Challenges in Outsourcing for IT Companies

What do companies like Skype, TransferWise, WhatsApp, Google and BaseCamp to name a few have in common?

Besides being hugely successful, all of them have outsourced IT development tasks to offshore developers or remote workers in the past while some continue to do so.

IT outsourcing is huge, with global spending growing by 2% to 3% every year, according to Statisica.

Statistic: Worldwide information technology (IT) spending growth forecast from 2014 to 2019 | Statista
Find more statistics at Statista

The same report states that the IT market touched a staggering $3.65 trillion in 2018, with services spending slated to grow by 5.5% year-on-year.

Another report by Statistica, stated that the global outsourcing market touched $85.6 billion in 2018 out of which $62 billion was purely devoted to IT outsourcing. 

Statistic: Global market size of outsourced services from 2000 to 2018 (in  billion U.S. dollars)* | Statista
Find more statistics at Statista

The IT outsourcing development industry is growing by leaps and bounds. Companies require highly competent IT specialists who are well-versed in innovative technologies. The demand for fresh blood associated with more complicated technology is on the rise in Western Europe, Canada and the US. And these nations are facing a dearth of workforce, while the available experts increase their service prices. This is when the outsourcing IT development companies step in. These companies not only save your budget or provide additional workforce; they also help grow your business by state-of-the-art approaches.

For a better insight into the state of the IT outsourcing industry in 2019, below are given some
interesting factors to consider:

  • 72% of companies currently outsource IT and 31% are planning to increase their outsourcing.
  • Ultralow unemployment Ultra-low unemployment rate of 1.9% for the IT industry means that companies are finding it increasingly hard to secure the tech talent they need.
  • Rising importance of tech in industries like finance, medicine, and customer service has increasd the demand for software engineers

Outsourcing, in general, can bring massive benefits to your business; however, there are significant outsourcing challenges and risks while negotiating and managing outsourcing relationships. In this post, we elaborately discuss on 4 major challenges of outsourcing you need to know so as to ensure your IT outsourcing initiatives flourish.

1. Choosing The Lowest Outsourcing Bid

Let’s say you get in touch with many companies and brief them of your project, and later request them budget and time estimates besides any complexities they might see imminently.  Not long after, you start receiving their quotes. You might then say, “Let’s go with the cheapest one since I’ve researched most of the service providers.”

However, note that this can be the gravest of all the outsourcing challenges and is never the best strategy either, especially if you’ve invested a great deal of time and energy into your research. The best approach would be to delve over each of the proposals and find out the differences and similarities in each one of them.

Very often, the cheapest proposals will have the following in common:

  • Provide way less information in their proposals compared to their counterparts
  • They might involve rookie or junior developers in the project with poor results
  • They may not be as invested in learning about your company and its objectives/mission like they would be if they were pricey. Instead, they will mainly be looking to get the project done as quickly as possible.

Use your better judgment and not merely focus on the dollar sign as this can have a direct impact on the quality of the end product.

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2. Setting Schedule, Costs and Scope

Outsourcing solution for cost effective business

Defining a desired result for an outsourced project is normally easier than creating a roadmap that achieves the said outcome. If you leave a significant portion or the entire task to your outsourced service provider, it can be the best recipe for disaster and also one of the fundamental outsourcing challenges. Delineating the intricacies of the project, on the other hand, with your in-house team entails careful communication of your project objectives and execution plan to the vendor, which can lead to fruitful outcomes.

The most neglected factor and one of the primary challenges of outsourcing is the possibility that the enterprise is incapacitated or has not yet developed the standards and expertise to set scope accurately and provide suitable estimations on its own. Consequently, its effort has very little value and has to depend on the expertise level provided by the vendor, both of which bode inferiorly for the program.

Vendor expertise and capabilities should be carefully perused with respect to alignment with in-house expertise.

3. Ignorant of Software Quality Indicators

Before embarking on an IT outsourcing spree, you should be capable of assessing the quality of your project, and for that you have to understand a few markers of software quality. If these markers aren’t in place, your outcomes will not be successful. You would not want to work with a builder to build your house without conforming to construction safety standards. The same is applicable while building your software. In fact, being unaware of these indicators is one of the most serious outsourcing challenges currently, particularly in the IT sector.

The quality of software is gauged by factors like the easiness of the code for other developers to build on later, the complexity of the code base, the sufficiency of the documentation and the amount of bugs in the project.

Try finding outsourcing providers who:

  • Follow a community-accepted or in-house coding convention or standard
  • Use Agile practices
  • Do peer reviews or pair-programming
  • Use testing frameworks
  • Use diagrammatic system methodologies for initial designs like UML.

4. Data Security Risk

High-profile cyber attacks are an increasing concern for today’s businesses and one of the leading challenges of outsourcing. Even the likes of Deloitte have become the victim of a data leak. In 2017, Equifax blamed its breach to a flaw in outside software it was using.  As the growing rise in attacks mainly come from shadowy figures residing on the dark web, experts in the industry continue to point out that a large scale of security breaches have their roots in trusted insiders, vendor-partners in particular.

There’s no end to such attacks that were caused by suppliers. The Target breach of 2014 was as a result of lax security by Penn-based HVAC systems.  And these aren’t isolated cases. A study conducted by Ponemon Institute on behalf of IBM in 2018 found 56% of businesses have had a breach that was caused by their vendors. In December 2018, the Ponemon Institute Cyber Risk Report discovered that unauthorized sharing or misuse of confidential data by third parties was one of the serious challenges of outsourcing among IT professionals.

The following infographic by EveryCloud shows some useful facts and tips about Cyber Security in 2018.

In order to avoid such breaches while outsourcing, here are some practices to follow:

  • Lean into modern best practices and security standards as it will help you navigate around common security flaws that are engineered into systems unknowingly. The OWASP TOP 10 can be a great resource.
  • Conduct penetration testing. Do a thorough testing of the elements of cyber security software.
  • Know your IT outsourcing vendor intimately. Get to know their hiring practices, certification/training programs, and also the attributes at their workplace, both from a cyber security and physical perspective.

Putting the Pieces Together

IT outsourcing can be an effective tool for companies when the processes involved are maintained and implemented correctly provided they are aware of the potential challenges and dangers. By doing so, you can develop a reliable partnership and achieve optimum cooperation with tech experts. Regular communication, clearly defined project objectives and efficient management strategy are the hallmarks of a successful IT outsourcing collaboration.  

At Utile Digital Solutions, we mainly focus on integrated end-to-end IT outsourcing and deliver transformational benefits to you by curtailing costs, and infusing insights, innovation and operational excellence to make every experience brilliant both for your customers and business. We tackle the hiring process and manage every little aspect of your product so that you can better focus on other key areas of your business.  By engaging in a value-added partnership, you take an excellent step in solidifying and stabilizing your position in a volatile business landscape. Finally, with a little hard work, your next IT outsourcing project should deliver exactly what you require!

Outsourcing for Tech solution, App development
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