Outsourcing is the common practice of subcontracting business functions and processes to third parties. The benefits of outsourcing can be substantial – from cost savings and efficiency gains to increased competitive advantage. Well-established companies and start-ups reveal that outsourcing is good for them.
On the other hand, loss of control over the supplier is often a potential business risk associated with outsourcing. You must carefully consider the advantages and disadvantages of outsourcing before deciding to outsource business activities or operations.
Benefits of outsourcing
According to the survey, 90% of US companies consider outsourcing as essential to their growth. At the same time, 78% of new and small businesses believe that outsourcing gives them a competitive advantage. An organization may re-appropriate a specific errand, employment, or procedure for some reasons. For instance, a portion of the perceived advantages of re-appropriating are:
- increased focus on core business – outsourcing can help your company focus on its strengths and allow your staff to focus on their core business and future strategy.
- Increased efficiency – Choosing a specialized outsourcing company for the process or service you want to provide can help you to get a more productive and efficient service, often of better quality.
- Controlled Costs – The cost savings achieved through outsourcing can help you free up capital for investments in other areas of your business.
- Increased reach – outsourcing can give you access to capabilities and facilities that are otherwise inaccessible or affordable.
- More noteworthy upper hand – re-appropriating can enable you to use your insight and aptitudes all through your production network.
Risks of outsourcing and how to mitigate them
However, IT outsourcing projects are not an easy task to manage and many projects fail even though there is a lot of research in the area.
Good preparation and planning can mitigate many of the risks associated with outsourcing software development, but nothing helps us to better understand what the potential pitfalls are and how to avoid them.
We have selected your most common IT outsourcing concerns and explained the best practices for managing IT outsourcing risks. Hope our advice will help you to put all your doubts aside.
Anyway, what are the basic things to focus on?
Risk 1: The question of trust
If you’re at the stage where you’re wondering if business process outsourcing is a good idea, you’ve probably figured out how you can trust a person thousands of miles away. The degree of this confidence depends on the number of points that a subcontracting firm can obtain as a result of risk analysis and the possibility of reducing them. By checking this information with a subcontracting company that you want to do with your future partner, you will be able to obtain almost precise forecasts of the result of your project.
Choose the company based on the following:
- The maturity of the company: how long has the company been on the market, the average size of the project, the number of employees, etc.?
- The quality of long haul ventures/customers and the number of fruitful undertakings – for as far back as a year
- the company’s website. Why would these guys do something valuable to you if they are not able to create something valuable for themselves?
- Company activity on social networks. The willingness of an IT vendor to share his knowledge and his life with the company is always a good sign.
- The process of sharing knowledge and developing technical skills within the company and participating in global events.
- View the company’s rankings on independent review platforms such as Clutch.co.
- Case studies. These include customer insights, the history of cooperation, the issues the customer wanted to solve, the issues that arose, the solution itself, and the technology stack used.
- Get feedback directly from customers (past and present). Former clients are especially important because they have nothing to lose by telling the truth. However, remember that they are all businessmen who may be busy feeding their projects and the response time may vary.
- If possible, make an on-site visit to validate your “compatibility” – you will need to cooperate with these people in the future. Discuss topics related to the project with those of the office directly.
- Requesting a sample code used to implement certain features in previous projects will not be a bad idea. In this way, you can check the syntax, how the code is written and the best practices used.
Risk 2: Domain Expertise
Another essential criterion that should shape your opinion about an outsourced IT company is its domain expertise; that is, the area of professional skills and development. Typically, companies provide certification information and many are certified to high-quality standards. The background (such as experience and credentials) of your vendor team is also important.
Discover the technologies that the selected supplier masters, consult his projects implemented, and quantify and qualify his achievements.
Risk 3: lack of expertise with remote teams
Quite often, customers say they are not ready to outsource or hire remote teams or they need to have all their staff locally based. This occurs mainly if the founders of the company have no experience in outsourcing and managing remote IT operations. Such a situation can become catastrophic if you choose an amateur service provider. Obviously, you do not want providers to gain their first professional experience remotely when cooperating with you.
Choose a company with a well-established model of remote team integration. The implementation of this model proves that a supplier has the experience and skills required for successful collaboration.
In addition, your potential partner should be able to provide training sessions and consultations on all aspects of distance work.
Risk 4: Knowledge Transfer
Knowledge transfer is one of the most critical factors for the success of an IT outsourcing relationship.
In the most fundamental type of redistributing, there are two sorts of information exchange. The first comes from the company that wants the subcontractor to produce something. And here, it is essential to provide all the information, data and knowledge necessary for the subcontracting company to provide you with what you want. The second is that the “know-how” and fluidity of the developed product are not “owned” by the customer. The code is “owned” but not the know-how/experience.
Thus, a successful outsourcing project is a two-way street that requires a smooth transfer of knowledge transfer in both directions.
- When it comes to technology, look for subcontractors that have gone beyond manual information entry and have state-of-the-art software tools that capture business processes. This ensures that knowledge transfer is done accurately, quickly and efficiently.
- It is also important to select subcontractors who are on the lookout for the latest technology in knowledge transfer. The adoption of an effective technology policy will bring great benefits to the company and contribute to the achievement of cost targets.
- Finally, look for a client who can create a roadmap for innovation as part of the knowledge transfer process. This demonstrates the ability and depth of the vendor’s knowledge in a specific area to optimize and leverage your operations and deliver immediate and long-term benefits.
Fortunately, the outsourcing risks described above can be easily avoided when team selection and outsourcing of development are thoroughly planned.
Preparations can sometimes be tedious, but the result should be close to your expectations, especially when you choose to entrust the work to agile teams. With the right plan, you’ll be able to deal with the most serious software development risks so that your customer-supplier relationships can produce positive results and make your outsourcing experience a good one.