Finding a proper software outsourcing company in 2023

With soaring business complexity and dynamic digitalization, companies should reimagine their vision of software outsourcing.

Software development is ubiquitous in modern business. Gartner reports that 89% of board directors believe going digital is inevitable for modern companies’ business growth. In response to this ultimate quest for digitalization, enterprises choose software outsourcing as a path to competitiveness. Nonetheless, finding the right outsourcing company can take time and effort, especially with the ever-changing clientele’s needs and fluctuating market conditions. When saying the right outsourcing company, I mean a technology partner that is both technologically and operationally capable of delivering the result required by the client both in short- and long-term perspectives. And today, we will talk about finding a partner just like that. We will explore some vital factors that may help your organization cultivate reliable cooperation with a software outsourcing company, equipping you with the knowledge and tools necessary to reinforce your digital transformation journey.

How has software outsourcing changed over the years?

As companies become more reliant on technology, the demand for high-quality outsourcing services is growing exponentially. In fact, according to one McKinsey estimate, in 2019 up to 7% of non-tech companies managed to accumulate software revenue by themselves, while others looked for outsourcing services. Another McKinsey survey, done in 2021, shows that two-thirds of the surveyed companies admitted their digital transformation efforts had a positive impact on their then current revenue, with more than 50% of responders highlighting that they discovered new revenue streams with this technology implementation (see Figure 1).Figure 1. The impact tech transformation activities have on survey respondents according to the annual McKinsey IT strategy survey

Such a dynamic rise of outsourcing stems from three interlinked developments. At first, software was embedded into digital products and the purchase experience, which created the need to deploy software development outsourcing as a tool for a more significant competitive edge. Then, software-enabled products plunged into industries and started to embody business value. Lastly, rapid technological advancements, particularly the growing adoption of cloud computing and the game-changing strengthening of Artificial Intelligence (AI), continue to propel this acute demand for external assistance. Today, the power of technology has become synonymous with the competitiveness of modern businesses.

In the early days of outsourcing, the focus was primarily on cost reduction. Software development outsourcing had a transactional nature with rigid estimates and project planning strategies. Yet, as business challenges became more sophisticated and data got more complex, it became necessary to harness more intricate knowledge. This shift in focus has led to a more strategic approach to software outsourcing and created a situation where companies are looking for technology companies that can craft innovative solutions for the most pressing business challenges.

Last but not least, data security remains a critical concern for companies engaging in software outsourcing. Given the increasing amount of sensitive data being processed and stored, companies are searching for outsourcing providers with robust cybersecurity standards in place. As Gartner highlights, 45% of organizations will experience software supply chain attacks by 2025, which represents the scale of challenges businesses are bound to deal with. Now, software development outsourcing companies are responding by investing in advanced cybersecurity technologies, such as blockchain and biometric authentication, so as to protect their clients’ data and networks.

What are the types of software outsourcing?

In 2022, Deloitte conducted a survey with more than 500 business and technology leaders in order to get a better perspective on the status quo in the outsourcing industry. This survey identified three types of outsourcing services, namely:

• Traditional outsourcing is aimed at automating monotonous time-consuming tasks and serves the purpose of cost optimization. It resembles a transaction between two companies where the client usually seeks assistance in specific business processes such as network administration or customer support.
• Managed services offer cost reduction and transcend the boundaries of traditional outsourcing. This type of cooperation implies a hidden value that comes with a broad spectrum of services as well as intricate expertise. Managed services are built on a long-term partnership whose cost depends on the implemented resources and the ultimate outcome of the software development project. They encompass hosting/cloud operations, infrastructure support, etc.
• Operate services transfuse the company with top-notch experience and in-depth expertise. In addition to cost optimization, they are geared towards driving business value and are often incorporated into the strategy of the company’s growth. Enterprises opt for operative services when reaching for a highly cooperative partnership with an outsourcing vendor who is capable of comprehensive technical assistance. Operate services encompass the nuanced areas of strategy consulting, custom software development, or infrastructure management.

Over the years, outsourcing services have greatly evolved in their nature and design. Today, the majority of companies are choosing either managed or operate outsourcing services to find new vectors of growth. According to statistical evidence, operate services constitute a priority for enterprises choosing software outsourcing:Figure 2. Deloitte Global Outsourcing Survey 2022

From cost reduction to highly collaborative technological support, the purposes for using outsourcing are many and varied. More companies at this time are leveraging operate services in order to benefit from this outcome-oriented technology implementation model. Typically, they leverage the potential of outsourcing services to:

• Benefit from end-user experience digitalization
• Integrate data-driven decision-making
• Build modern IT infrastructure
• Revamp talent acquisition practices
• Advance vendor management strategies

With the right outsourcing strategy, enterprises can achieve their long-term objectives and also advance their overall organizational performance.

How do you find the right outsourcing vendor?

Building a strategic collaboration with a software outsourcing company can be challenging. While some companies experience difficulties creating realistic attainable goals and prioritizing them according to their business needs, others need a greater understanding of how to set up effective governance arrangements with their technology vendors. Meanwhile, software outsourcing companies often grapple with similar complexities, from recalibrating their approaches to suit clients’ wishes to continuously adding improvements to their products and services. The question is:  how do you find a technology enterprise that can get a pulse on your objectives and then position your company for long-term thriving?

Step 1. Rely on transparency. According to the Deloitte Global Outsourcing Survey 2022, 54% and 41% of respondents identified transparency and trustworthiness respectively as key qualities of a software outsourcing company (see Figure 3).Figure 3. Deloitte Global Outsourcing Survey 2022

That’s why looking for a company that is open and honest about its development process, including the scope of potential change, technical risks, and human-related risks, can be critical to your project’s outcome. A company that strongly emphasizes a transparent and direct communication approach to defining the project’s estimate will deliver services and solutions that are not only technically sound, but also align with your specific needs and requirements.

Step 3. Evaluate the cost structure of your software development project beforehand. Although it may be difficult to predict any unexpected challenges, ask the software outsourcing company to be as precise as possible in the evaluation of your project and then lead comprehensive negotiations on the final price. A reputable outsourcing partner should be able to provide you with an estimate of the cost and timeline of the project, including any potential challenges that may arise. Nevertheless, it is important to understand that there are no perfect estimates. Meanwhile, the company should have a transparent pricing structure and you should be able to understand the cost implications of each aspect of the project.

Software development initiatives heavily rely on their iterative implementation. So, to achieve progress on your software development project, you should divide its every aspect into manageable pieces. Later on, you can balance any uncertainties in correspondence with your software outsourcing company.

Cooking up a storm: 5 key ingredients of successful software development outsourcing

Any change can seem daunting, even when the market conditions appear stable. However, balancing between stability and transformation often implies that a company should decide how to confront organizational inertia and forge a trusting relationship with new technologies. This challenge extends beyond the question of collaboration with one specific outsourcing company and can be applied to partnerships with multiple vendors. Given today’s dynamic technological advancement, a revamped approach to outsourcing is a necessary option for comprehensively supporting your transformation initiatives. Here are some tips on how to open up a win-win value from cooperation with an outsourcing company:

• Reach a consensus about your desired business outcomes. Narrow down crucial goals that are to be achieved during the project and define vital KPIs (Key Performance Indicators) that should be continuously tracked. This strategy empowers your company to clearly understand how your business targets align with the project’s objectives. By determining specific KPIs, you can measure progress, oversee potential issues, and make the necessary adjustments in real-time. This approach is ultimately helpful for ensuring that the outsourcing partnership is aligned with your business objectives and that the outcomes are achieved within the desired timeline and budget.
• Play for the long haul. When you face a critical juncture in the growth of your company, searching for long-term value can be a revolutionary   factor in your competitiveness. While a traditional approach to outsourcing offers short-term benefits, a strategic technology partnership can go far beyond that. You can establish a strong foundation for a lasting partnership that can drive your business forward in the most promising vectors of growth, including AI/ML, cloud, as well as data and analytics, by embracing a strategic approach to outsourcing.
• Stay a proactive participant in key decisions. Striking the right balance between collaboration and delegation can help you build a strong relationship with your outsourcing partner and guarantee that your expectations are met. One of the greatest options to achieve this is to set up a team that streamlines communication between technology professionals and business leaders. Opening these forums for discussion on the implementation of new IT architecture and software outsourcing services can eventually become the backbone of a fruitful relationship with a software outsourcing company.
• Build a framework for your digital transformation journey. Cooperate with a software outsourcing partner to create a comprehensive digital transformation roadmap that will cover both tangible and intangible goals. You might want to also ensure that business-unit leaders participate in the creation of this blueprint. This approach will allow you to have specific outcome metrics for the different types of your digital transformation endeavors and track progress along the way. In this situation, the primary goal would be to join forces with an outsourcing company and push for any noticeable technology improvements as they appear on the horizon.

Despite the stiff competition and dynamic technological advancements, achieving software excellence resembles a journey rather than a race. And, the most nebulous challenges are often hidden in the cultural intricacies of software development partnerships. That’s why productive outsourcing combines different factors and empowers businesses with the ability to focus on their core competencies, and to deploy the expertise and experience of software development companies.

Final thoughts

Although in its early days outsourcing resembled a straightforward arm’s-length agreement, it has transformed into a strategic partnership with a more intricate nature. In 2023, the software outsourcing industry will be rife with new opportunities for discovering sizable financial and operational advantages. The primary challenge lies in the enterprise’s readiness to capitalize on any substantial technological shift. At the same time, selecting a reliable outsourcing partner can be a tricky endeavor that requires careful consideration of several critical traits  of a software outsourcing company: transparency, in-depth expertise, trustworthiness, and an unwavering dedication to mutually beneficial goals. Ultimately, look for a golden mean of a forward-thinking mindset, profound expertise, and value-driven DNA while on your quest for the right software outsourcing company.

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