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What Is Outsourcing? IT Outsourcing Definition and Benefits of Outsourcing


#Dedicated Development Team
Outsourcing is a well-established method in business practice that means delegating service performance to a third party. Companies have been using this method for years and hiring resources from outside can hardly surprise anybody these days.

However, what does outsourcing mean for IT industry?
While outsourcing is mainly about third party service provision for most of the businesses, the IT industry uses both service and product outsourcing, for instance software or data storage devices.

Here are the most popular outsource services in IT industry.
Software Outsourcing
Software outsourcing is delegating functions to a third party/supplier to develop a custom software. The supplier then performs software development functions using their own resources. This is a win-win type of outsourcing as the supplier can have their developers engaged in several projects and the client only pays for the actual time that developers spent on the project.

Project Outsourcing
Project outsourcing implies that the client delegates execution of a project to the supplier. The project may be either technical team management or software development and team management.

Information System Outsourcing
Outsourcing of information system implies that the client uses the resources of a third party to store their data. Storing large volumes of data is expensive. So delegating this to a supplier is a good solution for companies to save on their costs and ensure high level of security of the stored data.

Outsource Staffing
Outsource staffing or outstaffing is a type of outsourcing that refers to contracting the right specialist without putting him on the payroll. The key benefit of outstaffing is that you can get an experienced expert for the right period of time and save on the employment related expenses.

In order to help you see whether you need to outsource or not, here are the key reason why companies use outsource services:

To save costs
Most of the time outsourcing helps saving costs. Substantial savings on salaries, office rent, IT equipment and software makes outsourcing a great solution for many businesses.

To have access to talents
Outsourcing allows having quick access to talents, who precisely match project objectives. In addition, outsourcing solves issues of limited geographic location for talents search – you can hire from any spot of the world.

To save internal resources
Outsourcing is a great way to delegate certain functions to a third party in order to enable your staff focus on tasks that are more important. Moreover, outsourced team is easy to upsize or downsize depending on how your project develops without compromising on the quality.

To optimise business processes
Delegating tasks that are time consuming and require considerable resources to a third party is an efficient way to boost your business development and optimise processes in your company’s practice.

To share risks
Outsourcing certain functions also means you keep the third party accountable for the areas that you delegated. Shared risks is another benefit when you choose to outsource.

The pandemic seriously influenced the global economy and caused recession. Many businesses had to adjust to lockdown conditions, which affected their way of running business operations, as well as their scale and the headcount. Companies turned to outsourcing products and services, trying to keep their businesses going; some even managed to expand under the circumstances.
Outsourcing software development is one of the most popular ways to help your business grow during the current economic recession.

Outsourcing is worth considering for the following benefits:

1. Costs Efficiency
Outsourcing services from a country with lower living standards will help you save on operational expenses significantly.

2. Talent Selection
With thousands of IT professionals all over the world you can find the right developers or project managers to fit your project requirements.

3. Optimised Use of Time
Delegating development or project management functions to a supplier will save you from spending time on interviews and talent selection.

4. Uninterrupted Work Cycles
Having outsourced teams working in different time zones will keep your business running non-stop.

Outsourcing has undeniable benefits, but like any other approach, this method also has certain disadvantages.

Let us see what they are:

1. Less Control
Outsourcing means less control over IT projects and less face-to-face interaction with the team. As an alternative, you may outsource a project manager to keep things under control and request regular updates on how the project progresses.

2. Time Difference
Some decisions are time sensitive and require immediate contact with the supplier. Outsourcing teams from a different time zone may result in delays when it comes to problem solving of urgent matter.

3. Language and Cultural Barriers
Outsourcing teams from a different location may cause certain misunderstanding in communication processes as well as ways in handling business.

4. Long Distances
In the event when you need to have a face-to-face meeting with the outsourced team, travelling can be hard in terms of both long distances and ongoing travel limitations due to pandemic.

While most of us use outsourcing as a general term, you may be curious to know that there are three types of outsourcing:

– Offshoring – is outsourcing IT services from distant locations with considerable time difference to benefit from lower living and operational costs, lower taxes and larger talent selection.
– Nearshoring – is similar to offshoring but outsourcing from nearer locations with no or very little time difference to benefit the communication processes and eliminate strong cultural differences.
– Onshoring – is outsourcing from your national talents located in more distant areas to benefit from lower labour and operational expenses.
– Multisourcing – is outsourcing from a number of different service suppliers to benefit from shared risks.

How does it work when it comes to pricing?
Outsourcing has several fee models.
Fixed price – is a model where the budget and the project timeframe is agreed beforehand and strictly followed.
Rate card – is a monthly bill that includes a breakdown of hours and rate per every professional involved in the project.
Time and materials – is when the client only pays for the actual number of hours, which an outsourced professional spent on the project (one of the most popular payment models).
Cost plus – is a model, where the client pays monthly salary to every developer involved in the project and the supplier’s fee, which covers office expenses, payroll, support staff, use of workstations etc.

It is good to see that the global IT industry became much closer to customers these days despite the circumstances.
Here at Magnise we are proud to have been providing outsourcing and outstaffing IT services of the highest standards. Our proven track record of successfully implemented projects of various scales has gained us recognition from our customers in the US, Canada, Germany, Israel and the United Kingdom.
Contact us to discuss how we can transform your ideas into successfully working IT projects.


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