When people ask me "What is IT outsourcing", I usually answer: "Outsourcing is the practice in which an outside party performs a task that is traditionally done by internal staff."
There are numerous IT outsourcing definitions, but the general idea behind it remains the same. A company outsources one or more functions to another party that specializes in those types of tasks so they can focus on their core competencies.
That’s what IT outsourcing means. It is when companies hire external services for their IT needs. Typically, these are IT-specific services such as software development, systems administration, or maintenance. At times, companies even outsource entire business processes including customer service and accounting. When outsourcing a team, it's often called "outstaffing".
1. So, how does IT outsourcing work?
Outsourcing is nothing new. Large outsourcing vendors have been around for decades and it’s common for businesses to outsource some elements of their IT work. But how does outsourcing work today?
However, over the past 15 years or so, there's been a major shift in how people think about outsourcing, and the meaning of outsourcing company has changed. Through large-scale globalization, improvements in communication technologies, and new paradigms of business organization, what was once seen as an exotic activity is now considered relatively normal.
1.1 When to Outsource IT services?
To put it into context, consider the following examples of IT outsourcing. Let's assume you own a food services business - say a Chinese restaurant. Now you might have obtained the best team of chefs from China so that you can cook authentic Chinese cuisine, but you realize that the only people you can serve are those that come to your restaurant.
Now assume that you've been impacted by the pandemic and are forced to restrict access or even shut down. In that scenario, which has impacted many businesses around the world, companies often struggle to simply stay afloat.
One option that you have available is using an existing food service delivery app like Uber Eats or Skip the Dishes; however, in doing so, you'll have to be prepared to restructure your business model.
Not only will you need to pay hefty fees to the platform, but you might also have to cut back on the number of unique dishes that you offer. An alternative that's worth considering is building your own online food ordering app so that you can reach your customers directly.
If you choose to proceed down this path, you'll probably decide to engage the services of a software development company that specializes in app development. This is considered outsourcing, and you're working under an "outsourcing" model.
2. IoT Outsourcing Development Trends 2022-2025
IoT or the Internet of Things is one of the most compelling trends in software development today.
According to Forbes, the global Internet of Things market is expected to have doubled last year to $520 billion from the $255 billion it achieved in 2017. This is a massive growth in a very short period of time and helps put IoT right in line with software development’s top two mega-trends: cloud computing and mobility.
2.1 What's IoT Anyways?
The Internet of Things is the network of physical devices, vehicles, home appliances, and other items embedded with specialized electronics that allow them to connect, collect and exchange data.
IoT-enabled devices can be used for a host of different applications. What makes IoT so disruptive is how it facilitates communication between machines to make our everyday lives more efficient and easier - from home automation to smart cities, self-driving cars, and more.
2.2 Outsourcing IoT Development
IoT outsourcing is picking up pace and according to a study by Red Hat Survey, 70% of businesses aim to use IoT technologies in their organizations over the next five years. A separate study by Juniper predicts there will be 83 billion IoT devices in use worldwide by 2024, with the number of connected devices growing exponentially over the next few years.
The benefits of outsourcing IoT development are numerous. You can build a connected world of devices without consuming all your resources and infrastructure while also improving safety and security. IoT outsourcing also enables businesses to harness real-time data and insights which would otherwise be too expensive or require additional infrastructure and skillsets.
3. Why do Corporations Outsource IT Services?
So, why do large businesses choose information technology outsourcing? The answer is quite simple: because it helps them save time and money.
It's possible to outsource your entire company - just think of Uber, the company that provides taxi-like services via a mobile application and doesn't employ any taxi drivers itself. They decided not to do it themselves but instead pay freelancers for each job they perform using their platform as a go-between with all the benefits this involves: the clients only pay for work performed and don't have to waste resources on training or constant supervision, and freelancers can pick up as many jobs as they want without having to worry about getting fired.
Many other companies like Apple, IBM, and Cisco outsource services like technical support, customer service, web development, and more.
Most of the work that's currently done by employees can be outsourced, which means that companies can lower costs drastically when they outsource IT services. Not only does it allow them to save on salaries, but also on office space and equipment rentals, and it's easier to hire qualified staff.
3.1 Benefits of IT Outsourcing
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Reducing Cost and Increasing Revenue - The outsourcing benefits are clear. The primary reasons companies outsource their IT services are to reduce costs, improve processes and increase agility. As an example, many companies which traditionally didn't offer customer service at all could provide e-mail support through outsourcing providers just by adding a few lines of code on their websites. Another great example is technical support: just using remote access software allows you to provide premium paid using outsourced resources while freeing up your engineer's time that you could use elsewhere in your organization with higher profit margins.
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Saving Time - Outsourcing is a great way to save time. You can outsource your development work to very skilled developers who are industry experts in the latest frameworks, design patterns, and programming languages. And you don't have to worry about hiring, firing, training new engineers every few years as your company's technology stack changes, or keeping up with trends because it's that developer's job.
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Getting access to scarce skills - You may not need top-notch development skills 24/7, but you need them at least some of the time. Sometimes finding skilled resources in your city can be cost-prohibitive and even impossible. With outsourcing contracts, you get access to the most skilled knowledge workers in the world.
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Faster Time-to-Market - The "Time-to-market" is how quickly a company brings its new products to market. When you leverage offshore developers' superior skills, experience, process discipline, and no vacation policy, it speeds up this critical metric that all technology companies are judged by. This allows more time for refining products or staffing up another team that might be behind schedule on an upcoming product release.
4. Why Do Mid-size Companies and Startups Outsource IT Services?
Mid-size companies outsource IT services to improve their productivity, accelerate growth and gain access to new markets. They hire developers through the different types of IT outsourcing models who are well skilled in leveraging new technology or software solutions.
A great example could be any Startup, which has an interesting and innovative idea but lacks tech expertise on how to connect the physical product to the app. In this case, for the startup team, the solution is obvious. Outsourcing to a specialist in IoT. Furthermore, the outsourced company already has all of the required data centers and systems. This may help startup owners in launching an MVP in a shorter period of time and getting a head start on marketing campaigns.
According to Statista, the global IT outsourcing market will be worth $425 billion by 2026, up from $66 billion in 2019. Smaller companies outsource 29% of the time in comparison to larger companies which are 66% more likely to use outsourced services based on a survey by Time Doctor.
Software outsourcing allows mid-size companies to ramp up more rapidly on projects knowing that an established development team is backing them up while freeing internal resources for other tasks.
Although large companies may have access to additional IT staff and fully managed service, small businesses and startups frequently lack the financial means to do so. Larger companies understand the value of outsourcing and realize that by using a third party, they can increase the focus they pay to internal priorities that can better help the business grow.
4.1 Outsourcing in Operation
Remember the previous example of a Chinese restaurant? By working to create a mobile app, they can personalize it to their own requirements helping them grow faster. For example, in addition to ordering food for takeout, they can provide an option to help you pre-order or reserve a table without standing in line, essentially adding value to their business.
These aspects make them different from other Chinese restaurants because they'll be able to offer an improved customer experience which results in better retention rates, higher frequency of orders, and more word-of-mouth advertising, which means welcome business opportunities for years to come.
5. IT Outsourcing: Main Risks and How to Avoid Them
5.1 Communication
The main risk when outsourcing in IT is generally based on communication. An incorrectly built communication or lack of face-to-face meetings can lead to a disagreement or miscommunication, which can easily turn into frustration if not properly dealt with.
At times, communication problems could be due to different time zones or language issues, so a good workaround is to look for domestic outsourcing or nearshore vendor, which will help avoid confusion when discussing important details. Companies that want the same time zone should consider nearshoring.
5.2 Security
Security policies and procedures are another great concern for companies when outsourcing IT services. If you're used to being in charge of all the software, hardware, and security measures on your systems, it's understandable that you would worry about who will handle this part when handing over your systems.
The best option is to investigate the business resilience of the IT provider. Select only reputable IT professionals who will maintain the best network security, backup and recovery systems, and disaster preparedness.
5.3 Cost Transparency
If requirements change or if you have to scale 20% in one month, will your IT outsourcing partner be able to accommodate all these changes?
An IT outsourcing solution should offer clear pricing models because there are no two businesses alike. Some make changes more often than others; some have unexpected expenses every once in a while due to growth or changing market conditions. Your provider should provide different models of tailored cost transparency for each client.
If you're looking for an outsource contractor that lets you choose the best delivery model according to your own needs and not theirs; who considers your company's size and amount of services needed; then it's very likely that the partnership between both companies will grow stronger over time.
6. Tips on How to Choose the Right Outsourcing Partner
When picking the right outsourcing provider, it's critical to pick someone who understands your industry, your business model, and the future of your company. This doesn't mean that you should exhaustively analyze every outsourcing provider on the market, but it does mean that it pays off to choose one with a proven track record - especially if you are just beginning the search process.
A great way to get started is to use some of the popular review platforms online like Clutch, TopDevelopers, or IT Cluster (a popular Ukrainian review platform). This can help you create a shortlist that might fit your needs. You can then schedule a call and even interview previous customers to see if they would recommend your potential service provider moving forward.
It helps to have an open dialog between both parties so each can clearly understand what's expected of them. It's important to remember, that while the price might be a factor, deciding on price alone could be a mistake. Instead, look at the overall value the company will provide. Finally, keep in mind that an outsourcing service model is something that needs time to grow and evolve with both parties involved.
It's important to develop a long-term relationship by identifying the right outsourcing partner that truly understands your business. This isn't just about finding an agency that can provide similar services to your current needs, but someone who can grow with you and support you no matter what happens.
At Indeema Software we build strong tech expertise to assist corporations, as well as mid-size companies and startups with software and hardware development even when it comes to complex IoT systems.
At Indeema Software we build a srtong tech expertise to assist corporations, as well as mid-size companies and startups with software and hardware development even when it comes to complex IoT systems.
