Outsourcing and Offshoring: Different Words, the Same Meaning feature image

Outsourcing and Offshoring: Different Words, the Same Meaning

Outsourcing seems to be the word that entered Information Technology industry for good. The process guarantees flexibility and can save the company unnecessary expenses, because they will only need to pay for the services they require. Also, it eliminates the continuous need to hire and train new employees. Offshoring is another type of a classic outsourcing model. It is an agreement between two companies, where one agrees to provide services for the other. It is usually in a two different countries. Like the main model, its biggest advantage is lower cost, in comparison to in-house services.

Offshore software development outsourcing (OSDO) is an emerging concept in the IT industry which aims to develop high quality application software at low cost into low wage countries. In OSDO, a contract-based relationship between a vendor and a client is establish , whereby the vendor(s) organization agrees to work in developing either full or partial software applications and requirements for the client’s organization and take remuneration in return.

Fundamentally, offshore and outsourcing providers need to evolve their business practice and approach from a being only just a provider to a partner in order to meet the high demands of innovation in today’s market without sacrificing the quality of work.

As you probably have noticed, all of the above mean almost exactly the same thing, regardless of the term.

Software Development Outsourcing

Mixing cost-effectiveness with remarkable quality of software application development? Yes, this is exactly what outsourcing can provide different businesses with.

Software development outsourcing is not a new concept. Outsourcing has taken a giant leap forward in helping the company make the most out of their budget and existing resources, without the need to hire new additional experienced programmer to implement their ideas. In “The Outsourcing Revolution”, the author, Michael Corbett, reported, “About 50 percent of executives state that reducing costs is the top reason for outsourcing”, which includes those that sent their IT offshore.

The globalization of both online and offline resources has led to a dramatic increase in cross-country business operations. According to “The Outsourcing Institute”, published in 2004, the global software industry is one of the industries that experienced exponential growth since the 1980s. Many firms are finding offshore software development a sustainable alternative to in-house software application development not just because of the lower cost, but also to solve the problem of being unable to hire and retain qualified and expert programmers together with the growing need to transition swiftly from project initialization to actual system application installation.

Another change will be visible in outsourcing software development application is measuring the effectiveness of sourcing relationships. The traditional client-vendor relation is changing into a partnership. Although lower cost is the main reason for outsourcing, it is no longer only cost-efficiency that matters, but also the impact that outsourcing model has on the overall business. As for example, Managed Services Model allows the Client Company to focus more on their core business – i.e. getting leads, making sales, improving internal processes, whereas the outsourcing partner, being more independent, can manage the investment, benefiting the client in the long run.

To reap the benefits of outsourcing software application development, the client company have to do a lot of work in the beginning. Planning ahead double check everything is a must. Communication and proper management of resources will work well together with the outsourcing model if done properly.  Just like in any other relationship, for outsourcing process to succeed, both parties, client and outsourcing partner, have to be committed. The key to outsourcing success lies in choosing the right partner.

5Cs to Successful Outsourcing of Software Development

CONCENTRATION ON THE GOAL

Goals trigger behaviour. Allow your outsourcing business partner to implement their own way of working. Having a clear and compelling goal mobilizes their focus toward actionable behaviour leading to success. Trust that they only want what’s best for your business. Goal setting helps you align focus with behaviour because you get feedback on your progress. The actions you take—or avoid—offer clues about your values, beliefs, challenges, strengths and weaknesses which allow you to course correct as necessary and reset your goal achievement strategy (and subsequently, your focus) – Forbes. Concentrate on what you want to achieve with outsourcing your software development, not on how you want it done. Trust that your decision in choosing them is right. Your outsourcing partner can take of that for you.

COMMITMENT

Your commitment as the client can have very tangible effects on the final product of your outsourcing partner. Trusting is one, commitment is another. Yes, outsourcing is allowing your partner to work in improving your business processes and returns. However, no matter how good your vendor company is, no matter how much expertise they have, you still need to remain involved, because nobody knows your business as well as you. This will also eliminate the problem of miscommunication in events that the output is different from what is actually expected.

COMMUNICATION

Communication is the holy grail of outsourcing model. The main goal of outsourcing is to grow the business at lower cost. Sadly, efficient communication becomes only the second priority and far too often gets lost somewhere along the way. Focusing on the lower costs of outsourcing software application development alone will not make a difference to any IT business unless there is an actual understanding of what is going on, what the goals are and what are the output expected in the process. “Sure, any project manager will know the importance of communicating so that expectations will—at least in theory—match the deliverables. In reality, even if the project managers do it all by the book, it is still often a limited audience that gets the information”. – CIO. For outsourced partnerships to really succeed, the clients should clearly express their expectations in the process, which will empower the outsourcing partner to deliver the best service possible. Be specific and realistic on about what you want to achieve.

CHOICE

One of the various conditions of successful business is to be able, in the long term, to focus the effort and the resources on the core company activities. There is a constant drip stories in the news announcing the march of outsourcing. What may not have changed is that organisations frequently might not have the right mindset when making a decision on how to choose an outsourcing partner.  It is important for the client to look for an outsourcing partner with knowledge and expertise, driven by facts and who will always try to deliver software application developed according to latest industry’s best practices. Aside from experience and expertise, it is important that your chosen partner is also able to understand your business and have similar goals on what you want to achieve for it.

CONTRACT

“A good contract is important to outsourcing; this is an undisputable statement.” – by Galina Levitin and Dr. Sara Cullen, Senior Consultant, Cutter Consortium. The contract is the legal basis of the outsourcing agreement and therefore of fundamental importance. A good contract is often the key to a successful IT outsourcing partnership. The contract defines the liability, rights, and expectations of both the client and the outsourcing partner. Most of the time, it is often the only solid mechanism for regulating the relationship of the parties. Appropriate business contract agreement can be crucial to the success of outsourcing software application development.

Is Cost Effective Outsourcing possible?

Yes it is possible. While cost reduction remains the main driver for most software development outsourcing decisions, there is clear evidence that quality improvement and innovation are becoming more important than it was before. If you push cost savings too hard, the quality and innovation in your software will suffer.

So where’s the breaking point?

Avoid body shopping. In other words, while most of the clients thinking to outsource that there is already a cheap option, the truth is, they are not really getting value for their money. Invest in testing. Cutting testing time directly results in poor quality services and below standards software application output, which in turn make unhappy customers who will consider the project as a failure. Additionally, a lack of proper testing can actually end up costing more as it takes much longer to fix poor code in the future than to release it correct in the first place. This might be a challenge, but resist the urge to cut testing time or at the very least it is also the outsourcing partner responsibility to discuss the possible consequences to the client if in case application testing and troubleshooting time is cut off.

Most importantly, establish a relationship and communicate. If you have a transparent relationship with your business partner, it is more likely to happen that the possible problems are discussed even before they actually happen. The most important thing in order to succeed in software application development outsourcing is still believing and trusting your developer that they will deliver.

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