According to Gartner, the shortage of talent is the top risk for technology adoption that businesses of all sizes will need to address in the near future.
Why do companies increasingly turn to external providers for business operations? While cost savings were traditionally a driving factor, this is no longer the sole reason. Today, businesses prioritize partnership and trust when selecting outsourcing vendors. They seek reliable technology partners who offer value-added services and unmatched expertise.
This Blog presents best practices for hiring an effective offshore software development team.
The main motive behind Offshore Outsourcing
Outsourced software development was seen as a cost-cutting measure earlier, offering quick and inexpensive solutions. Companies often associated IT outsourcing with affordable but second-rate results. However, the outsourcing landscape has significantly evolved over the past decade. This shift is due in part to vendors enhancing their capabilities and companies finding it increasingly difficult to build the necessary resources in-house to keep up with a rapidly changing technology environment.
According to IDC, by 2030, enterprises that effectively generate digital innovation will derive over 50% of their revenue from digital products, services, and experiences. Simultaneously, Gartner identifies talent shortages as the top risk for successful technology adoption.
The primary reasons companies now outsource their software development include:
Seeking Skills and Resources: Companies often lack certain skills in-house or face restrictions on available talent, prompting them to outsource to accelerate projects beyond their internal teams’ capabilities.- Embracing Innovative Technologies: Advanced technologies like AI, advanced analytics, and blockchain are becoming mainstream, but expertise in these areas is still relatively scarce. Offshore outsourcing brings these innovative technologies onboard, giving companies a competitive edge.
- Optimizing IT Operational Costs: Companies use outsourcing not just to cut costs on existing processes but to transform these processes - often through cloud vendors - to streamline IT and optimize legacy systems.
Types of Outsourcing Engagement Models
- Out-Staffing: Companies can augment staff numbers, hire a full team, or establish a full development center. This model increases team size and the number of teams on a project, with the company maintaining control over the team and outcomes.
- Product Development: Companies can contract for product development services, outsourcing entire projects with set requirements at a fixed price. This approach meets specific needs, such as developing a particular application, with the vendor controlling the development process.
- Innovation Outsourcing: This higher-level approach involves hiring a partner to evaluate the market, develop a proof of concept, and assess the return on investment for potential projects.
The choice of model depends on the motivations behind outsourcing a software development project and influences how the outsourced teams are structured.
Key Considerations When Hiring an Outsourcing Partner
Outsourcing software development can be challenging, and finding a provider that aligns with organizational requirements and culture is crucial. Key points to consider include:
- Cultural Differences: Work culture varies by country. Ideally, cultures should match, but understanding and accommodating differences can also be beneficial. Assess the provider’s work culture, adherence to deadlines, and attitude toward change. Communication, overall attitude, and business demeanor are important.
- Time Zones: While outsourced teams don’t need to be in the same time zone, differing time zones can be advantageous depending on the project and the integration with internal teams.
- Development Methodology and Project Governance: Ensure the partner’s methodology aligns with best practices and your organization’s processes. Transparent issue management, progress reporting, and clearly defined roles and responsibilities are essential for smooth project execution.
Common Mistakes to Avoid in Software Development Contracts
Ensure your potential outsourcing vendors undergo a thorough due diligence process to verify their skills and integrity. Pay special attention to the following aspects in your software development contract to avoid additional fees and legal issues:
- Project Governance and Scope of Work: Clearly define who will manage the project and what deliverables the vendor will provide.
- Responsibilities and Quality Expectations: Specify the responsibilities of both parties, quality expectations, and acceptance criteria.
- Experience and Skill Set: Outline the required experience and skills for the team.
- Payment Terms: Define the payment structure for the work completed.
- Ownership and Code: Clarify the ownership of the project and code after completion.
Structuring Your Offshore Team
Offshore development teams can be structured to meet specific company needs. Generalist teams cover a broad range of expertise, specialist teams provide high-level knowledge in niche areas, and hybrid teams blend generalists and specialists. The optimal team composition depends on the project’s complexity and requirements.
Handling Knowledge Transfer in Outsourcing
Effective knowledge transfer is crucial at the end of any outsourcing relationship. Without it, the project’s success can be undermined. Knowledge transfer should include both explicit knowledge (documents, data) and tacit knowledge (experience, understanding). A formal, step-by-step process yields the best results:
- Clarify the Scope: Understand what knowledge the outsourcing partner holds, including documents, source code, and processes.
- Define Key Participants: Ensure key staff on both sides share insights and facilitate knowledge transfer.
- Collect and Structure Data: Capture knowledge in an easily digestible format using various methods like documents, training, and demos.
Managing an Offshore Team for Efficiency
Top-tier software development firms provide excellent management skills, but clients must also actively manage offsite teams. To avoid common challenges, consider:
- Responsibility and Communication: Clearly define control and communication channels. Use a RACI matrix to delineate responsibilities.
- Goals and Risks: Set clear goals and risk controls, including secure SDLC practices and padding for overruns or unexpected events.
- Staff Changes: Ensure motivation and knowledge distribution to minimize the impact of key personnel changes.
- Encourage Collaboration: Treat outsourced teams as part of the organization, take their advice seriously, and communicate decisions clearly.
- Be Proactive: Internal project leads should actively coordinate with external teams, ensuring clear and understood communications.
Offshore teams require a balance of independence and management to ensure success for your business.
Select Your Partner Carefully
Successful team composition and knowledge transfer depend on both the client and the outsourcing partner. For successful outsourced software development, choose an expert partner like Cogntix. With deep experience in outsourced software development, Cogntix has supported both enterprises and startups throughout their journeys.
Get in touch with us to start a conversation.
