How to Successfully Outsource Software Development
June 27, 2023
Embracing Outsourcing: A Path to Software Development Success
The latest McKinsey Global Survey shows that 87% of companies report that they are either currently experiencing skill gaps or foresee them in the next few years. This trend is likely to stay with us for a long time.
There are various ways out suitable for specific business models and domains. We will focus on how to outsource software development and succeed in it.
According to Statista, the IT outsourcing market will continue to grow. For example, companies in the United States and Canada spend more of their IT budget on outside service providers than in over ten years.
Let’s find out the way to successful software development outsourcing!
Making the leap: transitioning from in-house to outsourced development
Transitioning from in-house to outsourcing is a big step for a company that has never practiced this model. Some of StartupSoft’s clients mentioned “aversion to having a remote team” but still chose that path.
While in-house development has its merits, companies increasingly recognize the competitive advantages of outsourcing, such as cost savings, scalability, and access to a diverse talent pool.
Let’s see how businesses can smoothly switch in-house development to outsourced software development:
Establish clear goals1
Before transitioning to outsourcing, define your objectives for it. Do you want to gain specialized expertise, provide cost management, accelerate product development, or scale operations?
Such clear goals will help you choose the right outsourcing partner and set clear mutual expectations and a foundation for solid work relationships.
Select the right outsourcing partner2
Finding the one and only outsourcing partner is like finding a life partner — together, you’ll be capable of everything. You must align with each other’s culture, values, and goals.
While choosing a potential partner, you should conduct research, seek references, and assess companies’ portfolios are crucial.
But what defines the right outsourcing partner?
- Solid expertise and experience in your domain or industry.
- A portfolio of cases and clients’ references should come along with its background.
- If you decide to move forward, you have to discuss such things as quality assurance, data security measures, and many other points.
Phase transition approach3
Take it step by step. Abrupt changes may shock your in-house team and make them nervous. Start to outsource less critical tasks before gradually handing over more complex projects.
Both sides will have time to accept and adapt to new business processes within such an approach. And you will be able to assess the outsourcing partner’s performance and resolve any issues on a smaller scale.
Share knowledge and communicate4
Knowledge and experience exchange are among the most important reasons for outsourcing. So set up a specific session for your in-house team and the outsourcing partner.
These can be system overviews, sharing project documentation, code reviews, walkthroughs, and best practices followed by your team. Thus, the outsourced team will understand the project landscape.
Communicate, communicate, and again communicate with your outsourcing partner. It’s the key to your trustable and successful collaboration.
Staying on target: establishing clear KPIs for outsourced projects
Key performance indicators (KPIs) are vital for managing outsourcing projects and defining how to outsource software development successfully. By setting them, you can quantifiably evaluate the success of a project or a specific task.
Transparent communication and trustability are good, but you need some objective performance assessments. That’s how you can improve productivity, decision-making, and the entire process for both sides.
Examples of KPIs
The name of these KPIs speaks for themselves — they assess the quality of the work of your outsourcing partner. They allow you to ensure that the outputs meet the standards and expectations set by the client.
Here are a few examples:
- Defect density
Shows the number of defects or errors in a piece of work per unit size—for example, X bugs per 2 000 code lines.
- Defect escape rate
Calculates the number of bugs not caught during the testing phase but found later in production.
- Rework effort
Represents the amount of time or effort spent correcting bugs or redoing work. The higher this KPI, the more problems with the quality of your partner.
Productivity KPIs examples
They represent the efficiency of your outsourcing team’s performance.
- Tasks completed
Calculates the number of tasks completed in the agreed time frame—for example, the number of features developed for the app.
- Cycle time
It is the time it takes to complete a task — from the very beginning to completion.
- Output quality
It may seem like a quality KPI but it can also assess productivity. It’s a percentage of work needed to be improved or completely redone because of the errors.
Customer satisfaction examples
Everything you do — you do for your customers. Their happiness is the key indicator of your successful software development outsourcing.
- Customer satisfaction score (CSAT)
It’s usually measured by conducting a customer survey with questions like “How would you rate your overall satisfaction with the service you received from 1 to 10?” The CAST will be the average number.
- Response time
It’s the average time for responding to a customer inquiry or issue. Apparently, the shorter your response time, the better your customer service.
Cost-related KPIs examples
These indicators show a quantifiable measure of the financial performance of an outsourcing project.
- Return on Investment (ROI)
It’s the most common yet important index that compares the net profit of the project to its total cost. A positive ROI indicates that the project is profitable.
- Cost variance
Measures the difference between the actual final cost of the project and the agreed-upon cost.
Ensuring excellence: maintaining quality standards in outsourcing
What if we’ll look at some outstanding tech companies’ experience instead of discussing common quality standards? Their outsourcing practice proves that even the most extensive in-house teams can significantly benefit from the insights offered by external expertise.
Let’s discover their practical experience and how they successfully outsource IT development.
Google is very strict about its quality assurance processes. Simultaneously, they do nothing extraordinary but set clear expectations with its outsourcing partners about deliverables, timing, and communication.
The company tracks the performance of these metrics and provides feedback to its partners for improvement.
Among the performance tracking similar to Google ones, Apple often provides extensive training to its partners to ensure they understand and meet Apple’s high standards.
IBM uses the KPIs we’ve mentioned before to maintain its quality standards. Also, the company enters into reliable Service Level Agreements (SLAs).
Moreover, IBM leverages technology for quality control, using automated testing tools and AI-driven software to monitor and manage the performance of its outsourcing partners.
Microsoft pays extra attention to communication and collaboration with its outsourcing providers. They maintain strong relationships with them and regular communication sessions to identify and address any issues promptly.
The company also practices extensive testing and reviews to ensure the outsourced work meets its quality standards.
Across the globe: managing time zones in outsourced projects
Time zone differences are usually mentioned as one of the challenges in managing outsourced projects and teamwork. It’s not as big a problem as it may seem and can even be a benefit.
Let’s go through some tips on managing outsourced software development across different time zones effectively.
Set a flexible work schedule1
Look at Google — they intensify their work during “overlapping hours” when all teams are available, regardless of the time zone. Thus, they can work more effectively, at least a few hours daily.
Use project management tools2
Like many other companies, IBM steadily relies on tools like Asana or Trello to track tasks, deadlines, and ongoing progress.
These tools provide a wide range of features like shared calendars and automated reminders that seem essential. Still, in practice, they significantly improve productivity for teams working across different time zones.
Variable meeting times3
Amazon practices a rotating meeting schedule so that meetings outside business hours inconvenience no team. It encourages equity and ensures shared responsibility.
Regular comprehensive feedback and check-ins4
Facebook carries out regular check-ins for the practical work of its team members in different time zones and a clear, holistic work overview.
Team dynamics in an outsourced world
Outsourcing software development significantly impacts team dynamics creating challenges and opportunities simultaneously.
Here are examples of team dynamics you can face while outsourcing:
Disrupting current work relationships
Bringing external resources into your in-house team disrupts your streamlined processes and routine.
Everything new causes resistance and hostility. Your in–house team may see outsourcing as a threat of losing their jobs and become anxious about it.
Act like IBM — be entirely transparent in communicating your strategy and goals. Also, reassure your staff that the outsourced team will strengthen their productivity but not replace them.
Bringing diversity into your team dynamics
Fresh blood will bring your team various experiences and professional backgrounds, stimulating innovations.
Even such a tech giant with a solid in-house team as Google uses outsourced expertise to drive innovation and progress.
Be aware of potential culture clashes, communication, and work approaches that could cause misunderstandings. Create a friendly, safe environment with respect and inclusivity, embracing diverse thoughts and ideas.
Modifying your leadership approach
You have to be versatile in managing a blended in-house and outsourced team.
For example, Netflix developed its culture of ‘Freedom and Responsibility’, providing employees with high trust and autonomy, which promotes accountability regardless of their physical location.
Outsourcing as a lifeline: business continuity in uncertain times
Certainty is a luxury nowadays and almost impossible to reach. Especially in the business field. Is outsourcing capable of helping us cope during uncertain times, or can it become an additional burden? Let’s figure it out.
Our world was divided into before and after the COVID-19 pandemic. It was an unprecedented experience for all the businesses. With its quarantine and other restrictions, the pandemic has shown how critical it’s to have a robust business continuity plan.
Outsourcing software development has become a significant part of such plans in uncertain times. It can simultaneously provide operational resilience and flexibility, which is precious during crises.
Let’s take a look at some strengths of outsourcing in uncertain times:
Before the pandemic, we had no idea how working from home was possible. But we faced lockdowns and social distancing measures that have changed our perception of work forever.
Companies that had already had outsourcing strategies accepted those changes much better. They quickly switched their operations to a remote mode because their outsourcing partners, already equipped for remote work, could continue to provide services despite the restrictions.
In Ukraine, we continue to work for the sake of our country during wartime. Our people are scattered across the country and all over the world.
So COVID-19 was an excellent training and experience for us to work from anywhere, even the basement during the missile attacks.
Outsourcing reduces the risk of concentrating all operations in one location. Collaborating with outsourcing partners allows your business to distribute risks.
So if its part is badly affected by a crisis in one location, another can take over some of the work to provide uninterrupted service.
Global tech giants like Microsoft and Google took advantage of their outsourcing approaches during the pandemic, and their global network of partners ensured business continuity.
Cost savings are vital during any crisis time. With outsourcing, businesses can scale up and down, react quickly to market demand, and in this way, distribute costs more effectively.
Safety first: navigating data security in outsourcing
Maintaining data security within outsourcing software development creates unique challenges related to increased access to confidential information by other parties.
Knowing these challenges and setting all the necessary solutions and procedures in advance is good. It will allow you to safeguard your data effectively.
Here are a few challenges and their solutions:
You and your outsourcing partner may have different security measures. It can lead to system vulnerabilities that leave data exposed to cyber threats.
As a hiring company, you set those measures and can demand compliance. Also, you should conduct a security audit to ensure your outsourcing company complies with your standards.
Legal and regulatory
Operating in different countries, you and your outsourcing partner follow various laws and regulations regarding data security, privacy, and breaches.
Ensure the outsourcing team meets all your applicable legal and regulatory requirements. It can be a part of your contractual agreement.
Data Transfer Security
Transferring data between the outsourcing partner and your company can lead to leakage or alteration.
To protect data transfer, you should use secure transfer methods, such as secure file transfer protocol (SFTP) or encrypted email.
With the emerging AI-powered solutions, you can secure your data during outsourcing app and web development at the highest level.
At StartupSpft, we’ve researched leveraging AI for cybersecurity and listed 5 startups that can help you. You can read more here.
Case study: a real-world success story in software development outsourcing
Madefire & StartupSoft
Madefire is an innovative platform transforming how stories are made, enjoyed, and distributed. They’ve pioneered a new type of entertainment known as Motion Books.
These are specifically crafted to make the most of the interactive features of mobile devices and the internet.
Madefire came to us with such problems:
1. Difficulties in finding talents in Silicon Valley.
2. Difficult to control the burn rate.
3. Issues with retaining existing talents.
Though Madefire was open to remote work, they were still hesitant to work with offshore engineers because of a previous negative experience.
Results of work with StartupSoft:
1. Tailored remote team of 5 engineers built in Ukraine.
2. They have the same degree of ownership over the remote team as their in-house one.
3. Total cost savings were 40% compared to hiring locally in Silicon Valley.
4. After a year of work, talent turnover was 0%.
Eugene Walder, Co-Founder & CTO of Madefire (now working as a Senior Engineering Manager at Apple):
“I had pretty high expectations but this has worked out incredibly well. It was the best of both worlds — the stability and easier scalability here in Ukraine, but it still felt like it was part of Madefire HQ.”
“I wasn’t renting employees, I was building fundamentally core value for my enterprise.”
Looking ahead: the future of outsourcing in software development
We’re living in the times of massive layoffs and global recession. To survive and scale, businesses must be inventive and creative in their strategies and day-to-day operations.
With emerging technologies such as AI, Blockchain, and Cloud Computing, the future of outsourcing looks exciting! They will substantially enhance and accelerate the efficiency and capability of outsourced software development.
At the same time — ‘with great power comes great responsibility.’ We must be cautious and attentive to data security and quality control. Modern technologies can also do a lot of harm when they come into the wrong hands and cause issues like cyber attacks and other fraud.
At StartupSoft, we can’t be sure what the future of outsourcing will bring us, but we are confident of our unique talents and their ability to integrate perfectly into any in-house team.
Andrew Vasylyk, VP & Co-Founder of StartupSoft:
“We are 100% confident in our candidates and their ability to contribute to world-class products. Because not only have they passed all the tests, screenings and have exceptional track records, they’re also Ukrainians.
And we’re all so eager to prove that nothing can bring us down, that we’re ready to work 10 times harder than anyone else in the world to back our words.”