What is IT Outsourcing? Benefits and Risks of Outsourcing IT Services in 2023

For the IT industry, outsourcing has been common for years already, and the demand for outsourcing doesn’t seem to be losing momentum. The value of the IT outsourcing services market is predicted to grow by $97.5 billion between 2020 and 2024. But is IT outsourcing the exact thing you need to meet your business needs? This guide will help you better understand:

• What outsourced IT services are
• What engagement models you can use if you want to outsource software development
• What services business owners outsource most often
• Benefits and risks of IT outsourcing
• Popular destinations for software development outsourcing

Ready to learn more about the topic? Let’s start with the basics.

IT outsourcing: What is it and why is it popular?

IT outsourcing isn’t new to the software development world. Business owners have been taking advantage of ordering IT outsourced services for a couple of decades already, as outsourcing allows them to pursue various goals, from reducing software development costs to focusing on business growth to shortening the time to market. Business owners also consider using IT outsourcing services when they lack particular expertise or the capacity to finish software development on time.

IT outsourcing is delegating some tasks or a whole project to an external software development provider. In most cases, businesses rely on IT outsourcing companies to get a high-quality minimum viable product (MVP) or a full-fledged software product. However, they also frequently come to IT professionals for separate services such as designing an application’s UI/UX, redesigning old app’s interface, auditing code, developing additional features or modules for existing software, or migrating existing functionality to new technologies. One more service that is becoming popular to outsource is a discovery phase that helps business owners find the best ways to bring their business ideas to life with minimal expenses.

Depending on your business needs and whether you have an in-house team of developers, you can choose one of two IT outsourcing engagement models, which we’ll discuss in the next section.

Which IT outsourcing model is best for you?

In recent years, outsourced IT services providers have been offering two different approaches to outsourcing. Depending on your goals, you can choose either the staff augmentation model or software product development. Let’s consider these engagement models in detail.

Dedicated development team

Dedicated development team, also known as the dedicated development model, is an approach businesses apply when they need to scale their in-house development teams fast. As a rule, businesses hire developers to work on frontend and backend tasks that they can’t deliver on their own because they lack the time or necessary experts. However, by opting to scale a business’s capacity with a dedicated model, you can staff your existing team with any specialist you lack, be it a developer, designer, QA engineer, or business analyst.

Product development

This engagement model is suitable for businesses that don’t have their own IT departments or for startup founders who want to bring their business ideas to life. By ordering product development from an outsourced IT service provider, you get a turnkey solution that meets your business needs. The software development outsourcing company you choose takes all responsibility for the development process.

There are several scenarios in which you can work with an IT outsourcing provider:

1. You have only an idea of a product you want to build. In this case, you come to an IT outsourcing vendor and tell them what you want to build. The development process starts with a discovery phase, during which you discuss details concerning the product itself as well as your cooperation with the IT outsourcing company. Once this phase is over, you’ll get a bunch of documents including a software requirements specification (SRS) that describes the nuances of your product’s development process. One more output of the discovery phase is a product prototype that allows you to get an approximate understanding of how your ready software product will look. Then, the actual development of a minimum viable product (MVP) starts with all frontend, backend, and quality assurance activities. When an MVP is ready, your cooperation with your IT outsourcing vendor doesn’t necessarily end. If you’re happy with the results of their work, you can continue working on product improvements and build a fully fledged product.

2. You have a software requirements specification (SRS). It’s possible that you performed market research on your own or already worked with another IT outsourcing partner before deciding to change vendors. If you come with a well-thought-out SRS, your outsourced IT services provider can start with product design and development right away.

3. You have some part of your product ready but you want to change your IT outsourcing vendor. In this case, you come to a new software development company with what you already have. The new company analyzes your current software and continues developing it.

No matter what scenario reflects your current situation, keep in mind that your IT outsourcing partner will manage the whole development process. As a rule, companies that provide outsourced IT services have straightforward workflows and efficient processes. However, this doesn’t mean that you shouldn’t participate in the development process. In order to ensure that the results meet your expectations, you will be invited to join regular calls with business analysts and/or project managers to follow the progress.

Now that you know how IT outsourcing works, let’s have a look at the most popular services that businesses and startups outsource.

Most in-demand outsourced IT services

The three most popular types of outsourced IT services are web development, mobile app development, and hybrid development.

Web development

This type refers to building any platform, service, or application that operates on the web. If you build a web app, it will work on any platform and any device with a supported web browser. If you want to outsource web development services, you’ll need to hire one team of developers. Web development is a convenient (and the most cost-effective) development option.

Mobile app development

Mobile app development outsourcing is when you hire developers to build an application for iOS, Android, or both platforms at once. If you need to build mobile applications for two operating systems, you’ll have to hire two different teams with different tech stacks and expertise. This can be quite a costly option, but you might go for it if you only target mobile users and want to provide them with exceptional app performance.

Hybrid development

This is the middle ground businesses and startups go for when they need to target both web and mobile users. By hiring one development team that specializes in hybrid development, business owners can build a one-size-fits-all solution for different platforms at a reasonable price and short notice.

Whatever development process you want to outsource, you should consider all the benefits and pitfalls of IT outsourcing to make a data-driven decision. Let’s start with the benefits.

Benefits of IT outsourcing

Outsourced IT services are popular for the many advantages they bring businesses. If you’re unsure whether it’s worth delegating part of your project or your whole project to a third-party company, consider these reasons to go for it.

Save money on development

Reducing costs is one of the initial goals that forces business owners to start thinking about IT outsourcing. There are several factors that impact price formation. Let’s see where exactly you can cut expenses when outsourcing software development to a remote team.

• Salaries. By choosing outsourced IT services instead of in-house development, you can save the difference between hourly rates in your country and your outsourcing destination. For example, if you are a US-based business with an outsourcing partner in Eastern Europe, you can save up to $140 per hour on a software engineer. Moreover, with outsourced IT services, you pay only for the work done, while hiring an in-house team requires you to pay salaries even if your team members have bench time.
• Recruitment expenses. IT outsourcing saves you the trouble of paying recruiting agencies for finding software developers. You can hire a suitable IT outsourcing partner in a week on your own. Once you decide on a company you want to cooperate with, they will provide you with the necessary specialists for your project at no extra cost. By opting for outsourced IT services, you can save not only your money but also the time and effort needed to hire developers.
• Operating costs. By choosing to work with a team of dedicated developers or outsource the whole product development process, you don’t have to extend your office space or buy hardware and software to facilitate software development. All you need is a stable internet connection to keep in touch with your IT outsourcing provider.

Focus on business growth

Besides saving money with outsourcing, you can free up time to focus on strategic tasks. For example, if you choose to outsource the whole product development process to a remote development team, you don’t have to control every step they take. As a rule, companies that provide outsourced IT services have expertise working on projects as a team. This team includes all specialists needed to deliver high-quality results and meet clients’ needs: software engineers, quality assurance engineers, designers, business analysts. There’s also one more team member who you’ll communicate with the most: a project manager. By wholly managing the development team and informing you about development milestones, the project manager allows you to focus on your business.

You will definitely need to join regular calls to check how far your outsourced IT team has progressed, but you still will have a lot of time and energy to work on your business growth strategy.

Access the best software engineers worldwide

When you look for developers to work on your project locally, it’s not always easy to find specialists who will meet all your requirements in terms of hard skills, expertise, soft skills, and payment expectations.

IT outsourcing provides you with opportunities to reach out to thousands of software development companies. This way you can connect with top talents from around the globe and find a perfect match for your project.

Speed up the time to market

By choosing outsourced IT services, you have the chance to achieve a competitive advantage since you don’t have to spend time recruiting suitable developers. For example, by outsourcing a whole project, you can hire all necessary specialists in one go within a few days, while looking for in-house team members can take up to several months, as the average time needed to hire one team member is 38 days.

The faster you hire a team, the faster you can start product development. With outsourcing, you can save several months and outrun your competitors. The time you save by outsourcing software development is extremely valuable in highly competitive markets. Moreover, outsourcing software development to a remote team can cost you less than developing your product in-house. It definitely sounds worth opting for outsourced IT services, doesn’t it?

Share responsibility

When you take advantage of outsourced IT services, you place a huge part of the responsibility for your product on your outsourcing vendor. While you are responsible for the business part — the idea behind your software, market research, and your scaling strategy — all technical aspects fall on your software development company. However, this is true only if you choose product development.

With staff augmentation, you are responsible for the technical side of your project. The developers, QA engineers, and other specialists you hire simply help you reach your goals faster.

Whatever engagement model you choose, make sure you find a reliable partner to build your application.

These benefits definitely make it worth delegating your development process to an experienced IT outsourcing vendor. However, working with remote developers isn’t without its challenges. You should consider the challenges we describe below before making a final decision.

Risks of outsourced IT services and ways to overcome them

Let’s see what things you should keep in mind when working with an IT outsourcing provider.

Intellectual property risks

Cooperation with third-party software development providers means constant communication as well as the exchange of expertise and ideas. While this cooperation model has proven an effective method of software development, some business owners might still hesitate to entrust valuable information to people they have never even met in person.

How to overcome the challenge: Sign a non-disclosure agreement (NDA). This document increases the chance that your IT outsourcing partner won’t share any information about your product with third parties and won’t use it to their advantage.

Time and cultural differences

You might consider time and cultural differences as a blocker that will prevent you from developing your product in time. For example, a time difference of over six hours can complicate the organization of daily meetings, while dissimilar cultural backgrounds can lead to misunderstandings.

How to overcome the challenge: When looking for a company to obtain outsourced IT services from, make sure that at least two to three hours of your and your technical partner’s business hours overlap. This is enough time to discuss important questions and stay up to date on how your project is going. As for cultural differences, you can interview each team member you hire and make sure they fit in with the rest of your team.

Missed deadlines

This challenge results from difficulties synchronizing with your development team. Another reason for missed deadlines can be poor management.

How to overcome the challenge: Talk about your concerns with an IT outsourcing company representative during your first meeting. A reliable software development partner will be able to offer you the best conditions for successful cooperation. One more tip for meeting deadlines is to work according to the Scrum framework. As part of the Agile methodology, Scrum allows you to divide the whole development process into two-week sprints so you can get some parts of functionality ready at the end of each sprint. Thus, you’ll see progress and minimize the chances of missing deadlines.

Mismatched expectations

Another concern you might have when delegating development of your software product to a third party is that the final result won’t meet your expectations. You might worry that your development team won’t understand you and that these misunderstandings will cost you hours of rework and additional money.

How to overcome the challenge: Experienced software development companies that offer outsourced IT services handle misunderstandings the moment they appear. To avoid mismatched expectations, you should clearly define your vision and business goals, create software requirements together with your software development vendor, and keep in touch with your team regularly to track their progress. You can also check a company’s Clutch or Upwork profile to see reviews. Real clients’ reviews will help you understand if a company you’re interested in meets your expectations.

As you can see, there are more benefits of IT outsourcing than risks. Moreover, you can avoid the risks if you choose the right approach to outsourcing. So if you want to delegate software product development to professionals, you should make up your mind about your outsourcing destination.

Outsourced IT services: offshoring vs nearshoring vs onshoring

There are three types of outsourcing depending on the destinations you’re considering: onshoring, nearshoring, and offshoring.

Onshoring

Onshoring is the practice of delegating software development to a company located in your own country. While you won’t be able to save much money with onshore outsourcing, you’ll work with specialists with the same cultural background and within the same time zone.

Nearshoring

This IT outsourcing model allows you to find a software development vendor on the same continent. Nearshoring helps you find developers with lower hourly rates and organize an effective workflow within your own or a nearby time zone.

Offshoring

Offshoring is when your software development company is located on another continent. By choosing an offshore software development company, you can dramatically cut development costs. You can find more information about the difference in hourly rates by region worldwide and the software development process in our article on how much custom app development costs in 2023.

While offshoring comes with some challenges such as time differences and language barriers, it also can be a winning option if you want to get high-quality results at a reasonable price.

Final thoughts

IT outsourcing has a number of benefits for businesses that don’t have enough time, capacity, or experience to build their own software products. IT outsourcing does have some risks, but if you approach it wisely, you have all the chances to minimize those risks and build a successful business in partnership with a reliable technology provider.