Software Development Outsourcing Models

Organizations consider outsourcing as a leading strategic decision. The truth is, most organizations outsource because of the exhausting requirements, complicated learning curve, and delayed deadlines. In other words, businesses hire third-party professionals to minimize the mentioned burden.

Why Outsourcing at All?

While cost savings may be a secondary benefit, the main benefits of outsourcing are strategic capabilities:

• On-Demand Scalability: You can quickly size your team by scaling resources up or down right when you need it, with no excess payroll.
• Faster Delivery: External specialists come ‘pre-trained’, expediting project timelines despite forgoing time spent internally onboarding and training.
• Specialized Access to Resources: You get reliable access to unique skill sets, such as Blockchain, AI, and Machine Learning engineers, that would be all but impossible to source locally.
• Security & Compliance: Outsourced partners actively follow stringent industry certifications and regulatory standards, and as a result oftentimes have processes in place for a higher level of security diligence than you would in a typical internal operation.

While there are compelling benefits to outsourcing, there are also challenges that come with this decision.

• Loss of Control: Vague or poorly defined contracts can lead to a significant loss of oversight regarding project direction and intellectual property.
• Internal Skill Drain: Offloading all development tasks can weaken your internal team's expertise and long-term capability.
• Trust and Reliability Issues: Companies face risks related to data security breaches, vendors failing to align with business goals, or dealing with unreliable performance.
• Talent Scarcity: The global demand for highly skilled developers means that even outsourcing firms struggle to staff top-tier, specialized talent.

Three Main Outsourcing Models (by Engagement)

There are three primary outsourcing models by engagement that present equal choices and tradeoffs with internal management versus external engagement of resources:

• Staff Augmentation (Filling Gaps): You incorporate external developers into your existing team for a temporary period of time to help fill a skill gap and/or during a peak performance period. You retain full project control and management responsibility, gaining maximum flexibility but also carrying the entire management burden.
• Dedicated Team (Remote Squad): You hire a full, stable unit (including developers, QA, and potentially a PM) that works exclusively on your product. This offers great stability and integration for long-term projects, but it represents a higher, sustained cost than augmentation.
• Project-Based (Fixed Scope): You delegate an entire, clearly defined project with an agreed-upon scope and budget to a vendor. This model is predictable and requires minimal daily management from your side, but it becomes unwieldy if project requirements frequently change.

Three Main Outsourcing Models by Contract Type

Outsourcing models can be classified into three billing categories, each presenting its advantages in payment for service provision.

• Fixed-Price Model: In the fixed-price model, you pay a predetermined amount for services within the clearly defined scope. This model has a minimal oversight implying you’ll receive the final product within the predetermined time.
• Time & Materials Model: You’ll have to pay for the actual time and effort developers put into your product development. This contract model is suitable for projects with ambiguous scope or products with evolving needs.
• Custom/Hybrid Model: This model combines payment approaches, enabling you to pay a fixed price for the parts of projects with a clearly defined scope, like MVP. Then, you can switch to the Time & Materials model if the project requires scope reshaping.

Three Main Outsourcing Models by Location

Finally, pay attention to the location-based outsourcing models, since they directly affect cultural fit, cost investment, and talent availability.

• Onshoring: This model implies that you and hired IT experts work in the same country. Despite the possible slight time zone differences, the team promotes a better cultural alignment and is applicable to projects with high emphasis on documentation and security, such as healthcare-related apps. Nevertheless, it may lack access to narrowly specialized talents.
• Nearshoring: Nearshoring promotes delegating software development to neighboring countries. It can significantly reduce development costs while remaining close to the cultural and time zone fit.
• Offshoring: This model is about hiring experts from far beyond the domestic market. This model promotes instant access to the talents of different expertise levels. Offshoring enables you to save costs, yet hire narrowly specialized talents. But don’t forget about the discrepancies in time zone and cultural fit.

So Which One’s Right?

The ideal outsourcing model depends entirely on your company's stage and core needs. Startups typically prioritize predictability and are best served by the Project-Based model. Scale-ups focusing on rapid, sustained growth speed benefit most from the stability and integration of a Dedicated Team. Staff augmentation is applied to close the talent gap in a specialized field your company might not have. Interested in more? Explore the article: https://agilie.com/blog/software-development-outsourcing-models.