Software Development Outsourcing – Reasons and Benefits

#Software Development
#High Tech
December 28, 2016 12 min read

Vision of Partnership in Offshore Software Development Outsourcing
The first question you may ask yourself is why you should outsource something in general? In the case of software development outsourcing, this process requires you to delegate your development processes to third parties. This strategic use of outside resources lets you minimize the burden from your internal staff and have greater control over the resources you spend. Moreover, outsourcing lets you not only contract organizations and delegate some functions but acquire a valued long-term business partner.

“For the outsourcing client, the foremost aspect is the people he chooses to work with. Because in this business, the people who do the work directly are very important to the success of any product development. It can be compared with a romantic relationship. When meeting a girl or a guy on a first date everybody talks about similar things, and the first impression often tells you where the relationship might end up. And it is for you to decide whether or not to continue any further. In the software development outsourcing business things are similar. There are many companies, and they offer fairly similar presentations, such as talking about how great their expertise is in the client’s specific market. There is generally nothing new to the client in these presentations. So when I communicate with a new client either online or in-person, I never show presentations, I establish a dialogue.”
Alex Lutskiy,
Co-founder and CEO of Innovecs

Service delivery models

The first key point that we can identify here is the change of emphasis from the fixed cost projects to partnership delegation. The issue here in its essence is not in the fixed cost, or unwillingness of outsourcing companies to estimate the expenditures. Today we simply cannot precisely estimate the cost of work. In the modern world, there are too many dependencies that cannot be predicted. Most of the software solutions that companies are building today are tied to third parties with unknown costs. We are dealing with a variety of devices, computers, clouds, etc. This is the first major issue.

The second point is that everything is changing quite quickly. For example, Google or Apple can come out today with a new technology that has not been previously announced, and it may radically change everything that we are doing right now. And if this is a fixed cost project, in this case, what can you do? At some point you will have to say “Stop, wait a second, is it possible to change this and that to improve the project?” And it turns out that you cannot change a thing as the cost is fixed, and extra expenditures are not accounted for, and then a “war” between the client and the outsourcing team begins.

With the agile approach, you have a couple of weeks to think about something you may need to change and implement those extra changes. You can tell your outsourcing team to stop their work and to do this instead of that. That is possible because you are moving not only according to the plan that you drew up yourself, but you can also look around at what’s happening. Maybe something of value has been recently released, and there is no reason to develop the feature you previously proposed. Instead, you can focus on the implementation of another one that would give your product an edge on the competition.

But before that you should ask yourself: can you do it all by yourself or should you try software outsourcing to support development – either fully or in part – by another company, especially if it’s located in another state or even on another continent? To answer this question, we should separate the needs of start-up companies, enterprises and other companies that want to remain stable and grow effectively.

We’ve actually written an in-depth study on minimum viable product you can read. This is the very first stage of business where you have only ideas and nothing else. You need to create a minimum viable product (MVP) to show your investors and to continue growing and evolving with your product. This is why startups work well with offshore outsourcing companies because you don’t need to increase your staffing immediately. The second point is the involvement of technology expertise. Software experts in your given field may not be readily available and willing to join your startup. Therefore, you can turn to software outsourcing companies that can provide you with the needed experts on short notice and at a fraction of the cost (you don’t need to give out part of your company as an incentive to join in, for example).



Subdivision of startups into two categories

– The first one is where you have a clear business idea, and where all of the startup founders and inspirers are representatives of business. They have a clear understanding of their business domain but do not know the specifics of development of IT solutions to support the task or super idea that they’ve come up with.

– The second one is a so-called “combined start-up”, where the initial team consists of two parties. The first one has deep expertise in Corporate Business and the second one in Technology Solutions Development.

  1. Representatives of business as startup founders

In relation to software outsourcing services, the latter startup is looking, in fact, for help in two areas. In the first area, they are looking for technical expertise i.e. developers, designers, architects and all those people who have experience and know how to build software products.

In the second area, it is more process-organizational. This is why you need a product owner or someone in a similar role that can help the team organise itself. It is not even one single role, but two. (These roles are usually filled by a Producer and Project Manager.) Since the product owner is a representative of the business, he needs to learn all necessary skills in team operations, as well as the right approaches to the product and priorities. He needs to have in mind a roadmap for the product with landmarks, functional filling, etc. Further, a second part of the process is based on the viewpoint of product design. In this case, this role is of an agile Scrum master who has to organise a team to function properly. All of these skills can be taught by a top-notch software outsourcing partner.

More generally, software outsourcing companies as partners take up the role of an engineering manager who:

  1. a) knows how to organise the work of the team, and which processes to apply depending on the timing, scope and complexity of the product;
  2. b) can act as a proxy between the client and the team correctly translating the technical vision, technical problems or technical solutions to the business side and can translate back the priorities and objectives which need to be met by the tech team.

All of this relates to the first form of a start-up, where startup founders are representatives of business.

  1. Combined start-up

As to the former “combined start-up”, the technical function is on the side of a startup. This function is usually assumed by a CTO or VP of engineering, even if the startup is composed of only two people. By this, we mean that this person takes up the key engineering role. In ideal cases, this person is already a kind of a proxy link between business and technology. In other cases, this person may be purely a developer who developed the very first version of the prototype, and who only has a technical understanding of what’s been done. But his expertise may not extend into the sphere of the interaction processes organization in product development i.e. the roadmap, development stages, priorities, approaches to releases of new versions, etc. This is the expertise with which software outsourcing companies are ready to help.

Outsourcing For Medium and Large Companies

On a more structured, higher level, if we are talking more about the medium and large companies, clients oftentimes are looking for ways outsourcing can help as well. They know how they work, they operate effectively, in a clear and transparent manner, with all the processes well defined, but they do not have enough engineering resources in place to achieve the goals they’ve envisioned.

Medium and large companies generally have all the processes already in place to complete the tasks at hand. There is usually a responsible person on the side of the client who takes care of all engineering components and leads the development process. This person already has vast experience with teams of all sizes, with distributed teams, and so on. In this case, the client simply wants to expand his team via the outsourcing partner. To be precise, such a company wants the IT software outsourcing partner to provide them with a remote team that fully integrates with all of the engineering processes and in-house resources.

So what does this mean to the outsourcing partner? We believe that the primary goal is to find and assess the required experts to fill-in the vacancies, usully on short notice. This also entails proper set up of interaction processes between the client and the remote team, as outsourcing introduces new challenges in communication, work planning, and project management that need to be addressed. This is exactly the issue a high-quality outsourcing company can help with by providing guidance and expertise.

Points that lead to a successful cooperation with the outsourcing company:

  • Choosing the right cooperation model
  • Helping formulate and subdivide the areas of responsibility
  • Integrating the client’s team with the outsourcing team that is far away
  • Creating a unified and highly transparent working environment

In fact, in the initial stages, software outsourcing companies, often have to act as a consulting advisory body for the customer to help correctly organise the workflow.

Issues with finding experts on site – outsourcing as a primary solution

One of the primary reasons why companies choose to outsource is not having enough professionals on site. This is quite common, as many US and European businesses cannot simply find enough developers or experts in-house or locally to fill the necessary openings. But an important issue to note is that the majority of companies looking to outsource are willing to pay the developers sitting in their office significantly higher amounts than those who are working remotely. However, this same cost saving issue is one of the key drivers that fuels outsourcing business growth year-on-year.

Let’s take, for instance, the West Coast or Silicon Valley, where there are a lot of people with a great skill-set, but there are many more startup companies that require proper staffing. Accordingly, there is tremendous competition for experts commanding high levels of compensation which, inevitably, get higher with every new offer. As a result, you see companies struggling with finances and paying extra to get the needed people onboard. We are not talking about money as cash only, money can be virtual. People can be offered equity in a startup and other forms of compensation through benefits and perks. In just such situations, companies can turn to outsourced resources in order to find well-qualified and suitable professionals with a serious level of expertise without the added expense brought on by these compensation issues.

There are three key benefits in this:

  1. Software projects outsourcing lets companies easily find professionals
  2. Finding experts on budget is easier
  3. Business owners do not have to introduce new people to the startup

In most cases, the main reason to avoid introducing new people is that developers that enter early on get equity in the startup one way or another, and that eats away the margin the founders can leverage later.

Software project outsourcing expertise is on a par with Silicon Valley

Some companies headquartered in the IT hot-spots believe that “cooks are not to be taught in their own kitchen”. And people who work there know the latest technologies better and have the know-how unlike people working in the outsource company. Are they right? Indeed, outsourcing is often not located in Silicon Valley, but in places like the Ukraine, India, China and other countries. So what about their expertise? Is it able to meet the demanding requirements imposed by Silicon Valley companies?

The answer is a resounding “YES.” In fact, the expertise of outsourcing companies is more often than not equal-to or greater-than resources native to any of the IT centers of the world. Why? Because:

  1. a) outsourcing has been successfully operating for quite some time
  2. b) many companies, startups and large scale businesses alike, are working with remote teams

Accordingly, the people who work remotely and are there physically can often work on projects that originate from these hot-spots. Thus, all of the new mega-technologies that appear and are realized in the Silicon Valley are actually at least in part done overseas with the help of outsourcing.

Communication barriers in outsourcing

There are no real barriers to learning new technologies. Today, most processes are global and international. It is not necessary to be in a particular part of the world to use a given technology. We can communicate with teams in the Silicon Valley via Skype conference, and there is no need for a physical presence.

“Overall, partnership in software outsourcing has come a long way from the traditional outsourcing we are used to. In the earlier days, if you were outsourcing it happened this way: you handed down the operations and waited for someone on the other side of the ocean to perform it. All of the tasks were clear-cut because the technologies and projects were quite easy to comprehend. But now, every part of the business is very flexible and agile, and the very model of outsourcing without partnership is no longer viable.”
Sergiy Khandogin,
CTO of Innovecs

Engineering best practices

It is clear that being there on site and sharing the same space has its own advantages, some spirit of unity. But there are enough resources for those who want to communicate with each other over the Internet, and fundamentally your location doesn’t matter anymore. As an example, there are a lot of startup companies with teams of 5-10 people that are all located geographically in different places. And they have little to no problems communicating only through the Internet: video conferencing, voice conferencing, common development tools, etc. Every team member may be physically located in a different place, and they may not even have a single common office. These are the examples that demonstrate the feasibility of this work model. Of course, the launch and implementation of this type of cooperation require the use of correct approaches to the organization of workflow and the choice of tools that are used as well as a heightened level of responsibility of team members.

Key risks with offshore software development outsourcing

The risks are also worth mentioning. There are some definite risks that can arise when hiring people for any kind of job. Bu the degree of risk with outsourcing, in fact, is lower than you might think. Why? When a company, for example, a startup or a small company is beginning to expand its team, they have to consider three following scenarios.

Scenario 1. You find people nearby, sit down somewhere together (where exactly is a whole separate issue) and start creating something. In terms of communication, convenience, speed, and everything else this is the greatest option. But the issue remains: where do you find all these people and how can you convince them that your startup is the one they like. If you need technical people, they are oftentimes more interested in the required technical implementation or architecture, rather than the general idea or business model. This is a very interesting point to ponder about if you choose this option.

Scenario 2. You start searching for the remote specialists that are willing to work for you. De facto startup founders can consider them as members of their team. The guys that you personally employ and who are somewhere far away often treat this type of job as freelancing. And respectively, the proposed integrity of work has a big enough risk, as with any kind of freelancing. Today this employee may be with you, and tomorrow he may be offered something more interesting, he may simply get bored, or he just doesn’t have time to spare. Another issue is that if your employees work for someone else, it raises questions about their availability and the amount of time they can devote to your project, at that particular moment. This model’s key weakness is weak retention. Let’s just say that the risk of a tremendous loss of human resources is high enough.

Scenario 3. This model foresees software projects outsourcing. In the case of software development, it is probably correct to compare the models of freelancing – remote work and remote teams. Remote work can be completely distributed among individual freelancers. Outsourcing, on the other hand, with the help of remote teams is much more organized. The work is managed not only by the client but also by the manager of the outsourcing team. This helps set up communications and let the team reach its target efficiently, effectively and more easily.


Again, support of the team is great from the point of view of stability and sustainability, as well as the stable availability of technological expertise. Therefore, people can more closely communicate not only outside of the company at conferences or on forums but can use the internal community of experts in a particular technological field. Therefore, upon reaching some difficult issues, there is a possibility to find solutions more efficiently. This scenario offers a more stable model of communication, a thoroughly built up engineering process with a set of tools that enables the team, the client, and the entire staff to work together in a single virtual space, with a common vision of who is doing what and where, and how.

In this regard, software development outsourcing helps to build this model, run and maintain it in a working condition. Depending on the transitional stages of the company, process requirements, visibility and structural organization approaches aims of outsourcing may vary accordingly. The end goal is to adapt the processes to meet new business goals and overcome challenges that come along the way. Taking all of this into account, a great outsourcing company helps the client’s management team understand the ways outsourcing works in order to establish and support proper communication channels more effectively and move forward to get the envisaged results.

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