change requests can become a pattern and many companies underbid projects with the anticipation of making up the margins with change requests. Having fully-documented requirements and specifications prior to development can help resolve this issue.

Quality Control

Maintaining quality control can be a challenge when outsourcing, as it can be difficult to monitor the quality of work being done by a remote team.

There are a few things to monitor when comes to software quality:

Does the software actually work? Having a QA analyst as part of the team will improve software quality and ensure the features are working as designed.
Does the database follow best practices? The database is the heart of the application. Adding a field to an existing database schema is a very easy development change to make. Changing the structure of the database has a high impact to the overall software project and can impact many modules, reports, and integrations.
Does the code follow best practices? Finding a partner who has software coding standards and performing regular code reviews is an important part of the process. As you are evaluating companies, ask to see their code review comments in their source code repositories. If they can't produce any, then they say they do it, but actually don't.

Vendor Dependence

Outsourcing software development to a single vendor can create a dependence on that vendor, which can limit your ability to switch to a different vendor if the need arises.

Your vendor should be crucial to your project's success, but dependence on a single vendor can have massive repercussions to your business if the relationship goes south.

If you have one vendor and have no control over your project, it's time to diversify. You can also lose your ability to negotiate because of the switching costs to a new vendor and the domain knowlege built over time. Ensure your vendor creates supporting documentation within your systems and is regularly updating it as system changes are delivered. This can help reduce the cost of onboarding new software providers and internal team members.

Intellectual Property Issues

There may be concerns about the protection of intellectual property when outsourcing software development, as confidential information may be shared with a third-party vendor.

Here are some ways to protect your IP when you outsource your development:

Non-disclosure agreements (NDAs): Have all parties sign a non-disclosure agreement (NDA) to ensure that confidential information is not disclosed to unauthorized individuals.
Intellectual property agreements: Clearly define the ownership and licensing of any IP developed during the outsourcing relationship.
Data security measures:
Contractual controls: Include specific provisions in your outsourcing contract that address IP protection, such as termination clauses for unauthorized use or disclosure of confidential information.
Due diligence: Conduct due diligence on potential vendors to ensure that they have a strong track record of protecting IP and that they have the necessary security measures in place.
Monitoring and enforcement: Regularly monitor the outsourcing relationship to ensure that IP protection measures are being followed and enforce contractual provisions as necessary.

When to Outsource vs. Hire Directly

You need a team and need it quickly. Time-to-market is a crucial factor and you don't have the corporate infrastructure to hire and retain permanent employees. The right consulting partner can bring on projects quickly and can run.
Your existing team is focused on day-to-day firefighting and doesn't have capacity to support new product development. A great consulting partner can help to improve your processes on your existing teams and projects and deliver world-class software.
You need expertise that your current software team doesn't have. Consulting companies have a breadth of experience across a wide variety of projects in different domains. Often they can apply solutions created from one domain vs. another. It may take less time for a consultant with specific technology expertise to learn the domain than it does for an existing team to learn the technology.
Hiring an in-house team can be more expensive in the long run, as it involves paying salaries, benefits, and overhead costs. Outsourcing can provide access to talent at a lower cost.
If you need to scale your development team up or down quickly, outsourcing can provide greater flexibility in terms of team size and composition.

TLDR

Outsourcing your project is a great option when:

You are looking to execute a project quickly and need a team to help. Finding a great outsourcing partner can help expedite your project timelines.
You are looking to augment a team and add additional headcount to a project or bring on additional skills your current team doesn’t have.
You are looking to save money on your project over the long run and don’t have the time and expertise to hire nearshore and offshore yourself.