software development
Software Development

Software development outsourcing trends

date: 7 January 2020
reading time: 1 min

We live in the age of the unprecedented development of the IT market.

We live in the age of the unprecedented development of the IT market. It is assumed, that the global IT spending will reach an astonishing value of $4 trillion at the beginning of 2021. Consequently, companies are being increasingly aware of the fact, that they are using only a small part of the emerging technologies potential, and they’d like to change this state.

If your business wants to implement emerging technologies as well, we recommend you to start following recent outsourcing trends and their influence on business management worldwide right now. 

What are the latest IT trends?

The global IT market is constantly evolving and so is the technology. Soon, we will receive access to a 5G network, almost four times faster than 4G. It is said, that by 2023, the cellular connection speed will increase up to 13 x, comparing to the average mobile connection

The faster connectivity will lead to a huge amount of data flooding servers worldwide in every second. This massive databases, called Big Data, are so great that can be no longer analysed by a human. Only recently, analysts started to combine them with the extended analysis, which uses machine learning and its ability to recognize the hidden patterns (especially by implementing Big Data in medicine). All that with a little help of the quantum computers, artificial intelligence, blockchain, and other new tech inventions. 

How do these tendencies influence IT trends for business?

  • Growing cloud. Companies are increasingly transferring their data to the cloud. By doing this, they gain access to the advanced infrastructure, which generates high savings in the maintenance costs. Cloud computing maximizes data security as well by facilitating the introduction and proper functioning of the new systems.
  • Data protection. Organisations that decide to transfer their data to the cloud seek for data protection methods offered by the service providers. They also prefer to sign individual non-disclosure agreements (NDA) at the very beginning of the cooperation.
  • Cybersecurity. Software development aimed at ensuring the security of corporate networks will become an established feature. This trend is associated with a growing awareness of the threats associated with the cybercrime. This applies, i.e., to the risk of data leakage, attacks on the company network, or password theft.
  • Lack of specialised teams. The possibility of using the work of external specialists is crucial for many businesses, due to the shortage of software developers with a highly specific skill set. Most of them need to be proficient in a rare programming language or newly emerged technology, thus they are very hard to find (and hire).
  • Automation. The trend of using Robotic Process Automation (RPA) translates into real savings because of its lower demand for human work. These systems are able to relieve people in performing repetitive, monotonous activities, faithfully imitating the user’s actions and integrating i.e., ERP systems with CRM.  

What is software outsourcing and why is it trending right now?

The business world is characterised by constant changes. In order to meet the needs of a variety of clients, thus stay competitive, companies must keep a check on the market trends and implement new technological solutions. Hence, they are actively looking for new ways to optimise their processes and costs. 

However, sometimes following these novelties can become a 24/7 job and not every company can afford to do that, often as a result of insufficient or inadequate resources. What’s more, an IT department employee with general knowledge usually can’t cope with the implementation and control of the freshly-found innovations. Which, in result, entails the need to either increase IT spending or look for alternative solutions.

The outsourcing industry is able to fulfil those demands, providing striving for innovative enterprises with a perfect solution, which supports their future growth and lets them compete with the giants. By implementing this model of cooperation, companies don’t have to develop an IT infrastructure on their own, invest in a variety of incompatible products, or struggle with a shortage of specialists. 

Software outsourcing provides them with access to highly personalised products, fully tailored to satisfy their specific business needs. All that, to keep pace with the technology and reduce operating costs to a minimum. The growing influence of the outsourcing market is already visible now. According to the Gartner, the demand for enterprise software development may reach 10.5 per cent of all IT-related spendings, being one of the major trends of 2020.

The essence of software outsourcing

The range of solutions available as part of IT outsourcing is very wide. In traditional terms, they usually fall into one of the two categories: 

  • infrastructure outsourcing, i.e., technical support, data centre outsourcing, network services, general infrastructure management
  • software outsourcing, i.e., software development, system management, testing and quality control, software implementation and management

Aside from that, based on the location, we distinguish three more types of cooperation between the business and the outsourcing company. The onshore model implies that both parties are located in the same country, nearshore one focuses on the similarities (i.e., shared time zone, culture or literally border), while the offshore type connects more distant locations.

The main goal of outsourcing is to increase the company’s efficiency. By delegating some tasks to an independent agency, an entrepreneur has more time for activities related to his core business. The contract is directed at a specific purpose or scope of work. Consequently, dedicated software responds to the real needs of the company – allowing the receiver to tailor them to their current business strategy. 

As you can see, IT outsourcing is not a fashion, but an effective business practice that allows every company to benefit from a reduction in costs and the improvement of everyday work quality. It is especially vulnerable for the small companies and startups – thanks to the participation of the specialists it stimulates rapid development of brands and strengthens their competitive position on the market. Plus, instant access to the latest technologies can be a decisive argument in achieving a competitive advantage. 

The market is expected to increase by 31% in the following years which means its potential is constantly growing. Yet, you may be wondering right now, why do companies want to hire through outsourcing? 

How to overcome the fear of outsourcing?

Transferring IT tasks to an external company raises a number of concerns, especially among the companies for which this form of cooperation is a novelty. The most common fears are related to the security of operations supported by an external company (possibility of leakage), both quality and the final price of the third-party services, and a strong need for constant control of the contractor performance. 

At least some of these fears can be reduced by taking into account the pilot phase of the project, which allows the parties to quickly identify incorrect project assumptions, and enable precise economic justification of the entire project. The effectiveness of an outsourcing project should be also monitored with a precise measurement system, overcoming the fear of lack of supervision.

Keep in mind, that companies joining the project often do not have knowledge about the key factors affecting the efficiency of the enterprise, which is why they are not able to improve it right away. Hence, it’s important to let external employees adapt to a given situation, i.e., by using confidentiality agreements that allow them to operate inside the organisation without any restrictions on access to the tools and databases.

The advantages of software outsourcing

It is difficult to imagine the functioning of modern companies without the usage of dedicated software, information systems and other tools of the new technologies. These solutions are used to support increasingly complex processes related to, i.e., finances, customer service, communication, production management or the supply chain. The need to computerise these processes, however, often collides with the organisational reality.

As a result, more and more companies decide to use a wide range of services offered as part of IT outsourcing. This kind of cooperation brings them a number of benefits, among which the most important are:

  • Safety of the operations and stability of the company. Thanks to the optimisation of processes in the company and use of the external services, the entire IT infrastructure is more stable and less vulnerable to the attacks.
  • The ability to optimize the costs associated with operating IT processes in the company. Outsourcing generates significantly lower costs – it allows reducing IT infrastructure costs by up to 25% while maintaining its high quality.
  • Improving operational efficiency. Thanks to the rapid support of external specialists access to the best knowledge and IT solutions, the company works better and more effectively.
  • Maximised flexibility, allowing your company to quickly respond to the ever-changing market conditions in no time.
  • Access to unique skills and resources. The outsourcing company adapts its scope of duties and activities to the client’s expectations, offering help of many qualified specialists (or the entire remote team), and thus giving him access to a wide range of expert knowledge. 
  • the opportunity to always work on the latest version of the software that is developed, updated and maintained by the outsourcing service provider. Also, instant access to innovation, intellectual property and industry visionaries.

Growing competition in every industry requires a maximum focus on strategic activities for entrepreneurs, without unnecessary involvement of management in solving administrative problems. Appropriate facilities, including the entire IT area, are needed for the company to be able to quickly and effectively operate on the market and build a positive image among customers and business partners.

How does outsourcing adapt to global trends?

The development of outsourcing trends is, has been, and will always be associated with the cost reduction. Yet, progressing automation and data digitization significantly affect the quality of services offered by IT outsourcing companies.

To help you see where the potential for making the most of technology for your organisation is, we’ve compiled a list of top software outsourcing trends, which will surely influence a variety of industries in the upcoming months.

Top 6 software outsourcing trends to follow in 2020

1. Outsourcing destinations matter (more than ever)

With the current rate of technological development and a deficit of specialists on the national market, enterprises will increasingly search for outsourcing destinations in Central Europe. Consequently, managers are more orientated on geographical closeness, ethnic affinity, higher flexibility and adaptation in terms of the work culture. This approach provides businesses with the continuity of processes, and the opportunity to calmly plan their development.

As a result, enterprises prefer to hire highly qualified software developers, shifting from cheap China and India to more experienced regions – seeing them as a bridge between the headquarters from the West and the branches. They usually decide on nearshoring, because of the similar rules prevailing in the market, and high understanding of needs. It’s worth to mention, that many of them have already chosen Poland, which combines the good quality of code with a very reasonable price.

2. Changing business attitudes

Companies tend to use the services of many specialised IT outsourcing providers. Currently, they place a stronger emphasis on the results of the cooperation, stipulating specific goals in their contracts – regardless of the service’s total price.

Thus, relations between the external software developer and the client’s representative are increasingly human-oriented, focusing on the quality of both cooperation and implementation, as well as simplification of processes – and not just the price. This leads to stronger competition among the outsourcing industry, which can translate into the higher quality of the final product. Hence, the most important thing for the IT outsourcing providers is to be a reliable partner, who understands well their client’s processes. 

3. New contract models

New contracts are increasingly focused on performance. Both IT outsourcing companies and their clients are looking for solutions that will be as valuable as possible, thus perfectly fitted to the needs of a particular company. One of the barriers to the development of the outsourcing industry was the concern about the quality of services provided, as well as the security of data stored in the systems operated by an external provider.

Now, this problem can be regulated under the Service Level Agreement (SLA), which is prepared by taking into account the needs of a particular business and its requirements for the service. Therefore, it secures the interest and intellectual property of the company and guarantees high quality of both the cooperation and its outcome. What’s interesting, it’s believed that software development companies will soon start to sign contracts where they’ll share responsibilities and risks with the client. 

4. Process automation

An entrepreneur who can coordinate work using one proven IT system, reduces costs and demand for the equipment, and app development. Cooperation with one coordinator decreases operational risk, as the responsibility does not disperse to the several entities. It is also much simpler to manage only one business relationship instead of many, which not only limits the administrative procedures but also allows you to avoid looking for more suppliers.

Currently, the projects related to the Artificial Intelligence and Robotic Process Automation (RPA) are receiving an enormous budget. We are also observing the increased demand for AI experts, machine learning and data analysts. Plus, some of the IT service providers are already striving to automate their processes. 

5. IT outsourcing moves to the cloud

One of the most visible outsourcing trends of 2019 was the popularization of services available in the cloud. By its definition, cloud computing technology allows data to be processed and stored on servers outside the local network. 

The most important advantages of this solution are the cost-efficiency and scalability, thus the ability to flexibly manage the server’s computing power. Both high performance and security of cloud computing mean that this technology has more and more solutions available to support various business processes. As a result, the percentage of companies that migrates their whole environment into the cloud is growing year by year.

6. Not only for the large companies

IT outsourcing is a unique opportunity for the sector of micro and small enterprises, which often face the need to reduce costs. At the same time, they want to have access to the latest technologies and solutions that allow for flexible management of business processes. 

The ability to buy products in the subscription model directly from the vendors – from simple office packages, through accounting software to purchasing whole platforms – allows for significant cost optimization by stretching “instalments” over time and paying only for functionalities that are actually being used.

Slightly different motives speak for the use of IT outsourcing in medium and large enterprises. This type of client prefers to order a full service, including the development of the dedicated system, as well as its implementation, maintenance, and the compatibility with already existing business process management platforms, (such as CRM, or ERP).

Choosing a qualified partner for software development outsourcing

The outsourcing market is constantly evolving. Considering the problems of the modern talent market and the rapid development of the latest technologies, it is not surprising that the enterprises are increasingly willing to benefit from the implementation of the software outsourcing trends.

Yet, every company is different, has different needs, resources and the computing infrastructure. To pick the very best service provider for your business, it’s worth to specify what you’re expecting from the outsourcing contract at the very beginning. To do so, you should analyse the possible scope of services, then verify it in terms of the company’s budget possibilities. 

As a rule of the thumb, remember to set the budget for the service and its planned duration before deciding on cooperation with a specific development company. We would not advise you to go for the lowest price on the market, because of the poor security of the data, low quality and difficult communication with the cheaper service providers. If you wish to improve the cost of the outsourcing, we highly recommend you to prepare a properly drawn up contract, which secures the confidential information with a service level agreement (SLA).

Delegating the development of an IT environment to an external company leads to considerable savings, generated by the elimination of infrastructure maintenance costs, as well and improvement and continuity of the services. To achieve that, consider cooperation only with a partner who is proficient in this type of services, uses modern tools and has a professional software development team.

To help you see where the potential for making the most of technology for your organisation is, we’ve compiled a list of top industry trends that have recently been gaining force in the IT outsourcing market and 2020 Software Development Outsourcing Guide.

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