Outsourced Software Development: The Complete Guide
| 21 Jan 2020
The global demand for engineering talent is at an all time high and growing at an incredible rate. With development requirements becoming increasingly niche and competition to hire the best engineering talent increasingly competitive, businesses are looking at ramping up external/remote engineering teams as a way of delivering complex outsourced software development projects, on time and on budget. These teams are geographically scattered across the planet and typically work and collaborate remotely, outside of the hiring partner's country.
Most of these talent hubs are distributed across Europe and offer companies of all sizes and maturity an opportunity to expand their development capacity, either with an extended team approach or a full outsourced software development team. Whatever the decision, both these options offer great value and convenience in areas where talent isn’t available locally.
‘Some of the best known businesses in the world use agencies, freelancers and remote employees in order to fulfil their development requirements’
And it’s an option reputable companies across the globe use regularly. Some of the best known businesses in the world use agencies, freelancers and remote employees in order to fulfil their development requirements. It’s common practice, but rarely discussed in public for fear it may jeopardise their brand’s reputation. As a result, the perception around outsourced software development remains overly negative. while some projects do fail, the majority do not, it’s just the successes are not well communicated.
The Hiring Options Available and Why Companies Outsource Their Software Development
In a recent report conducted by Coding Sans, a lack of capacity was considered the greatest challenge in software development, and it’s easy to see why. Sourcing high quality technical talent is tough, time consuming and expensive. As a result, companies are instead looking at alternatives to hiring talent in-house.
‘A lack of capacity is the greatest challenge in software development’ (Coding Sans)
Developing a highly technical product is often challenging, particularly when the skills required to deliver are not available internally. This typically leaves companies with a choice when it comes to finding key development resources:
Contractors can offer businesses the skills and knowledge they need to deliver a technical project to a high standard of quality, however, these individuals can be pricey, and this can be a challenge when multiple freelancers are required. As the majority typically charge by the day, costs can quickly balloon if project timelines are not maintained, or if unforeseen development issues (which are common) cause delays. However, when managed correctly, freelancers can often be the cheapest solution and are a good option for short-term tasks.
In addition to cost, contractors can also be difficult to coordinate, particularly when multiple individuals are required. Bringing a team of experts together who have never worked with each other before can be problematic. In many cases, these set ups often create relationships and logistical issues that hinder and impede project delivery.
Cheaper operational costs
Usually, freelance developers charge 20-30% lower than software agencies. This cost saving combined with the opportunity to avoid financial liabilities including health insurance, taxes and internal resources means contractors are often the best value option.
Easy to find
With such high demand, there is no shortage of platforms to find and hire any kind of freelancers: Upwork, Toptal, Guru, Fiverr, Gigster, Freelancer.com to name just a few. If terms can be agreed quickly, then they can start right away.
Solid skills in a specific field
To be successful, most freelancers master their skills in one focused area so they can deliver maximum value. As a result, the majority accumulate highly focused experience in that area, enabling them to optimise and complete specialist tasks/projects seamlessly.
Unlike full-time employees, who have certain rights under the law and are entitled to work benefits, freelancers work under a contract, and so all that needs to be paid is the pre-agreed fee once the job is done.
Great for small tasks & spot work
Freelancers are typically best used for smaller tasks and spot work as logistics, stakeholder involvement and admin are often kept to a minimum. When the scope of work is small, the simplicity of the freelance model is extremely useful, however, as projects become more complex and scale further, managing multiple disconnected individuals can make project delivery difficult and inefficient.
Working on multiple projects simultaneously, there is a risk of a freelancer disappearing from contact for days or even weeks. In some cases, confidentiality can also be at risk, and though an NDA is common practice, there is still a chance of information leaking.
Beyond those initial concerns, it’s also important to remember not every freelance developer will care about product quality as much as internal staff. Most don’t even try to win returning clients, unlike companies who have typically care more about their reputation and long-term brand success.
While freelancers may deliver on the job just fine, they may also be lacking the skills necessary for planning and organising the work process, which potentially leads to broken deadlines and inefficiency.
Freelancers may build a website, design a mobile app or create a game, but once the project’s finished, so are they. Bug fixing, support and maintenance is not their problem, and so this needs to be considered before kicking off the project.
Lack of supervision
Freelancers often work as a silo, they’re briefed on what needs to be achieved, and then left to it. This low-touch approach is often very efficient as it requires minimal management and oversight, however, while it offers advantages, by giving the freelancer such freedom, there is a risk of it being abused.
No long-term relationship
Working relationships often deliver significant benefits over time as parties get used to working with one another. This can majorly drive efficiency and delivery improvements. Unfortunately, this is much harder to achieve with a freelancer, in many instances, freelancers only work on short-term projects and those who stick around aren’t involved enough within the business to develop stronger relationships.
Hiring internally is a good long term solution… in theory. However, due to a lack of supply, finding the right skills can often be challenging and results in a difficult and drawn out recruitment process. Even then, it’s not guaranteed the winning applicant will have everything they need to hit the ground running.
Beyond sourcing the candidate, additional costs and logistics need to be considered too. The individual in question needs a desk and is entitled to various financial company commitments (pension contributions, bonus etc) too, this all adds up fast. According to a study by the Center for American Progress, it’s estimated the true cost of internal hiring is 200% of the individuals PA salary (so a software developer earning $150,000 will actually cost closer to $300,000 after all other financial factors are considered).
‘It’s estimated the true cost of internal hiring is 200% of the individual’s PA salary’
Internal hiring only works when the need is not immediate and the skill sets required will deliver value in both the long and short term. The extensive costs have to be fully justified in order for the decision to make good business sense.
A full-time developer employee will learn all about the business in detail, be a part of the corporate culture, and promote the company/brand elsewhere. This is a worker who is fully accountable to carry out the work to a high standard, and whose quality can be measured from start to finish.
Being a part of the company and working to retain permanent employment while also driving their income potential is motivating for full-time developers. In addition, they’re often prepared to work longer hours when there’s a set date for a software project. Plus, there are infrastructures in place to ensure high quality output is produced, including performance reports, management, work rules and a boss… just in case.
As it’s common for a development company to regularly switch to new technologies, tools and frameworks, having full-time employees will make this learning process a team and collaborative effort. Providing necessary training/courses to employee, in turn, ensures overall company competitiveness too.
Optimum scope of work
As an employer, the way in which work is delivered can be organised and prioritised. This maximises internal resources, enabling the assignment of tasks based on contribution and importance.
Retaining employees is becoming all the more difficult, as switching jobs in high demand fields has become much more common - the average retention rate for tech companies is just 1-2 years! This can make internal hiring very expensive, so it’s important regular efforts are made to reduce employee turnover wherever possible.
Highlighting just how hard employee retention in the development sector is, even the likes of Amazon, Google and Apple struggle, all recording an average employee tenure of under 2 years.
Compensations and taxes
On top of salary, a full-time software developer is entitled to compensation, such as paid leave, health insurance, payroll, taxes, etc. Those are usually deducted from salary and should be a part of the work contract, unless there are legal issues.
A full-time developer offers more security than a freelancer, as he/she is responsible and relies on the salary. However, it’s much harder to terminate an employee if things don’t work out, and this can create further challenges.
Hire an Outsourced Software Development Team
Many companies turn to outsourced software development teams as a way to expand their development resources, without the need to hire internally or engage independent contractors. This is often the easiest way to access a large quantity and diversity of talent quickly, without long term commitment. Some companies will use this approach to support their hiring efforts, covering the gap while they take their time to find the right person, while others will use external resources to complement their internal team with a blended workforce approach.
‘As an opportunity to diversify technical skill sets, reduce delivery timelines and boost development output, outsourced software development can offer fundamental competitive advantages’
Over the last decade, outsourced software development has become increasingly common for companies looking to quickly scale their development capabilities or complement their already existing team. As an opportunity to diversify technical skill sets, reduce delivery timelines and boost development output, outsourced software development can offer fundamental competitive advantages.
Many companies embrace outsourced software development initiatives when deadlines are tight and use the added resources available to supercharge their ability to get to market. This showcases just how flexible and beneficial outsourced software development can be in the right circumstances, offering critical stability and reliability, while also enabling the execution of large and complex projects.
Each hiring option has strengths and weaknesses, but many choose to embrace offshore software development as a means of tapping into a high quality, flexible and reliable resources quickly.
A proper software development company provides all kinds of services, including business analysis and consulting, idea verification, etc. More importantly, their teams consist of a full stack group of professionals, typically including full stack developers, designers, QAs and other experts, all under one roof. As they have years of training and experience working together as a team, it’s possible to get started quickly and efficiently, instead of spending weeks and months building the right culture and processes to follow.
Smooth workflow and attitude
Working closely with project managers, checking reports, directing the work and planning the next stages… an external development team can ensure a workflow is established throughout project delivery and deadlines are met. Software companies genuinely care about results in the same manner as they care about their reputation. They are typically available anytime, and are open and responsible. As they work with various startups and businesses from across the world, they have mastered the art of creating robust processes to make sure clients are onboarded correctly and things run smoothly until project completion.
A good company will have worked on many projects, and should have an extensive portfolio for everyone to see. A strong outsourced software development partner will also have 5-10 years experience building projects for clients. With that experience, they’ll be able to deliver the discipline and professionalism necessary to deliver high quality output. In addition, this experience should help them identify best practices and what not to do in challenging situations. These kind of learnings are often shared among the team and reflected in the actions they take and quality of work they produce.
No legal issues
As business entities, software development companies guarantee legality, reliability and stability. Works and financial records are almost always available. In addition, they prepare contracts and all the documents to get started on the project, it’s just important to review such documents before signing. This approach ensures all parties understand what is agreed up-front.
The very best partners work with sensitive data daily and have an appreciation for its value and the need for it to remain confidential.
However, for a company to share their confidential information, paperwork needs to be drawn up and this can be a major blocker if team’s are looking to get started on projects quickly.
Up-to-date with technologies and trends
It’s in the interest of development companies to be constantly improving and to follow the latest industry trends, this ensures they are up to date and ready to offer relevant solutions in terms of building the next product. In the development field, this is particularly important as new market trends will influence everything from best practices for delivery to future recruitment efforts.
Executive teams are constantly analysing these trends, and armed with this knowledge, can build internal training progress and enhance future recruitment efforts.
Probably the greatest strength when compared to freelancers, working with an external team ensures a guaranteed professional approach, and offers reliability in terms of abiding by contractual obligations and achieving successful product delivery.
Finding the right team
Finding the right outsourced software development team can be tough. With such a crowded and noisy market full of developers of varying quality, it can be difficult to find the right team. This is why due diligence is so important, by conducting proper research up-front, businesses can find a team that’s right for them and deliver to the necessary standards.
When it comes to hiring an external development partner, cost typically correlates with quality. As a result, to access the high quality skills needed to deliver world class output, it can often be expensive, but this is reflective of the output. Furthermore, in comparison to the alternatives (building and hiring an in-house team for example), it can be much cheaper.
How Outsourced Software Development Helps Overcome Skill Gaps
As the average development project has grown in scope and complexity, finding the right experts to deliver the goods has become much more challenging. Over the years, the development sector has fragmented, and as a result, projects now require more specific knowledge and skills in order to produce high quality output. This has forced developers to choose a niche and develop within that sector of the market. While this has made these individuals more valuable, it has reduced the pool of talent available in local areas, making skill gaps much more common. In fact, the tech industry in general is facing a negative employment, with many areas boasting more open positions than there are qualified workers to fill them.
'By 2020, there will be more than 1 million more computing jobs than workers who can fill those positions' (Software Guild)
Why Outsourced Software Development Improves Project Agility
Outsourced software development is often embraced for various reasons, but improving business agility is typically one of the most prominent. By engaging an external development partner, companies can make decisions fast and deliver accordingly. This ability to adapt is critical in a rapidly changing market and an outsourced development team ensures progress is fast. This is essential when time-to-market is a priority.
‘By engaging an external development partner, companies can make decisions fast and deliver accordingly.’
Beyond agility, hiring an external partner also offers the opportunity to radically improve business flexibility. As the partner is typically ready to hit the ground running and plug directly into the internal team, they can bring additional experience and skills to the table that can complement what’s already available. This opportunity to tap into new skills combined with the opportunity to ramp up and down when necessary unlocks major flexibility throughout project delivery.
It’s not uncommon for technical projects to underpin business objectives and so the ability to deliver on-time is often fundamental to a companies’ ambitions. With so much on the line, it makes sense to engage an external partner who can focus their attention on delivering a project, relieving the strain on internal resources. Alternatively, an external partner can also be brought in to deliver on lower priority tasks, freeing up internal resources to focus on business-critical projects.
‘It’s not uncommon for technical projects to underpin business objectives and so the ability to deliver on-time is often fundamental to a companies’ ambitions.’
Both approaches have merit and showcase how outsourced software development initiatives can majorly improve an organisation’s ability to adapt and make decisions, which in itself can be a major competitive advantage.
Why Outsourced Software Development Delivers High Quality Output
When it comes to achieving commercial success, competition is at an all time high. New technologies and infrastructure have unlocked a global market where a company in Mexico can realistically compete with a business in Berlin. As a result, competitive advantages and quality are key. Companies must deliver above and beyond expectations to effectively compete and so the quality of the products delivered is critical.
A buggy, unreliable and inefficient final product is useless and arguably, could be worse than having no product at all. With that said, competence is the bare minimum required, projects need to take full advantage of the development language used to build them, and to effectively tap into that potential, experts in the field are necessary. The very best external teams will not only help optimize projects by expanding on the brief, but also make further recommendations that were perhaps not previously considered. Coming at the problem from an alternative, educated perspective enables the team to deliver added strategic value beyond just build and delivery.
‘The very best external teams will not only help optimize projects by expanding on the brief, but also make further recommendations that were perhaps not previously considered.’
Working with an external team also helps internal teams develop further, assisting with upskilling and improving their ability to work collaboratively in the field in question. Over time, this byproduct of working with external teams can deliver significant value, helping internal staff deliver niche projects to the high standards required, without external assistance.
How to Find a Good Outsourced Software Development Partner
It’s no big secret, finding the right external development partner is often the difference between project success and failure. In many cases, when it goes wrong, time is wasted, quality is jeopardised and money is lost as a result of a bad partnership. It’s really that simple. Yet, finding a good partner is easier said than done, in such a noisy and fragmented market, it can often be hard to identify the good from the bad.
Many projects fail because the fit is incorrect, the team lacks the skills/experience to deliver or is fundamentally incapable of meeting the required standards. This is reflected by the fact that over 35% of businesses are dissatisfied with the results produced by their offshore software development partner.
Whatever the issue, outsourced software development projects can fail if efforts aren’t made up-front to choose the right partner for the job.
'Over 35% of businesses are dissatisfied with the results produced by their offshore software development partner' (Coding Sans)
However, it’s worth noting, the ‘right’ partner will vary based on the nature of the project, the overall requirements (long/short term, small/large team etc.) , your preferences and the options available. These will all influence the variety of choices available to you.
Before you start, you need to outline up-front the must-haves and the nice-to-haves. This will help you prioritise and give you a clear view on which partners have potential and should be investigated further, and which should be avoided.
Today there are multiple avenues companies can take to find software engineering agencies, including the likes of Clutch, Goodfirms and UpWork, however there are regular questions around the quality of due diligence conducted on vendors available in these platforms. It can often be quite varied and unpredictable. Furthermore, the checks that are conducted can be questionable too, at times it can be difficult to know if platform ratings are genuine, or biased in some unforeseen way.
'In the development sector, it’s often hard to find the ‘gems in the rough’, particularly for those who aren’t quite sure what they’re looking for.’
In many cases, the very best development firms are not the best at marketing or promoting themselves as most of their business comes from referrals. In the development sector, it’s often hard to find the ‘gems in the rough’, particularly for those who aren’t quite sure what they’re looking for. However, for those who take the time to search properly, they typically end up with extremely strong partners who deliver above and beyond expectation every time.
Before you choose a team, it’s important to:
- Get multiple quotes/proposals to compare against each-other.
- Ask the company for recommendations; look for reviews over the internet (ex. Clutch, Facebook, Google+). Do not rely solely on online reviews because these can be very biased.
Once you find a good software engineering partner, the question is, is this the right partner for you?
How to Conduct Proper Due Diligence on an Outsourced Software Development Partner
Choosing an outsourced software development partner is one of the biggest decisions a company can make, in some instances it can quite literally put the company’s future on the line. As a result, it’s critical the right due diligence is conducted up front, ensuring all criteria aligns with the ambitions of your company.
'1 in 3 outsourced software development projects fail' (Coding Sans)
Here are our top tips on how you can conduct proper due diligence on an outsourced software development partner to maximize your chances of success.
Evaluate the Partner’s Experience
When choosing to engage a development partner, your first priority should be to ensure they have the necessary experience to deliver the job. You want a team who’s been there and done it before, with a good view on common pitfalls and best practices. When evaluating the experience, you don’t just want to see who they’ve worked for, but what they delivered and how. This will give you a good view on their capabilities and begin to outline their strengths and weaknesses. To get this information, it’s critical to review case studies showcasing their previous work. By getting them to run through these projects, you can ask key questions around how they executed on it, how they overcame hurdles and how the learnings taken away will influence future delivery.
The best partners for your project will have experience in the language you’re looking to use, potentially experience with other companies in your sector and have worked with similar sized businesses in the past. All of these experience criteria will help determine how well the partner can deliver on your project and will likely reflect the quality of the final output.
Review the Team’s Knowledge and Capabilities, as a Group and Individually
The team you choose will need to have a selection of key skills and knowledge in order to deliver your project, and so it’s essential that they’re verified before you commit. The best way to do this is typically through a CV evaluation conducted by executives and other developers involved. This will help determine which teams make it to the interview stage.
From here the interviews will evaluate the team’s collective and individual knowledge, providing a great opportunity for them to showcase their skills. In these sessions individuals are asked to solve simple problems and explain how they’d approach particular challenges. This helps to see their capabilities in action and ensures their claims around skills and knowledge are genuine.
Audit the Partner’s Communication and Language Skills
Communication lies at the heart of any good outsourced software development partnership. As a result, it’s critical that a potential partner has a good level of English. This is particularly important when conversations will often cover highly technical subject matters where the details will make all the difference. Understanding basic English is often not good enough, and in some cases, can cause major misunderstandings and obstacles in delivery.
The reality is, it doesn’t matter how talented your partner may be, if they can’t understand what you’re saying or have the potential to misconstrue your point, then it’s likely efficiency of production and the quality of the final product will suffer.
Understanding their organisational processes is also critical, it’s important to get a grasp of their daily standups and weekly reporting structures. The format and quality of these mechanisms will reflect their commitment to regular communication and organisation.
Beyond language skills and organisation, it’s also important to evaluate how they communicate. Do they have the systems in place to facilitate simple communication? Do they have the tools for simple verbal, visual and written communication.The answers to these questions will largely emphasise how the team prefers to work and how compatible they are with your company.
Consider the Compatibility of Company Processes With Your Own
Every company operates in their own unique way. They’ll have their own preferences, strengths and weaknesses. As a result, it’s important to see how any potential partner operates and compare that approach with you own. There will be instances where you own processes have no way of integrating with the external team, and you don’t want to be engaging with a partner that has to learn an entirely new fundamental way of delivering a project. That is a risk you can’t afford to take.
Compatibility is not something that can be forced, and that’s why it’s absolutely essential you get to know how the external partner’s processes work and why. By doing this up front, you’ll be able to avoid challenging logistical issues later in the relationship and ensure your partnership is optimized for delivery, maximizing the chance of success.
Making the Business Case for Outsourced Software Development
While outsourced software development can deliver significant benefits, it is a major financial decision, and as such, typically requires support from multiple stakeholders within the business.
Who Are the Typical Key Stakeholders
When it comes to making the decision around working with an outsourced software development team, these are the individuals who typically have the most influence:
Chief Technology Officer (CTO) - Usually the key decision maker on the engineering team, both internally and externally
Head of Product - Works closely with the CTO to discuss key milestones and how to achieve these goals
Chief Finance Officer (CFO) - Coordinates with the CTO regarding budgets and final sign off
Chief Operating Officer (COO) - Involved with the overall strategic decision making on how the company can achieve its goals
How to Get Stakeholder Buy-In
In order to justify an outsourced software development project, the stakeholders above need to be convinced it’s the right decision for the company and their area of ownership.
To get full buy-in, it’s important to:
Highlight the company’s need for an outsourced software development team
Helping stakeholders understand why an outsourced software development team is required in the first place is a good way to open the conversation. Ensuring they understand the circumstances which have led you to pursue this direction will help them effectively query your decision before providing their support.
Emphasise the benefits of an external development team
Some stakeholders will be unaware of what an outsourced software development team can bring to the table, so you need to help them visualise why it’s a genuinely valuable option. Comparing the approach to alternatives will help you convince them it’s the right way to go.
Showcase the opportunities an external development team could deliver to the company
Beyond discussing the problem and the benefits, scope and present the opportunities that an external team can deliver. Explain how internal teams could benefit from the exposure and the reduced workload.
The Benefits of Outsourced Software Development
Outsourced software development initiatives offer businesses significant advantages over alternative hiring options, and in many cases help drive development capabilities forward fast and efficiently.
Companies who choose to engage with an external software engineering partner typically tap into a whole host of benefits, including:
- Fast access to the necessary team members and niche skill sets required to deliver large and complex projects
By hiring a ready-made team, businesses who embrace offshore software development can begin projects quickly and rapidly integrate into the existing infrastructures, helping to meet tight deadlines.
- Allowing internal teams to focus on critical high value business projects
External development teams can provide a major boost to supercharge internal resources and allow them to focus on core product tasks while they take care of other elements, this typically includes the addition of new features, UX/UI changes, front end development etc.
- Upskilling and exposing internal staff to a new perspective and information
Working with an external partner is a great way to ping-pong ideas back and forth, but more importantly, bring new perspectives to the table and expose internal staff to new ideas, concepts and technologies.
- Overcoming skills gaps that have the potential to threaten business progress
With skill gaps a common problem in the world of software development, it makes sense to hire a specialised team that can slot straight into the business to fill the gap and prevent project delays, without sacrificing quality.
'75% of companies find sourcing workers to fill important technical positions was a challenge' (Software Guild)
- Enhancing the quality of the final product by involving a more diverse pool of talent
Development output quality is improved with a greater variety of experts involved in decision making, management and delivery. This diversity helps to ensure best practices are followed and common pitfalls avoided.
Why Outsourced Software Development Is Set to Grow in the Future
As the demand for development resources grows into the future and the market continues to fragment into deeper subsections, outsourced software development teams will become increasingly specialist to effectively deliver in their area of expertise.
'Over the next decade the demand for tech talent will increase dramatically in Europe' (Atomico 2019 Report)
This will enable them to deliver optimal value to organisations in need of highly specific technical skills, and there’s no doubt, the demand for these skills will rapidly grow as businesses try to develop competitive advantages in an increasingly tech-reliant world.
While hiring internally is difficult now, it’s only likely to get harder as demand outstrips supply for tech talent. The ‘war for talent’ is common in other niche fields, and it’s likely the tech sector will soon be embroiled in an even more fierce battle to attract the very best of the limited talent available. Competition will also increase as both local and global start-ups enter the ring, trying to poach the very best talent, and offering generous incentives like stock options to get the developers they need.
Faced with this troubling proposition, companies will increasingly embrace outsourced software development teams as a viable alternative to internal hiring or to complement internal expansion. When they make this decision, they need to ensure they find the right team that not only meets their needs, but has a track record of success and the expertise to effectively deliver the project. This is where due diligence is key and you need the ability to evaluate your potential partners before making a decision.
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