Outsourcing brings benefits, but also risks and challenges, like for example, negotiating and managing the relationship with the supplier. In this article, we’ll take a closer look at software outsourcing challenges. We have collected all the information necessary for the successful implementation of outsourcing in the organization.
Outsourcing – what is it?
Outsourcing is a business practice that involves outsourcing the performance of certain tasks or functions to an external company or institution. In the IT world, the outsourcing term means a huge variety of operations, e.g. providing an external entity with the operation of the entire IT infrastructure or only selected elements.
Also determines specialized functions such as:
– recovery after data failure
– network services
– software development
There are three basic types of outsourcing:
- Onshore – is provided by a supplier in the same country.
- Nearshore – supplier is from a neighboring country (or at least operates in the same time zone).
- Offshore – supplier from a distant area.
Considering cost reduction, usually nearshore and offshore are chosen.
Advantages and disadvantages of outsourcing
Of course, the list of pros and cons will vary depending on the specific implementation. Usually, we will find at least a few of the following examples:
- lower costs (achieved by economies of scale or lower rates in distant countries),
- higher efficiency,
- easier scalability,
- the ability to focus on the implementation of the company’s strategy and key operations,
- access to unique skills and resources,
- greater flexibility – the ability to respond to changing market conditions,
- shortening the time of product delivery to the market,
- lower investments in internal infrastructure,
- access to innovation, intellectual property,
- the opportunity to work with visionaries of a given industry,
- the possibility of cash flow – as a result of transferring resources to a new supplier.
The disadvantages of outsourcing include:
- linguistic and cultural barriers,
- the time difference,
- slower reaction time,
- lack of business or industry knowledge,
- no control.
IT outsourcing functions
Traditional outsourced IT functions typically fell into one of two categories – infrastructure or application outsourcing.
The first one includes e.g. :
- technical support,
- outsourcing data center,
- network services,
- management of security services,
- infrastructure management in general.
The second category includes, for example:
- application development,
- systems management,
- quality control,
- software implementation,
- software management.
IT outsourcing – payment model
The model of providing a given service depends on its specificity. The traditional approach determines the supplier’s settlement with the customer, taking into account the time and resources devoted to them. The supplier may also apply a previously agreed fixed rate.
Today, these services are evolving.
They are transforming from simple service delivery. Now it is an increasingly complex partnership. Therefore, it was necessary to develop new methods and models of settlement. Still, time and resources or a fixed rate are taken into account. In addition, there are variable price lists, an efficiency-based price list, a profit-sharing price list, etc.
Outsourcing is difficult to implement. The percentage of unsuccessful projects in this field is high, so it is worth considering the challenges facing outsourcing. What is the source of problems?
In most cases, it will be nothing more than a conflict of interest of both contract’s parties. The customer is looking for a better service than he can provide himself. He is interested in low-cost benefits. On the other hand, the supplier wants to earn. The situation should be monitored so that the agreement guarantees the satisfaction of both parties.
Communication problems are the most frequently in outsourcing. Communication is a broad concept. To be able to improve communication, you need to take a closer look at the causes of these problems. These can be time zone differences or difficulties in keeping additional documentation, or even a lack of interaction with colleagues.
The communication process needs to be improved. Schedule a series of daily or weekly meetings. (Regarding the Agile software methodology – the daily standups are organized by default. However, not all companies use this method). Meetings of all team members will make things move faster.
Prepare a process description including information such as:
- people who take part,
- meeting dates,
- meeting program.
Then, everything will be clear and communication problems will start to solve themselves. Give people the opportunity to discuss and plan activities on a daily basis and the team will find a solution for themselves.
Project management tools
When running an online project, you need a tool to manage it. The development team should have a tool where they can report bugs, commission tasks or ask questions.
Prepare a manual for using the online system. When people use it in a completely different way – you will come back to point 1 (communication problems as above).
Understandable guidelines and requirements
Record keeping can be a hindrance. Imagine a situation where the team spends hours writing documentation. The next day it turns out that the outside team has a lot of questions. Establish a single format for developing the project specification. In this way, authors and readers will better understand the requirements.
Choose a qualified small team. Go to smaller but experienced companies. Large companies with multiple layers of management pose a greater risk of misunderstandings and unnecessary costs. Teams of 6 to 7 programmers will prove to be more effective and efficient.
Various factors lead to a failure of the project such as poor process development or incomplete and unclear requirements. Working on a project with a team located on the other side of the world or working in different time zones is very difficult.
A common reason for outsourcing failures is treating outsourcing of certain processes as a quick solution to a problem. Also, a patent for cutting costs.
The possibility of a successful outsourcing collaboration grows when the boundaries between the customer and the supplier begin to blur. Such cooperation will be stable and successful when both the customer and the supplier achieve their business goals.
If we treat outsourcing only as a patent for cutting costs, each project will turn out to be a failure. Use outsourcing for strategic action. It is supposed to increase operational efficiency, gives the possibility of development, increases profitability and competitive advantage.