With the outsourcing growth expected in the years to come and the on-going fiercer cost competition, it is imperative that a company consider outsourcing as an alternative to in-house employment. In order to walk you through all aspects of outsourcing in a short, simple and well-memorised way, we establish a list of bullet points that denote only the most concise facts, figures and important key-takeaways.
What is outsourcing?
There are many versions of definitions for this option. However, out of the basics, outsourcing is:
- Hiring a third-party (whether it is an individual or the whole organisation) having expertise in IT to perform services and create goods on your demand.
- It involves the ownership, administration and management of selected business processes or support functions based on measurable performance metrics (in most cases, outsourcing encompass the collaboration of HR departments, Sales functions and the “idea” owner).
1. Delivery team model (team-based)
A delivery team model is when software developers are assembled by an outsourcing provider to deliver high-quality technological expertise that add value. This model is particularly well suited to projects that require complete management from the outsourcing partner. Typically, businesses with limited internal resources and capacity opt for this approach.
In detail, the responsibility of the outsourcing partner encompasses:
- Providing the client with IT experts for all the essential roles: project managers, software developers, quality assurance engineers (QA), etc.
- Taking care of people management, daily task management and process quality.
Typically, delivery teams work autonomously and have regular contact with the client to update on the progress. In Savvycom, all delivery teams use Agile methodology, which allows optimal communication and collaborations to help shape and influence the deliverables without costing too much time and effort.
Core benefits of a delivery team model are:
- Adding values immediately: The client has access to a highly skilled team of experienced professionals that don’t require any further training.
- Streamlining project and team management: Increase capacity and reduce the burden on the client by taking responsibility for some certain, definite tasks or the whole project.
- Remaining the due diligence’s control: While outsourcing vendors are in charge of the day-to-day running of a project, the overall control and major decisions still remain with the client.
2. IT staff augmentation (white-label)
IT staff augmentation is where companies contract qualified software developers with specialist skills to work alongside in-house software engineers.
Augmented developers are appointed to work as an extension of a company’s full-time development team. This means they do everything the in-house team does, including attending regular daily meetings and reporting directly to managers.
The IT staff augmentation model can work for most projects, no matter how simple or complex: from prototyping to full-scale development of mobile or web applications.
Core benefits of IT staff augmentation are:
- Dedicated teams: Outsourcing providers assign skillful engineers to each client, meaning they only focus on one project at a time.
- Time-saving: Working closely with skilled in-house developers means there’s no need for the client to advertise, interview and onboard full-time staff.
- Maintaining oversight and control: Engineers quickly integrate themselves within the team, making it easier to track work processes and reporting.
- More in-house flexibility: Companies have more flexibility over the tasks assigned to developers. The client decides who will carry out specific tasks and on which project.
3. Project-based outsourcing (fixed cost)
Project-based outsourcing is when a company hires an external development team with special expertise to work on a specific project.
A project-based approach adds the most value to one-off or irregular development projects that have a set timeframe and clearly defined end-goals. For example, this approach works particularly well for mobile and web applications.
Core benefits of project-based outsourcing model:
- No long-term commitment: Companies aren’t tied to working with one particular outsourcing provider over the long-term. If the project is low-maintenance, there’s no need to arrange retainers.
- Easier to budget: Project-based outsourcing typically means paying one-off project fees, which makes it easier to budget for the work required.
- Cost efficiency: Hiring an outsourced development team with the skills to execute a one-off project is much more cost effective than upskilling in-house teams or hiring full-time staff.
Advantages of outsourcing
Deloitte stated that the top 3 benefits of outsourcing realised by businesses are enabling focus on core functions, providing cost-cutting tools and solving capability issues.
Source: Deloitte Global Outsourcing Survey
1. Enabling focus on core functions
In periods of rapid growth, the back-end operations of business expand and require a high expenditure of resources. When you allocate more resources to performing secondary activities, you have less time, money, human resources, etc. to provide quality front-end services. Therefore, outsourcing is an optimal choice to:
- Be more flexible in resources allocation and frees up more of your resources for more practical uses.
- Multiply the company’s performance with less time through external assistance
- Reduce the pressure on your employees and yourself – as a manager or a chief. Therefore, increasing the “happiness rate” within the company and improving the overall productivity of employees.
2. Cost cutting
In a foreseeable vision, the cost of “borrowing” is often lower than actually “buying” something. Therefore, hiring talents from outsourcing companies is, in most cases, cheaper than having your own in-house team. This also creates a competitive edge for the companies as they could bring down the cost of goods sold and offer a lower price compared to other businesses that are loyal to in-house software development. Some costs that could be cut down thanks to outsourcing are:
- Labour cost
- Rental cost (‘capsuling’ your engineering team also allows you to trim down the office size and possibly the cost of renting a big headquarter)
- Recruitment cost (head-hunting, promotion, commission for intermediaries, interview-related expense, etc)
- Equipment and other supplies
Although cost efficiency is a key benefit of outsourcing, keep in mind that hiring the cheapest software developer doesn’t always translate to quality services. For this reason, one has to find a balance between quality and affordability.
3. Capability enhancement
When hiring an employee, you may only have access to a small, local talent pool. This often means you have to compromise. Many companies have found that outsourcing gives them access to talent in other parts of the world. If you need specialised help, it often makes sense to expand your search to find software developers with the best know-how and skills.
Drawbacks of outsourcing
Keep in mind that everything has its downside. If you want to outsource a project outside of the company, several potential issues are bound to arise, however when you understand the challenges and how to avoid them, you can outsource the most relevant parts of the project and reduce negative exposure.
1. Lack of control
Although you can provide direction in regard to what you need to accomplish, you give up some control when you outsource. Some possible reasons for this situation are:
- When outsourcing, you are actually hiring a contractor instead of an employee, so there are limitations in requiring what they must do.
- The developers are not working on-site, you have to depend on Internet connection and some communication methods to stay in touch. Therefore, the people you outsourced might not always be “visible” online to receive emergency signals nor tackle pop-ups on time.
In order to minimise the absence of control, you could choose a different outsourcing approach, which will be introduced in the later part.
This often happens when you hire a foreign outsourcing company. When working with an abroad stakeholder, the differences in language, time-zone, culture, preferred communication channels could stagger the project timeline and lower the quality of deliverables. However, there are some tips that could eliminate this problem:
- Clarify from the beginning the basic information: languages the developers fluent in, time-zone the developers live in and how it matches your business hours, developers’ preferred communication channels, taboo or etiquette you need to pay attention to, etc.
- Upfront agreement on working norms, time slots for meetings and collaboration processes to prevent any future opaque.
- Utilise work-assisting platforms (Slack, Jira, GitLab, etc.) or develop a task tracking system (it could be as simple as doing a detailed spreadsheet encompassing the synergy map, communication efficiency, tasks delegating, and product development process) to realise rising problems and put them out before it multiplies.
3. Security threats
Hiring a third-party to turn your idea into reality also means revealing you and your company intelligence – even the confidential ones such as copyrights, patents, trade secrets. It might also include the accessibility to some sensitive information that can be gathered, stored and distributed. Therefore, once you choose the wrong partner, those secrets could be divulged and therefore, jeopardising your business performance.
To minimise the risk of confidentiality breaching, the solutions are:
Making a detailed assessment of the service provider:
- Combine multiple sources (referrals, Google, industry awards and ranking, consulting or market research firms, testimonials or unbiased reviews, etc) to get and verify the information about the company, as well as its reputation and histories with past clients.
- Conduct an analysis on each vendor’s reliability.
Preparing a secure outsourcing arrangement:
- Following Non-Disclosure Agreement: State the responsibilities of contracting parties in the outsourcing agreement, disclose customer information to the service provider only on a need-to-know basis, review and monitor the security practices and control processes of the service provider on a regular basis, requiring the service provider to disclose to the institution breaches of confidentiality in relation to customer information.
- Ask the partner to follow International Security Standards. For example, Savvycom follows ISO 9001:2005 and ISO 27001:2015 to guarantee confidential protection to our clients.
1. Rush to outsource
Some businesses commit prematurely to outsourcing – they jump to the conclusion that outsourcing is the solution without fully understanding what expectation they want the outsourcing provider to fulfill for them. Rather than looking thoroughly at the real causes to calculate other alternatives, some instead look to outsourcing as a quick fix. It may possibly lead to a chain of issues:
- Inconsistent goals
- Ambiguous specification
- Poor communication
- Humble output
How to mitigate it:
- Clearly define what your problem is, and how you want your problem to be solved
- Make a list of possible solutions: redesign business process, shift your business strategy, outsource IT,…
- Search for relevant information to see who are those solutions’ providers, and how they could solve that problem for you (some information sources will be suggested below).
- Do the analysis on the pros and cons of each on your business.
- Give each solution a score. If outsourcing marks the highest, that’s when you contact an outsourcing service provider.
2. Overdetailed specification
It’s reasonable that at the beginning of the planning phase, you try to draft out a perfectly detailed specification. However, it would pose some problems to the overall performance and the deliverables if it’s not carefully considered:
- Hinder the creativity and innovation of the programmers
- Reduce collaboration since there is little space left for engineers to raise voice
- Create incoherence, confusion and misunderstandings of the core objective
How to mitigate it:
- Find a balance point of your specification – somewhere between a Bible and a carte blanche
- Recapitulate the most important points: the end-goal, the work to be done, the tools and metrics to be used, the acceptable standard of workmanship
- Present the specification in a clear, concise, correct and complete way
3. Ignorance of non-functional requirements
The deliverables of your outsourcing project might turn out to be a work of art sometimes, however, whether it could run perfectly is another story. In some cases, the problem with outsourcing doesn’t lie in the planning nor the development process of the product – but in the testing of non-functional requirements. Some problems kindled by non-functional requirements could be:
- Inability to access the system when there is an upsurge in users
- Security issues: allowing the wrong person to access confidential problems
- Increase of operational cost
How to mitigate it:
- Create a list of non-functional requirements your project must cover
- Prepare some elicitation questions (tips: use ‘WH’ questions): What materials am I going to need? When will the materials be used? Who needs the data? Why is the data needed? When will the data be used? How the data is going to be used?…
- Designing a synergy map between you and your stakeholders for more efficient support, based on stakeholders profilling technique
- Applying some automated tools to help identify software requirements: ReQtest, Visure, SpiraTeam,…
Selecting a quality IT outsourcing service provider
1. Define your objectives and goals
A decision without clear, relevant and actionable objectives may create ambiguity and hinder your future success. Therefore, here are some questions that would help you organise your thoughts and produce a SMART goal:
- What are your business priorities: is it cost-saving, scalability, time-to-market, competencies, vendor diversification, or something else?
- How will you align an outsourcing model with your current business strategy?
- What services do you expect a vendor to provide?
- What will be outsourced and what will be kept in-house?
- Time-frame: When will you start the first outsourcing project? What does the overall timeline and delivery plan look like? What are the milestones that need to keep up with?
2. Collect a vendor list
Creating a list of potential vendors gives you the perks of selection and a glimpse of how outsourcing companies are performing, therefore, benchmarking to set suitable criteria for your desired outsourcing partner.
There are 4 main sources you can exploit:
- Recommendations from your network
If your friends, your family, your colleagues or your partners have experienced the services on-hand, you had better ask them for reviews or suggestions. People having actual experiences in outsourcing are definitely a good source of reference for genuine insights.
Google has always been a to-go destination for information. Some of the best-rated sources for outsourcing seekers are:
Savvycom, an IT outsourcing in Vietnam, has been listed in many of Clutch’s roll of honours. We were once named as the “Top 30 Global App Developer” and arrived at no.6 in B2B Leading IT Companies in Asia. The company is currently standing at no.1 Top App Developers in Vietnam by Clutch’s Leader Matrix.
- Industry awards and ranking
In case you don’t trust any word-of-mouth or subjective reviews, companies that are widely accepted and certified by awards and rankings as voted by critics, tech experts, or independent analysis firms may be the best fit.
Many companies in Vietnam have received prestigious awards and honours as evidence for their relentless effort to strive for excellence. One of them is Savvycom, a Vietnamese outsourcing company that has stood strong on the offshore IT outsourcing market for 10 years and have been awarded with Vietnam’s 50 Leading IT Companies Award for 4 consecutive years, Emerging IT Outsourcing Enterprise honour by Vietnam ITO Alliance (VNITO), Sao Khue Award for “Software Outsourcing Service 2017”, etc. Starting from the bottom, til’ today Savvycom has risen to be a tech start-up with a more-than-100-employee scale and leaves our marks on the technology map.
- Reports from research and consulting firms
This source is likely to be the most detailed and insightful. Many research and consulting agencies conduct surveys throughout the technology landscape and generate key take-aways that are well-confirmed by industry analysts and experts.
Every year, these kinds of companies produce reports and surveys in order to help you understand not only the market dynamics but also the capacity and competency of the notable players. Some of the most reliable firms are:
3. Outsourcing destinations
In today’s context where outsourcing has become one of the familiar patterns, many countries are upsurging as a destination for good outsourcing services. Here, we list down 3 countries that are rising strong in terms of quality and cost.
India is probably the first country you think of when you hear the term “outsourcing”, and with good reason. India is the second largest English speaking country in the world, making it an ideal choice for English-speaking employers interested in outsourcing. Their education system also focuses heavily on mathematics and produces as many as 2.6 million STEM graduates every single year.
According to research from Gild, Indian developers outscored their American counterparts on math and logic assessments by a full 11%. However, they received significantly lower scores on tests in PHP and HTML, so if you’re looking for web development, you may want to verify if the outsourcers you’re going to be working with have a good track record of work delivered.
Salaries: According to Innotech, the average annual salary for a software developer in India ranges from $28,000 to $42,000.
China is home to many of the fastest growing IT companies and produces as many as 4.7 million tech graduates every year. In a hypothetical analysis of countries fit to participate in a “programming Olympics” by HackerRank, China ranked first.
There are, however, a couple of potential drawbacks here. First, only 10 million out of China’s 1.45 billion residents speak English, presenting a large communication barrier for many international employers. Second, China is known to have lax enforcement on Intellectual Property (IP) laws. However, this can be overcome by hiring a reputable outsourcing agency and establishing clear rules before you start working together.
Salaries: Annual software developer salaries in China typically range from $28,000 to $53,000.
In the report Spotlight on Vietnam, PwC forecasts that IT outsourcing will be one of the most attractive sectors for foreign investment. In addition, prominent tech companies such as Intel, IBM, and Microsoft have been actively and continuingly endowing Vietnam. The trend is becoming more and more popular in Vietnam.
Also, the outstanding features of outsourcing in Vietnam is the cost efficiency in relation to low cost and lucrative preferential corporate income tax. Another aspects being Vietnam’s young population (45% of population are under 35 years of age), low attrition rate (6-8% in comparison with 20% in India), convenient location and the rising competency of engineers – meaning businesses could now outsource with a reasonable cost without having to settle for low quality.
Read more: Vietnam – the offshore IT outsourcing heaven for tech dominants
Although not standing as high as China or India in the world’s outsourcing map, with the aggressive IT development in recent years and the cost benefits, Vietnam is sure to be a leading destination for IT outsourcing services.
Salaries: According to Payscale, the average software developer engineer in Vietnam is about $12,000 to $48,000.
4. City evaluation
Some might underestimate this step, but the cities where the company located could create a big impact on the profession and overall competency of the company.
In order to have a clear sense of how the city looks and feels like, desk research should be done first hand. The outline of the research could be drafted as below:
Source: TMA Solutions
In Vietnam, 2 main cities that have many potentials for IT outsourcing services, which are Hanoi and Ho Chi Minh City.
Source: TMA Solutions
Being the capital of Vietnam, Hanoi is the social cultural-educational centre where the technology industry is fast-developing. It is the home-based for many tech giants such as Nokia, Samsung, Intel, Microsoft, etc. There are over 140,000 software engineers graduate from here annually with global-standard English proficiency.
The annual salary for a software engineer in Hanoi is about $16,000.
On the other hand, Hanoi is equipped with modern IT infrastructure, having stable economic development and rare natural disasters. Moreover, because Hanoi is the centre of all political activities, the political stability here is secured at a high level, in which almost no unrest, demonstration or terrorism have ever happened in the past years.
Listed as one of the most attractive cities to work and live for software engineers, HCMC is a highly urbanised, international city that is expected to be the Silicon Valley of Vietnam in the next few years. Because of the highly secured governmental stability in Vietnam, the political and economic status of HCMC has similar characteristics as Hanoi: rare social outbreak, positive GRDP growth, good IT infrastructure, and convenient living and socializing conditions.
The IT labour force in Ho Chi Minh, although is yet to be statistically proven, remains very promising. Additionally, the average salary for an HCMC-based engineer is around $19,000, a little higher than that in Hanoi.
5. Vendor evaluation
Each vendor option comes with its pros and cons, however, the real challenge really starts at choosing a reliable vendor that matches your objectives and meets your expectations. It is also important to note that the list of criteria we suggest below is not applicable to all because each company has a different priority and strategy – we simply suggest the general version to help you grasp some of the fundamentals.
Now it is time to track down your list of vendors and do a detailed evaluation and analysis on:
- Reputation and financial stability of the company: check it out on Clutch, Crunchbase, etc.
- The core competency of each vendor and how that particular profession can solve your business problems or actualise your ideas.
- Check out their portfolio and any of their past partnership (if possible): these kinds of information are often posted on the company’s website.
- Any awards, honours and achievements of the vendors.
- Contact the representative of the vendor to receive in-depth consultation and understand the vendors more.
The detailer checklist for evaluation can be drafted as follow:
Savvycom, who is racing against time to create world-beating apps and bring values to our treasured clients, is confident to say we are the company that could deliver one of the best competencies in Viet Nam. We believe that with our 10+ years of tech expertise, the endorsements from 100+ clients from 4 continents around the world, the successful partnership establishments with reputable firms worldwide such as Microstrategy, Apple, Accelerance, IBM, etc, no mountain would be too high.
Source: TMA Solutions
We hope that through this guide, you would have a clearer sense of whether or not your business needs outsourcing and construct a winning outsourcing strategy.
If you need any more in-depth consultation on outsourcing, don’t hesitate to contact us at:
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