Understanding IT Outsourcing and Its Advantages for Businesses

For years, the discussion around outsourcing IT operations and development has remained prominent. Among the typical benefits of IT outsourcing are scalability, enhanced disaster recovery capabilities, streamlined access to specialized expertise, cost savings, and the ability to channel resources toward core business growth.

Additionally, service outsourcing is often associated with cost savings and improved efficiency, expediting development and software delivery timelines. This article seeks to present the benefits of IT outsourcing and the most effective operational frameworks. It also introduces Paracel’s Outsourcing Service – an original proposal to help your company achieve the results expected in software projects.

1. What is “IT outsourcing”?

According to Gartner, IT outsourcing involves leveraging external service providers to efficiently deliver business processes, applications, and IT infrastructure solutions to optimize business outcomes.

Software outsourcing, including utility services, software-as-a-service, and cloud-based software outsourcing, can help clients develop strategies and visions for sourcing, select suitable IT service providers, build optimal contracts, and manage transactions to sustainably benefit from relationships with external service providers.

The idea is simple and clear: hire a third-party service provider to meet your IT needs, rather than sourcing internal talent.

2. Current Status of IT Outsourcing: Global Context

The explosion of the software outsourcing business model is driven by two main factors. First is the widespread adoption of remote work, and second is the scarcity of talent in the technology sector.

While some organizations and industries are striving to bring their employees back to the office, others are leveraging remote work opportunities to expand access to top talent.

The widespread adoption of remote work and remote team collaboration means that there is no longer a need to hire employees within traditional office boundaries. This makes outsourcing (especially IT outsourcing) an attractive option for organizations looking to save costs and find talent during these challenging times.

The benefits of remote work and talent scarcity bring us to the second issue: the current shortage of talent in the technology sector. While there are various reasons behind this shortage, from experienced IT professionals retiring to the increasing complexity of the industry, the reality is that talent acquisition has become challenging.

Many companies in the US are struggling to find suitable talent, especially in the IT sector. The combination of talent scarcity and remote work makes IT outsourcing increasingly popular and beneficial.

3. Types of IT Outsourcing

We believe that using IT outsourcing services will become a common standard not only in the United States but also in many countries worldwide, especially as companies need to develop and adapt after crises such as the one we experienced in 2020.

However, when it comes to choosing a software outsourcing model, there are several options to consider. Below are some options that we will briefly discuss to help you get a clearer view of the most suitable choice for your needs.

Nearshore Outsourcing

This involves sending IT-related work to a company in a country that shares a border with yours. While this is advantageous for communication and management, there are limitations in terms of options due to the US only sharing borders with Mexico and Canada.

Offshore Outsourcing

This is sending IT work to a company in a foreign country where there is no shared border with yours. This option often comes with cost-saving benefits, especially for companies operating within the EU.

Although the time zone difference is an issue, the US still benefits from outsourcing to Latin America, where there is little or no time zone difference and significantly lower costs compared to outsourcing to EU countries.

Onshore Outsourcing

This process involves selecting an external service provider based in the same country as your company to provide IT-related services remotely or on-site.

In this model, local teams can easily access, and communicate in the same language, live in the same time zone, and have similar mindsets. However, this solution is often popular in most cases, but talent scarcity has made finding suitable domestic talent much more difficult.

Cloud Computing

Hiring an external service provider to deliver IT services through virtualization, including Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS).

Managed Services

Related to hiring an external company to provide network management services, including IP telephony, messaging systems and call centers, virtual private networks (VPN), firewalls, network monitoring, reporting, and many other functions.

4. The 7 Main Benefits of Hiring IT Software Outsourcing

The significant increase in internal software development costs and the prolonged time frame of software development projects have prompted companies to seek talent abroad to optimize software distribution processes and reduce costs and time.

You have understood the fundamental difference between outsourcing forms and why it has become a dominant trend in the market. But what real benefits does IT outsourcing bring to your business and why is it so attractive?

4.1 Cost Reduction

You might ask: “How can I reduce costs if I need to use an additional service?”

The answer is simple: When you outsource software or sign a CNTT software outsourcing contract, the responsibility of hiring IT professionals, ensuring their qualifications, and paying them remains with your company. This eliminates the need to maintain an internal IT department and related costs such as salaries, infrastructure, taxes, and training, among many other things.

Another cost-saving benefit of outsourcing is shifting fixed IT costs to variable costs, allowing you to plan your budget effectively. You can increase or decrease the amount you need to pay depending on your monthly needs.

4.2 Ensuring Flexibility and Responsiveness in Processes

Technology experts understand that when it comes to systems, errors can occur. Operational glitches are part of the routine and impact the company’s progress and productivity.

Software outsourcing allows your company to rely on more flexible solutions. IT outsourcing companies can adapt more quickly to internal needs and respond to issues as soon as possible.

The less time you spend resolving issues, the less damage is incurred. This enables meeting demands in a more flexible and responsive manner.

4.3 Having a Dedicated Team

For large, long-term projects, having a dedicated team is essential. This means having exclusive service and a team that adapts to the existing needs, delivering results with expertise and speed. For example, developers are only introduced to the project once and there are no constant team changes.

IT outsourcing teams often follow Agile-based work methodologies. In this regard, the Scrum framework stands out as the backbone of team organization. Continuous delivery in your sprints is always timely and aimed at achieving the expected results.

4.4 Pursuing Quality and Efficient Service

IT outsourcing opens doors for companies to enhance operational efficiency and optimize processes. Specialized providers understand the relevant points and common issues, meaning they can identify and address problems quickly.

Because companies and teams providing such services specialize in their field, they often invest in tools, solutions, and training to further improve the service – for both contractors and end customers.

4.5 Enhancing Productivity and Focusing on Core Business Activities

Implementing an IT outsourcing strategy showcases a competitive advantage that managers cannot afford to overlook. With its autonomy, it becomes an asset to core business operations. Embracing technological advancements is not a simple task if your company lacks expertise in this field.

By outsourcing IT services, these extremely complex issues become the responsibility of the contracted company, allowing your organization to focus on what you do best. This benefit empowers teams to think freely about business strategy and therefore seek competitive advantages without wasting internal resources on operational functions.

This is a viable, modern option that aligns with the demands of new technology in the daily lives of companies.

4.6 Security and Accountability

Maintaining the security of company data can be a meticulous task. Information security requires constant monitoring and investment to stay ahead of threats.

Having a specialized team ensure the implementation of the best available information and data security policies for them (under the penalty of law) is a significant benefit. Not to mention the responsibility to keep your data safe falls upon the outsourcing company.

4.7 Access to Global Resources

IT outsourcing can help companies expand operational boundaries, connecting with top experts from various fields around the world. The slogan we want to use is: “Access the experts you need, whenever and wherever you need them.”

This relates to our discussion about talent shortages. Software outsourcing is also a great source of specific expertise. Even if you have an amazing in-house IT department, an entirely new technology might be something none of them have experience with. That’s not the case when you outsource to a company specializing in IT and catch their rhythm.

5. Best Practices for IT Software Outsourcing

So, you know what it’s good for, but how do you start if you’re not familiar with the do’s and don’ts?

Identify the Right Project

Not all projects should be outsourced. Software outsourcing works best when your project has specific requirements unrelated to your core business operations or when you know from the outset the exact end result you want to achieve.

Choosing a suitable outsourcing project allows your in-house teams to focus on what they do best while enabling you to execute your project more quickly. However, if you’re unsure about the desired outcome from day one, don’t worry: Many companies have successfully outsourced the research phase of their projects.

Select a Trustworthy Provider

Your software outsourcing service provider is an extension of your company. Choose someone you feel comfortable sharing business secrets and trade secrets with or the project won’t progress.

As a foundation, choose a provider that understands your industry. They must also align perfectly with your goals and business culture. The better they understand your needs, the smoother the project will be.

If you’re still unsure, consider launching a small pilot project. This allows you to work together without putting your main project at risk.

Move Fast and Agile

Agile development is the leading method in software development. Seventy-one percent of organizations using agility and flexible projects have a success rate 28% higher than traditional projects.

Agile development is conducted in short iterations. Each iteration lasts only a few weeks and involves creating, testing, and releasing new versions. Compare this to traditional development, where a new release can take months.

Agile allows you to make new changes at a faster pace and with greater flexibility. Large companies like Microsoft have achieved success through flexibility in everything, from small projects to enterprise-level projects. Despite its flexibility, many providers offer flexibility at a fixed cost.

Don’t Make Decisions Based Solely on Price

Many companies turn to software outsourcing to cut costs. While outsourcing software is less expensive, it’s not your only measure.

What’s important is finding a provider that is less expensive than an in-house team but provides the same level of expertise and service. It may be a difficult balance to find, but remember: you get what you pay for.

Many experienced job posters advise you to create a bid list, then eliminate the lowest and highest bids. Then, choose from the remaining options based on your budget, requirements, and expectations.

Outsource R&D

Many companies conduct in-house research and development to maintain ownership of their intellectual property assets. However, R&D is a time-consuming process, and it’s not uncommon for companies to spend more time and money on research than on creating the final product.

Outsourcing R&D provides companies with the tools, technologies, and specialized knowledge needed to access the market more quickly.

Documentation is Key

Recording each stage of your software outsourcing project includes deliverables, modifications, project plan changes, and updates. This helps you track progress and provides you with the necessary information to maintain the project after the contract ends.

Documentation comes in various forms. It includes emails, meeting notes, user guides, bug-tracking submissions, and even code comments. The important thing is to have a record of what has been done in the project and when it was done. This is what gives you more control over your project.

Own Your Project

Last but not least, even though another company is executing this project, it is still your project. Treat it as if it were being done in-house.

Regularly monitor your software outsourcing team. Utilize visualization tools like JIRA, Trello, and Slack to track changes, updates, goals, and feedback from the team. Review deliverables regularly and don’t hesitate to reach out to the provider if you have any questions.