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News Release

Oct 23, 2012

Software Development Outsourcing – Higher Than the Clouds

In this century of continuous technological development and integration into the business environment, many companies are facing more complex tasks than they used to.

Ultimately, regardless of the type of task—developing a new product or customizing an existing solution to the needs of end users—choosing an appropriate approach remains difficult.

Expanding the In-House Engineering Team

This approach involves recruiting new specialists to the company offices. The only established benefit—the absence of the necessity for revolutionary changes in the company’s organizational structure—is instantly offset by the obvious drawbacks of this approach: additional training costs and salary expenses, time required to find new employees, IT infrastructure expansion expenses, etc.

Building an In-House Offshore Development Center

Besides cutting down on salary expenses, this approach helps to keep all expertise within the company. At the same time, you achieve management flexibility and transparency in accordance with the standards adopted in the company. However, it should be kept in mind that the building of such an offshore center means establishing a new legal entity and a new infrastructure from scratch and requires understanding regional specifics (e.g., knowledge of wages, local laws, nuances of interaction with government authorities, etc.). An efficient solution would be outsourcing the offshore center project to a local provider who understands every detail of the business. The provider builds the center turnkey ready and passes it over to the client (which does not cut but rather increases the client’s expenses).

Development Project Outsourcing

The benefits of project outsourcing are obvious. The client does not have to search for engineers or deal with infrastructure development. He simply invests in the project and enjoys the outcome. Seemingly, it is a perfect interaction pattern: Everyone goes about their business, and everyone is happy. However, even here, there are certain drawbacks and risks.

For one thing, using this approach means that all knowledge and all expertise will stay with the provider. In the long run, it can disturb the launch and development of new projects. Differences in engineering standards, processes, and systems adopted in the client’s and the provider’s companies can lead to a loss of efficiency and a decline in development performance. Difficulties will also arise when the project scope, requirements, and priorities change, leading to the necessity of contract terms being reviewed or a new contract being created. In practical terms, this means more time and money spent.

Upon comparing development project outsourcing with building an offshore center, it can be said that outsourcing a project to a provider will be more expensive than using in-house engineers in a cheap region and entails some specific risks. It shouldn’t be forgotten that the provider’s final price includes the provider’s own interest.

Dedicated Team Building

But as we all know, nature abhors a vacuum, and the market does not acknowledge ineffective solutions. Business processes logic assumes that there should be a solution that meets the interests of both parties that will be more advantageous economically than traditional options. One option here is a dedicated development team of the outsourcing company.

The engineering team adopts the client’s unique product knowledge, standards, methods, and development technologies. The client determines the scope of work, range of projects, and task priorities for the dedicated development team that brings the skills and experience necessary to solve the client’s challenges. All this puts the development process on the right track, reducing the chance of failure.

As a result, you obtain a standalone dedicated center to support your clients’ business needs; to some extent, it is a company IT department operating out of your company and without any headaches regarding solving organizational issues on-site.

This allows maximum flexibility both in payment options and in DDC elaboration. DDC payment options are based on the pay-as-you-go model used in cloud computing. It means that the customer pays for work done only and determines the scope of tasks for the project based on the business needs of his/her company.

Numerous studies reveal that in the long run, the use of this scheme allows costs to be cut 30–60% compared to project-based models.

Obviously, hiring a dedicated team seems to be the most preferable option of those mentioned above. However, even this option is not without its risks and difficulties. Choosing the right provider is essential, so you have to take the selection process seriously. If you are mistaken or negligent at the sourcing stage, then no collaboration scheme, not even a perfect one, can ensure strong performance.

Conclusions

What do we have as a bottom line? If we use IT terms, then the concept of a dedicated team can be equated to the popular concept of cloud computing with all of its advantages, such as flexibility, scalability, service orientation and a transparent payment scheme. Then, the building of an offshore center is like developing an in-house product from scratch, project development is similar to a packaged software purchase, and expanding the current team is more like a tweaking of the COBOL legacy-system created back in the 1980s.

Of course, the choice has to be made by the client, but it should be kept in mind that as always, those who will have won will be those who stand first in mastering and implementing new technologies.

Click on the link to read the full version of the article in our blog


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