Outsourcing in IT brings many benefits, including saving time, reducing costs, and allowing staff to focus on more important tasks, thus increasing their efficiency and productivity. 

As a result, the number of enterprises that fully or partially outsource work on software to external companies is steadily growing. According to the results of the “Global Outsourcing Survey 2022” conducted by Deloitte, as many as 72% of the surveyed companies outsource their IT work, and 31% plan to increase the scale of outsourcing in the future. 

However, after making a decision to outsource work on software, the question arises which of the IT outsourcing models offered on the market will be the best for our company. In this article, you will find a detailed comparison of the pros and cons of each model. 

How to assess if software development outsourcing is the perfect solution for your business? 

As a customer, you will face a serious problem – assessing whether outsourcing is the best solution for your company. 

Among the many factors that you should consider in this assessment, we believe that the 4 listed below are particularly important:  

1. Costs: 

For many companies, the cost savings are the decisive factor in outsourcing software development. Developing in-house software can be expensive, especially if you hire new employees and purchase additional hardware and software. According to Deloitte research published in the “Deloitte Global Outsourcing Survey 2022” report, almost 58% of companies use outsourcing to reduce or control costs. 

2. Know-how: 

An equally important factor that you should take into account when considering outsourcing programming work is the lack of specialist knowledge or experience in your company. If you don’t have a skilled and experienced development team, creating high-quality software can be a challenge. Outsourcing software development to a specialized software house, such as SOFTIQ, can provide access to experts who have experience in building complex software solutions. 

3. Unclear requirements: 

Outsourcing software development can be a good solution when you don’t have exact system requirements. This is because outsourcing allows you to work with an external team of experienced developers who can help you define and fine-tune your system requirements based on their knowledge and previous experience. 

4. Time pressure: 

Another factor that may indicate that outsourcing is the best solution for your project is the need to bring the product to market faster. In-house software development can take a long time, especially if you don’t have the right team or resources. Outsourcing can help speed up the system or application development process by providing access to a larger pool of resources and expertise. 

Different outsourcing models used in the IT industry 

If you have already made your assessment and decided that outsourcing is the best solution for your company, you need to consider what kind of services you should use to achieve the best results. 

Depending on the model of cooperation between companies and the division of responsibility for the success of the project, we distinguish three main types of outsourcing services in the IT industry: 

1. Project-based outsourcing: 

Project outsourcing is when a partner you engage, such as SOFTIQ, oversees and manages the entire system or application development process based on your specifications. 

The outsourcing partner therefore takes care of all design and development work to provide you with a finished product, in accordance with your requirements and within the agreed time. 

2. Dedicated teams: 

The outsourcing model based on a dedicated team consists of the fact that a software house, such as SOFTIQ, recruits and assembles an entire team for you that deals with the system or application project from start to finish. 

Functionally, it’s like having an in-house team, except you don’t hire them directly. 

Depending on the specifics of the order, we create an individually tailored team based on an internal pool of over 200 experts from various specializations. 

3. Team augmentation / staff augmentation: 

The team extension model, also known as the extended team or team augmentation model, means the involvement of additional specialists from an external supplier to strengthen the existing internal team. 

Basically, it is very similar to hiring a new employee for your team, except that an additional person or people are found and recruited by the software house on behalf of your company. 

In this model, you don’t have to worry about the usual employee costs, such as training or benefits. 

Team augmentation is a cost-effective approach to fill skills gaps in your internal team or to complete applications on time when your team is unable to deliver. 

If you are wondering which outsourcing model will work best for your project, we encourage you to contact one of our consultants who will help you analyze your needs and choose the most optimal solution. 

Advantages and disadvantages of each IT outsourcing model 

Before choosing one of the available outsourcing models, it is worth carefully analyzing which one will bring the greatest benefits to your company and will be best suited to the current needs and capabilities of the company. 

Below are the most frequently mentioned advantages and disadvantages of each model: 

Project-based outsourcing: 

Advantages of using project-based outsourcing: 

• cost reduction – this is one of the key advantages of this solution. According to data published by Deloitte, as many as 70% of entrepreneurs indicated saving money as the main reason for outsourcing (source: Deloitte Global Outsourcing Survey 2022). 
• time savings – no need to recruit and train new employees, allows you to start work on the project earlier, 
• less responsibility for the implementation of the project – the partner is responsible for the employment and management of the project team, as well as for the quality of the work and timeliness, 
• greater flexibility of the internal team – by delegating work on the project to an external team, your employees can focus on other tasks related to the current functioning of the company. 

Disadvantages of using project-based outsourcing: 

• lack of business or industry knowledge – there is a risk that an external team of engineers will not know and understand the goals and mission of your company in the same way as internal employees, 
• risk of lower quality of the final product – the lack of direct project management by your employees may result in time-consuming and difficult-to-solve problems such as code errors, technical problems, technological debt, or low quality, 
• differences at the organizational level – the outsourcing company manages personnel and processes using its own practices, therefore there may be differences between the processes used in your company and in the software house,
• potential communication problems – in the case of outsourcing to a contractor from another country, there is a risk of communication problems caused by different time zones, language barriers, and cultural differences, 
• the need to prepare a detailed project specification – in many cases, the client has difficulty in determining at the very beginning of the project what exactly the software should have and how it should work. Misunderstandings with design requirements at this stage can lead to serious errors that may delay project completion. 

Dedicated teams: 

Advantages of outsourcing based on a dedicated team: 

• reduced costs – as in the case of project-based outsourcing, also in the case of dedicated teams, using the services of a software house is usually much cheaper than recruiting internal specialists, 
• exclusive involvement – one of the biggest advantages of a dedicated project team is involvement only in your project, unlike other outsourcing models, 
• high flexibility – the composition of the team can be adjusted at any time, taking into account the current requirements and needs of the project, which ensures faster project implementation and better results, 
• transparent management – dedicated teams use working time monitoring and task management tools to which the client has access, thanks to which he can keep track of project progress and react if necessary, 
• close cooperation – the Client, his internal team, and members of a dedicated team provided by the software house work closely together to achieve a common goal and obtain visible results. Not only do they communicate with each other on a daily basis, but they also brainstorm to assess the strengths and weaknesses of the process and improve workflows and long-term planning, 
• flexibility in terms of project requirements – outsourcing based on a dedicated team is a particularly good solution when you do not yet have a full specification of requirements and you constantly need to make changes to your project. 

Disadvantages of outsourcing based on a dedicated team: 

• low efficiency in the case of short-term projects – we know from experience that it is more effective to hire dedicated programmers for large projects that are constantly evolving, whose requirements are flexible and change frequently. In the case of less complex solutions that can be developed in a short time, it is better to choose a different outsourcing model, 
• difficulties in estimating the project budget – this is in a sense a consequence of the flexibility that characterizes this outsourcing model. In order to accurately determine the amount of the budget, you would need to know how long the project will last, how many and what additional tasks will be necessary during it, and thus what personnel changes will be necessary to meet the requirements, 
• deep team integration – a dedicated team is firmly integrated with the enterprise the entity for which the service is provided, which involves providing its members with details of internal procedures, processes, and business goals to be achieved thanks to the created software. For this reason, it is very important to choose a software house that takes data confidentiality and appropriate security procedures seriously, 
• in the case of some projects, additional recruitment may be necessary – a large software house, such as SOFTIQ, employs numerous specialists, from whom you can build a dedicated team tailored to the needs of your company. Sometimes, however, in the case of large and complex projects, it will be necessary for the software house to hire additional employees with specific skills. In this case, recruitment is usually done from scratch, which translates into the time necessary to define the profile of candidates, recruitment, interviews, and onboarding. 

Team extension: 

Advantages of outsourcing in the team extension model: 

• flexibility – this outsourcing model gives great flexibility in scaling the size of teams up or down, taking into account the current requirements and needs of the project and the amount of work to be done in a given period, 
• integrated, well-cooperating team – by delegating only part of the work to external experts, you make it easier for them to integrate with your internal team and better understand the mission and vision of your company, 
• the ability to quickly start work on the project – thanks to cooperation with the software house, your company is able to quickly supplement the deficit of skills and competences with external resources and immediately start the project, omitting the recruitment process, 
• lower personnel, HR and operating costs – your company has access to high-class specialists without having to pay full-time salaries. You also save on recruitment, HR, and employee rotation costs. 

Disadvantages of outsourcing in the team extension model: 

• time needed for onboarding – when joining a new team, even experienced experts need time to adapt and familiarize themselves with the organization, which at the beginning may reduce their effectiveness, 
• lack of knowledge about the company – some projects require in-depth knowledge about the company’s previous activities, completed projects, or systems used in it, which only current employees have, so depending on the project, you may be forced to additional training external employees, 
• supervision over work and team management – in addition to the ongoing management of the internal team, each extension of the team requires additional work related to the control and planning of the work of new specialists. 

Key differences between individual models of outsourcing services in the IT industry 

Which of the IT outsourcing models will be the best for your project 

When is project-based outsourcing the best solution? 

• when you have limited development skills within the company – since the outsourcing service provider is responsible for all work, the project-based approach is suitable for companies with limited engineering/IT knowledge. Companies of all sizes can create unique software by commissioning the development to a specialized software outsourcing company, 
• simple projects have predetermined needs that are unlikely to change – a project-based outsourcing company can perform these tasks without your input,
• when you need a product created quickly and efficiently – without the burden of management. Project-based outsourcing works best with clients who know exactly what they want. You can successfully hand over your project for implementation by a software house and free yourself from management tensions. 

When is a dedicated team the best solution? 

• in the case of long-term projects in which significant and unpredictable changes may occur – in the case of a one-off technological project, hiring a dedicated team is not justified, 
• when your team is already working on other development projects and cannot focus on one more project, 
• when your internal team does not have the necessary experience and/or knowledge to complete the project, 
• when you still want to be the decision maker and develop the vision of your products, but most of the activities can be done without you. 

When is team extension the best solution? 

• when you need to strengthen your internal team – for some new projects you will need up-to-date expertise, in which case you should strengthen your IT team, 
• when there is a risk of missing the deadline – the recruitment process takes a long time from the publication of the job advertisement to the onboarding of a new employee. The outsourcing model based on team extension is a quick way to acquire additional programmers, 
• when you want to get to know a software house and check the quality of their outsourcing services – often short-term involvement of specialists can turn into a long-term cooperation. 

If you still have doubts about which outsourcing model will work best for your project, we encourage you to contact one of our consultants who will help you analyze your needs and choose the most optimal solution. 

This post is also available in: Polski (Polish)