IT Outsourcing: what is it and what are the main benefits for your company?
Outsourcing of IT operations and development has been a hot topic for years. Common advantages of IT outsourcing include scalability, more robust disaster recovery, easier access to subject matter experts, lower costs and being able to focus resources on core business development.
Service outsourcing is also commonly linked to cost reduction and efficiency gains, accelerating development and software delivery time. This article aims to introduce IT outsourcing advantages, the most efficient models, and the Skand Outsourcing Mix – an original proposal to help your company achieve the results expected in software projects.
Read on to learn more about what your options are when it comes to outsourcing.
What is IT Outsourcing?
According to Gartner, IT outsourcing is the use of external service providers to effectively deliver IT-enabled business processes, application service, and infrastructure solutions for business outcomes.
Outsourcing, which also includes utility services, software as a service, and cloud-enabled outsourcing, can help clients develop the right sourcing strategies and vision, select the right IT service providers, structure the best possible contracts, and govern deals for sustainable win-win relationships with external providers.
The idea is simple and clear: hire a third-party service provider to fulfill your IT related needs, instead of sourcing talent in-house.
Struggling to find the right talent for your project? Download our ebook and learn the Skand Way to escape the talent shortage in IT.
The State of IT Outsourcing: A Global Context
There are two main reasons for the boom we are currently experiencing within the outsourcing business model. The first is the mass adoption of remote work, and the second is the talent shortage present in tech.
While some companies and industries are desperately trying to pull their employees back into the office, several others are taking advantage of remote working conditions to expand their access to the best talent.
This mass adoption of remote work and entire remote teams means that you don’t need to hire people within commuting distance of your office anymore. This makes outsourcing (and in particular IT outsourcing) an incredibly attractive option for companies looking to save money and find increasingly scarce talent.
The latter of those two benefits brings us to our second point: the talent shortage present in the tech sector. While the reasons behind this phenomenon are many, from older IT professionals retiring to the growing complexity of the field, the fact of the matter is that finding talent has become a difficult task.
Many companies in the US are struggling to find the talent that they need, especially when it comes to IT. The combination of the talent shortage and remote teams means that IT outsourcing has never been easier or more beneficial.
Types of IT Outsourcing
We believe that IT outsourcing will increasingly become the norm for the US and the world, as a way to keep companies growing both during and after a crisis (much like what we saw in 2020).
But when it comes to choosing an outsourcing model, there are a few to choose from. We’ll briefly go over each one so you can get an idea of which might be best suited for your needs.
Nearshore
The process of sending IT-related work to a company in a country that shares a border with yours. While this facilitates travel and communication between the two organizations, the issue here lies in limited options.
With the United States sharing its borders with only Mexico and Canada, this limits the pool of companies that fit the profile for Nearshore Outsourcing.
Offshore
Offshore outsourcing involves sending IT-related work to a company in a foreign country (one that you do not share borders with). This option usually comes with the added benefit of cost savings.
For companies operating within the EU, this option is significantly more attractive, whereas companies in the US would have to tackle the issue of large time-zone gaps between them and Europe.
Although, the US does benefit from Offshore outsourcing within Latin America, which provides little to no time-zone differences at a significantly lower cost than say a company in the UK outsourcing their IT to another EU member country.
Onshore
This process involves selecting an external service provider located within the same country as the hiring company, to provide IT-related work, remotely or on-site.
In this model, local teams are easily accessible, speak the same language, live in the same time zone, and have similar mindsets.
While this solution would be the first option in most cases, the talent shortage has made finding the right Onshore fit much more difficult.
Cloud Computing
Hire an external service provider to provide IT-related services in a virtualized way, such as Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS).
Managed services
It involves hiring an external company to provide network management functions, such as IP telephony, messaging systems and call centers, virtual private networks (VPNs), firewalls, network monitoring, and reporting, among others.
7 Main Benefits of Hiring IT Outsourcing
The considerably high costs of building software in-house, as well as the long timeframe of software development projects, have led companies to seek talent abroad to accelerate software delivery and reduce cost and time.
So you know the basic differences between forms of outsourcing and why it’s poised to take over the market. But what can IT outsourcing actually do for your business, and why is it such an attractive option?
1. Reduce costs
You might think, “after all, how am I going to reduce costs if I have to hire an additional service?”
The answer is simple: when outsourcing or contracting IT outsourcing, the responsibility for hiring IT professionals, keeping them qualified and remunerated remains with the outsourcing company itself. This removes the need to maintain an in-house IT department and spend on payroll, infrastructure, taxes, and training, among others.
Another point of savings with outsourcing is the transformation of fixed IT costs into variable costs, which allows you to plan your budget effectively. You can upscale or downscale what you pay for depending on your month-to-month needs.
2. Ensure flexibility and agility in the processes
Technology professionals know that when it comes to systems, bugs are to be expected. Operating errors are part of the routine and impact the company’s progress and productivity.
Outsourcing enables your company to count on more flexible solutions. The IT outsourcing companies can adapt more quickly to internal needs and respond to problems as soon as possible.
The less time you take to deal with the problem, the less the damage will be. This allows demands to be met with more fluidity and agility.
3. Have a dedicated team
For large, long-term projects, it is essential to have dedicated teams. This means having exclusive service and teams that adapt to the demands available, delivering results with expertise and speed. Developers, for example, are introduced to the project only once, and there is no change of team constantly.
IT outsourcing teams usually have a work methodology derived from Agile culture. In this regard, the Scrum framework stands out, being the structural pillar of team organization. The continuous deliveries in your sprints are always on time and aim for expected results.
4. Look for service quality and efficiency
IT outsourcing opens doors for the company to enhance operational efficiency and optimize processes. A specialized supplier knows relevant points and frequent problems, meaning they can identify and resolve issues quickly.
Since the companies and teams that provide this type of service are specialized in what they do, they often invest in tools, solutions, and training that help to improve the service even more – for both the contractor and the end customer.
5. Increase productivity and focus on the core business
The strategic use of IT outsourcing represents a competitive advantage that managers cannot ignore. With its autonomy, comes an asset for core business. It is not a simple task to absorb technological advances if your company is not super-specialized in the area.
When hiring IT outsourcing, these extremely complex issues will be in the charge of the contracted company, leaving your organization to focus on what you do best. The gain translates into teams freed up to think about the business strategy and, consequently, seek competitiveness without internal human capital wasting time with operational functions.
It is a viable, modern, and compatible option with the requirements of new technologies in the daily lives of companies.
6. Security and accountability
Maintaining the security of a company’s data can be a delicate task. Information security requires continuous monitoring and investment to stay ahead of threats.
The guarantee of a specialized team, which will implement the best data and information security policies available to them (under the penalty of law), is a crucial benefit. Not to mention the fact that the responsibility of keeping your data secure is attached to the outsourcing company.
7. Access to global resources
IT outsourcing can help companies expand their operating limits, connecting the best specialists from different areas in different parts of the world. The tagline we like to use is: “get access to the professionals you need, when and where you need them.”
This ties back to our discussion on the talent shortage. Outsourcing is also an excellent source of specific expertise. Even when you have an incredible internal IT department, a brand new piece of tech could be something that none of them have experience with. That’s not the case when you outsource to a company that is specialized in IT and has their finger on the pulse.
Best Practices for IT Outsourcing
So you know what it’s good for, but how are you expected to get started if you’re unfamiliar with the dos and don’ts?
Determine the right project
Not all projects should be outsourced. Outsourcing works best when your project has specific requirements that are not related to your core business, or when you know from the start what kind of outcome you would like to have in the end.
The right outsourcing project will allow your internal teams to focus on what they do best, while also allowing you to deliver your project faster. But, if you’re not sure about the outcome you want since day want, don’t worry: Many companies are successfully outsourcing their projects’ research stage.
Choose a provider you can trust
Your outsourcing provider is an extension of your company. Choose someone you feel comfortable sharing business and trade secrets with, or the project won’t progress.
As a baseline, choose a provider that understands your industry. They should also fully aligned with your objectives and business culture. The more they understand your needs, the smoother the project will go.
If you’re still not sure, consider launching a small test project. This lets you work together without putting your main project at risk.
Go Agile
Agile development is the leading method of software development. 71% of organizations use agile, and agile projects are 28% more successful than traditional projects.
Agile development is done in multiple short iterations. Each iteration only lasts a few weeks and involves creating, testing, and releasing new versions. Compare this to traditional development, where a new release could take several months.
Agile lets you implement new changes with greater flexibility and speed. Companies as big as Microsoft have found success with agile in everything from small projects to enterprise-level projects. And despite its flexibility, many vendors offer agile at a fixed cost.
Don’t base your decision just on price
Many companies turn to outsourcing to cut costs. While outsourcing is less expensive, it shouldn’t be your sole metric.
The key is to find a vendor that’s less expensive than an in-house team, but offers the same level of expertise and service. That can be a hard balance to find, but remember: you get what you pay for.
A lot of experienced outsourcers recommend creating a list of bids, then throwing out the lowest priced and the highest priced. Then, choose from the remaining options according to your budget, requirements, and expectations.
Outsource R&D
Many companies do research and development in-house to maintain ownership over their intellectual property. But R&D is a time-consuming process and it’s not uncommon that companies spend more time and money on research than they do on building the final product.
Outsourced R&D provides companies with the tools, technologies, and expertise needed to get to market faster.
Documentation is control
Document each stage of your outsourcing venture including deliverables, revisions, changes to the project plan, and updates. This helps you track your progress and gives you the information needed to maintain the project after the end of the contract.
Documentation doesn’t take a specific form. It includes emails, meeting notes, manuals, bug tracker submissions, and even code comments. The important thing is to have a record of what was done on the project and when it was performed. This is what gives you more control over your project.
Own your project
Last but not least, even though another company is working on it, this is still your project. Treat it as if it was being done in-house.
Constantly follow your outsourcing team. Make use of visibility tools like JIRA, Trello, and Slack to track changes, updates, objectives, and comments from the team. Review deliverables frequently, and don’t hesitate to contact the vendor with concerns.
How to get started: The Skand Way
The quickest way to get started is to hire an IT consultancy. They can help jumpstart your IT outsourcing process and get you in touch with skilled professionals without you having to lift a finger. They’re well versed in several different fields and have already assisted several companies in their IT outsourcing endeavors.
We’ve separated a couple of benefits of working with the Skand outsourcing format. Take a look:
Skand Outsourcing Mix Model Benefits
• 12-hour work days, with alternating teams.
• Latam offshore factories speeding up projects and lowering total costs
• Nearshore support, enabling client communication and quality assurance
• Highly skilled recruitment & retention teams
• Top quality nearshore project management
• Seamless remote team integration
• Scalable infrastructure
Build with Skand
At Skand we pride ourselves on our positive client relations and design-driven innovation. That means that we don’t have a one-size-fits-all solution to anything, much less something as complex as IT outsourcing.
The truth is that making the switch from in-house to outsourcing can be tricky, but the good news is that you don’t have to go it alone. Why not reach out to one of our consultants to see what Skand can do for you?