Benefits of Outsourcing Software Development: Pros & Cons

Software powers almost every modern company, from the apps your customers use to the systems keeping everything running day-to-day. Developing all of that using just an internal team is not necessarily the fastest or the cheapest option, and this is why many companies opt for outsourcing their software development.

In this article, we will explain what outsourcing involves and the key benefits of outsourcing software development, the risks to think about and how to choose a reliable partner. We will try to provide a comprehensive overview of pros and cons of outsourcing to help you make the decision regarding what fits your project the best.

What does software development outsourcing mean?

Software development outsourcing is an approach where a company or an independent team hires an external partner to develop a software solution. The provider will deliver the development resources, the development processes and tools, and the resulting software product.

Outsourcing can cover quite different scopes. Some companies outsource the whole custom software development process, whereas others delegate a certain feature development or certain types of work, like web development, mobile application development, or front end development outsourcing.

There are many other outsourcing options. Outsourcing SaaS development, outsourcing system development, and blockchain development outsourcing, for example, are some of them. A development studio working with smart contracts and decentralized applications allows you to outsource blockchain development services without hiring scarce specialists yourself.

Benefits of software development outsourcing

The advantages of software outsourcing are not only financial, although the financial benefit is definitely the reason for outsourcing software development for many companies. The following is the list of key benefits and reasons to outsource software development.

Reduced software development costs

Cost reduction remains one of the clear benefits of outsourcing software development. You save on recruitment, salaries, office rent, software tools, and subscriptions.

According to Deloitte’s Global Outsourcing Survey, cost reduction, together with gaining access to skilled talent and greater flexibility, has long been considered one of the major reasons for outsourcing.

Access to a global talent pool

Outsourcing allows a company to gain access to a global talent pool and work with experienced engineers. You no longer have to compete with other companies over a single local specialist.

This benefit is especially important in cases when you need a certain niche skill. Finding a software developer with the necessary expertise on the local job market can take several months, whereas an outsourcing provider might be able to offer you a developer immediately.

Faster time to market

A development team with proven processes will allow launching the software quicker. In addition to the fast hiring, an outsourcing company is capable of running parallel design, development, and testing of a product and significantly speeding up its development.

For a startup that needs to beat competitors to launch the product, outsourcing software development could mean the difference between success and failure.

Scalability and flexibility

Another important advantage is that outsourcing provides scalability and flexibility of the development process. You can increase or decrease the size of the development team depending on your current needs, and you do not need to follow the usual cycle of hiring and layoffs.

Focus on core business

Using the outsourcing services allows focusing more on your core business tasks, including product strategy, customers, and growth. With the help of outsourcing, you will be able to employ your internal team on the most valuable tasks.

Shared risk and accountability

Using a professional outsourcing service will allow transferring part of the risks to your partner. With the clear contract, milestones, and quality standards, the risk will be spread evenly between both parties instead of being your burden.

Software outsourcing and outstaffing: which model to choose?

Not all outsourcing engagements are the same. Understanding software outsourcing and outstaffing will help you to decide on the engagement type that is best for you.

Project-based software outsourcing is when you give a well-defined scope to the outsourcing company, and they will perform the development process and deliver the required product to you. This is a model for outsourcing software development suitable for such goals as building an MVP or developing a particular software product.

The process of outstaffing development is quite different. With outstaffing, you employ dedicated remote developers working with your internal team on a daily basis, while the IT outstaffing company is responsible for their employment and payroll. You are managing the development process while they manage the administrative part of the work.

Thus, in the outsource vs outstaff question, the key difference is the level of your control. Outstaffing allows employing people while outsourcing allows receiving the end product.

Many outsourcing companies offer their services both in project delivery and outstaffing mode. Affordable IT staff augmentation services can help you to quickly hire dedicated specialists of a certain skillset. Need one position? Outstaff one developer. Need the whole product? Use project delivery services.

When weighing outstaffing vs outsourcing, you need to understand whether you can manage developers yourself. If yes, then the IT outstaffing services will work great for you.

How much does it cost to outsource software development?

The cost is rarely a single figure. How much does it cost to outsource software development? This is determined by the project scope, technical difficulty, type of the engagement, and geographical location of the team.

Geographical location plays the largest role in setting the price. Depending on the region where developers work, the rate for the software development might be several times cheaper compared to other regions, while providing the same quality. The seniority also plays a role as the rates of senior developers are usually higher than those of juniors.

Several other factors affect the IT outsourcing costs:

•     Size of the project
•     The scope of the requirements
•     Third-party integrations
•     Post-launch support

The difference in technical difficulty between internal tools and a customer-facing platform is significant. Thus, the outsourced IT cost depends greatly on the features and the platforms the app is supposed to use. As a rule of thumb, the outsource app development cost for a mobile app is several times lower than the price for enterprise-scale system.

To keep the cost of outsourcing IT services predictable, make sure to define the scope of work clearly, agree on the price model (fixed-price or T&M) and the support policy after the launch of the product.

Disadvantages of outsourcing software development

To get the complete picture, it is important to speak about the drawbacks of outsourcing software development and learn how to overcome them. The following are cons of outsourcing software development and how to solve these issues.

Different time zones

The distance between the companies is likely to mean the time zone difference. Plan a schedule of your daily communications in such a way to cover a couple of hours overlap in your working schedules.

Communication barriers

Linguistic and cultural differences can distort the requirements of your project. Make sure to create clear written requirements, conduct regular presentations and use a project management tool.

Quality control

As you will not be able to observe the team directly, quality control requires special measures. Demand the code review, automated testing, and demoing of the development progress.

Security concerns

Work with an external company requires certain security measures. An NDA, clear access policy, and written information about who owns the intellectual property will protect your software and company’s interests.

Hidden costs

Ambiguous contract leads to hidden fees. Define the scope of work, deal with the change request handling and post-launch support issues in advance.

Software outsourcing vs in-house development

Outsourcing software development is not the best choice for every company. Comparison of the two options will help you to realize the trade-offs.

In-house team provides the direct control over the process, good understanding of the product and instant communication, but it is slower and more expensive to form, and hard to scale. Internal software development suits long-term and constantly developed core products.

On the other hand, outsourcing software development is faster, cheaper and provides access to the skills that are unavailable in your company. The answer to outsourcing vs in-house development question is that many companies use both approaches: an in-house team manages the vision, and an outsourcing company provides additional capacity and needed expertise.

When should you consider outsourcing software development?

There are situations when outsourcing becomes the optimal choice for your company. You might want to outsource software development if there is a skills gap in your company, you have a strict deadline or budget, or you have a one-time project.

Startup or a small business relies on outsourcing in order to launch the first product without forming an internal team. Large companies use this approach to supplement the internal team or reach the desired niche skillset.

When should you not outsource? If the software is your competitive advantage and requires constant iterations or you are not able to define your requirements, then internal development is better suited for you.

How to choose the right software development outsourcing partner

The benefits you get from outsourcing depend almost completely on the partner. Choosing the right outsourcing partner becomes the key step.

Firstly, compare the skills of potential partners to your requirements. Go through portfolios and case studies of outsourcing software development companies and find out whether they have relevant experience, including web development, SaaS product, or blockchain.

Then assess their workflow. Find out how they operate in general, what is their development process, the pace of communication, the testing standards, and the rules of code ownership. A reputable outsourcing company will always provide information about their timelines, price model, and team structure.

A few questions worth asking any outsourcing software development provider:

•     Are they able to provide you with specialists from their in-house team or will they hire developers from third-party studios to form the team?
•     What time zone the team uses, and what hours they have in common with you?
•     How do they ensure the high-quality work, security of your code and intellectual property?
•     Can they provide you with the results of the relevant projects?

Nomium, for example, is a full-cycle outsource software development company working on web, mobile and blockchain products, with full rights to the source code being transferred to the client after the delivery of the product. Regardless of the provider you choose, your task is to find a partner with appropriate skills and processes.

Frequently asked questions

Why do companies outsource software development?

Companies outsource to save on costs, acquire the skills unavailable inside the company, to launch the product faster and free up the internal team for strategic work. For many companies, software outsourcing is simply the fastest way to develop quality software without forming a big team.

Does outsourcing software development affect the code quality?

It does not affect the quality by itself. Code quality is affected by the partner you choose and the processes used, and not by the geographical location of the team. Using code review, testing, and demos, you will be able to get code that is just as high-quality as with an internal team.

Can startups and small businesses outsource software development?

Absolutely. Outsource software development allows launching the product from the idea without hiring a full team or purchasing additional infrastructure. It is one of the most common methods used by small businesses to launch a software product.

What happens to the intellectual property rights when outsourcing software development?

They are defined in the contract. With the help of a reputable outsourcing company, you get the full rights to the source code and documentation after the payment.

How do you manage an outsourced software development team?

Manage it as your internal team. Provide clear objectives, define overlapping working hours, have regular demos and use a project management tool for communication and tasks organization. Constant communication will allow aligning the outstaffed team with your interests.

Are there real-life examples of companies outsourcing software development?

Yes, there are. One of them is Slack: the initial user interface and branding were developed by an external studio. Another is WhatsApp: as it was growing into the world-famous messenger with billions of users, it hired engineers from Eastern Europe.