Software development outsourcing isn’t as simple as handing the coding tasks to an external team. It’s more strategic than you think, and it’s one in which you have specialized developers design, build, and/or maintain your software project(s) faster and at a much lower cost.
By the end of this post, you’ll understand software development outsourcing better and the factors to consider to ensure a successful outsourcing venture.
What Is Software Development Outsourcing?
Software development outsourcing is one of the most common outsourced IT functions. It’s a business practice where you partner with a third-party provider (like a BPO company in Cebu, Philippines) to:
- Create, maintain, or enhance your software development projects, like apps
- Leverage their expertise and resources for your software development projects
- Reduce software development costs
- Accelerate project timelines
The projects you can outsource to an external provider can be as follows:
- Customer software development
- Web and mobile app development
- AI and machine learning integration
- Cloud computing services
- Agile and DevOps practices
- Data and analytics services
- Blockchain development
- Internet of Things (IoT) development
- Quality assurance and testing
- Legacy system maintenance/modernization
- UI/UX design
Software Development Outsourcing Models
There are 8 models that define the relationship between you and the outsourcing provider. Though each is tailored to your needs, budget, and goals, their aim is to help you maximize your return on investment (ROI).
For now, let’s give you the basics of each model.
Location-based models
- Onshore outsourcing. You work with a provider who’s in the same country as you. You opt for this model because you prioritize in-person collaboration and regulatory compliance.
- Nearshore outsourcing. Your provider is located in a nearby country or region. You opt for this model for its moderate cost savings and real-time collaboration.
- Offshore outsourcing. Your provider is far away or on the other side of the globe. You opt for this model because of the high cost savings and faster scalability you’ll get.
Engagement-based models
- Project-based. You have minimal involvement, as the provider will manage the entire project within the fixed scope and deliverables you provide.
- Dedicated team. You’ll have an exclusive team of software developers handling long-term projects with evolving requirements. Though daily management will be the provider’s responsibility, their work will align with your goals.
- Staff augmentation. You hire specialists on a short-term basis to work with your in-house team to fill skill gaps. Because of this, you have direct oversight over them.
Cost-based models
- Fixed price. You get upfront costs and the scope of those costs. This is good if you have small projects with well-defined requirements.
- Time and materials. You pay based on the actual hours worked and resources used. This is good for projects with evolving requirements.
Why Companies Choose to Outsource Software Development
Cost and speed—these are the common reasons why companies initially chose to outsource their software development projects. While they remain the key drivers, other reasons include:
- Access to specialized expertise on demand. You need skills that you don’t have internally, such as AI/ML, cloud engineering, legacy modernization, or scaling complex systems, without hiring full-time employees.
- Ability to focus on core business activities. With the external team handling the project’s development, your core team can concentrate on high-value initiatives, customer relationships, and revenue generation. This is especially true if software isn’t your core business. For example, you’re an HR company that simply needs help building the HR Information System as part of your client offering.
- Scalability for growth and change. The outsourcing provider becomes your strategic partner as your business evolves, from rapid scaling to system expansion.
- Reduced risk when building or modernizing software. Your provider can share the risk of potential failures or delays in greenfield projects, legacy upgrades, or tech transitions, thanks to their proven processes, quality control measures, and backup systems.
- Faster validation of ideas. You can quickly build minimum viable products (MVPs) or prototypes, test market fit, and validate ideas before committing significant resources to those projects.
- Continuous support and maintenance. Even after project deployment, your provider will ensure your software remains up to date, secure, and at optimal performance.
How to Decide If Software Development Outsourcing Is Right for Your Project
Not every software development project is fit for outsourcing. Here are a few factors to consider before deciding to outsource it.
1. Understand Your Reason for Outsourcing
Is it because of skill gaps, workload pressure, cost constraints, and/or speed to market? If any of these specific needs apply, you can explore outsourcing.
But if you find that the in-house team can deliver the project more reliably or cost-effectively, then keeping it in-house may be better.
2. The Complexity of Your Project
Software development projects with a clear scope and well-defined deliverables achieve higher success rates in outsourcing.
So, ask yourself:
- Is the scope clearly defined and stable, or is it likely to change frequently?
- Is the project highly specialized, requiring deep expertise not currently available internally?
3. Its Timeline
Fast delivery is one of outsourcing’s biggest advantages, and knowing this tempts you to consider it. But onboarding and knowledge transfer still take time.
So, you have to ask these first:
- Can your in-house team meet the timeline without compromising other strategic priorities?
- Will the learning curve for a new external team slow you down instead?
4. Budget and Cost Considerations
While it’s true you can lower development costs, the savings you gain still depend on:
- Project size and duration
- Partner rates and location
- Management overhead
- Potential rework
So, if you include a budget for time management and quality assurance, will outsourcing still be the more cost-effective option?
5. Your Capacity to Manage an Outsourced Team
If you want this outsourcing partnership to succeed, you need to assign someone in the in-house team to manage the external specialists. This includes:
- Providing clear requirements
- Monitoring their progress
- Facilitating communication
- Resolving blockers
6. Long-Term or One-Off Needs
Is your software development project a one-time thing or part of an ongoing strategy?
For one-time projects, outsourcing will be easier.
For long-term projects, you may need to invest more in team management and integration. You may consider a co-managed setup (in-house and outsourced teams working together) or keep it all in-house, as either offers better continuity and control.
How to Choose the Right Software Development Outsourcing Partner
There are plenty of outsourcing providers globally, so you should carefully assess which one can best address your specific needs.
Look at and evaluate their:
- Technical expertise and skill relevance. They have hands-on experience with the tech you need and the ability to design and build reliable, high-performance software.
- Industry experience and business fit. They’ve worked with clients in your industry, and so can anticipate your requirements, constraints, and risks early.
- Company size and stability. Their years in the business, team size, operational consistency, and financial health ensure they can support your project even after its deployment.
- Communication process. They can relay information clearly and smoothly, especially when it comes to updating and reporting progress and addressing issues.
- Project management and delivery transparency. They offer well-defined delivery methods, regular progress reporting, and clear accountability.
- Security practices and compliance. They have robust security practices and are compliant with international standards, ensuring their ability to protect your data, intellectual property, and systems.
- Cultural compatibility. Their work ethics and values align with yours, allowing you to collaborate smoothly.
- Pricing structure and value alignment. They’re transparent with their pricing, and you can clearly see that the value they deliver far outweighs the cost.
- Client references and track record. Their client testimonials, case studies, and references show you that they’re reliable, can provide quality service, and can perform under pressure.
- Scalability and growth readiness. They can expand capacity, skills, and responsibilities as your project and business needs evolve.
Accelerate Your Software Development Projects With Outsourcing
Software development outsourcing can bring immeasurable value to your business. With the right partner and tight project scope and deliverables, you’ll have a well-functioning external team that’s able to build new software from the ground up and/or upgrade or maintain your existing systems faster and more efficiently.
If you’re ready to scale with confidence, you may want to outsource to the Philippines. The country is a global outsourcing hub known for its strong technical talent, cultural compatibility, and cost-effective solutions.
