Outsourcing was the result of globalization in the 1950s and has changed a lot through the decades. Outsourcing vendors have faced many difficulties and amended cooperation models year to year to eliminate disadvantages, leaving only benefits for their customers.
Content:
- Types of outsourcing
- What does a project-based model of IT outsourcing mean?
- Examples of project-based software development
- Comparing R&D and project-based models of outsourcing
- Summing up
This is why in 2023, we have plenty of outsourcing models so that every customer, regardless of their size, budget, or industry, could pick a model for their particular business needs. Project-based model is one of the most convenient ways to delegate your business processes, including software development, to a third party. But what are the others?
Types of outsourcing
First, you can delegate any part of your manufacturing, management, facility management, or business processes to external vendors. Having an e-commerce company with a brick-and-mortar office, you can:
- Hire a janitor outsourcing company to keep your offices clean and well-maintained;
- Sign a contract with a security company to protect your facilities;
- Delegate accounting functions to the accountant company;
- Make a deal with a warehouse outsourcing company that will manage the orders of our clients;
- Cooperate with a staffing company that will take care of recruitment functions;
- Find an IT vendor who will work on your app development, etc.
Location types of outsourcing
For each type of cooperation, you will pick an outsourcing company based on its place of residence. If you need people to come to your facilities every day, you will choose onshore outsourcing. This means you will work with a vendor from your city or country.
If the proximity of your vendor is not that vital, but you want to work with people who live in the same time zone as you do, speak the same language, and have the same cultural code, you will most likely opt for nearshore outsourcing. In this case, you will choose a company from a bordering country or at least from the same region as you.
When the territorial residence of your outsourcing vendor isn’t important, you can find offshore outsourcing more attractive. Going offshore means hiring a company from another region or even continent.
Relationship types of outsourcing
Depending on the level of cooperation and partnership you want to get from outsourcing, you can choose among the following types:
Traditional outsourcing. Having a transactional nature, traditional outsourcing is commonly used for software development. It is one of the oldest types of outsourcing, and it still has some nasty disadvantages, like high prices, lack of control over the development process, and possible quality and security issues.
Managed service outsourcing. This more advanced type of outsourcing is usually applied for delegating complex processes, namely IT infrastructure management.
Operate service outsourcing. This quite new model has just appeared in the 2022 Deloitte survey on outsourcing. It is considered a holistic way to create an ecosystem where all IT vendors can cooperate and boost innovation.
Project-based outsourcing. This model can be used to delegate to the third parties functions that require specialized expertise, like software development, website design, or marketing campaigns. Unlike traditional outsourcing, it usually means greater engagement of the customer in the working process.
Outstaffing. Also known as staff augmentation, outstaffing stands a bit aside from other types of outsourcing. Basically, it is a way to delegate recruitment and human resources functions to a third party. Speaking about the IT industry, an outstaffing company will help you reinforce your in-house IT department with unique tech talent.
Notions described above are quite vague, as different IT vendors can put their own meanings in them. At the end of the day, outsourcing agreement terms are more important than the name your vendor gives to the services it provides.
What does a project-based model of IT outsourcing mean?
Being a modernized, “shortened” version of traditional fixed bid outsourcing, a project-based model is not for everyone. First of all, it is usually chosen if a project you need can be developed quite fast, in several sprints. Secondly, consider this option only if you have a very good understanding of what exactly you need. To get the maximum benefits from this model and avoid downfalls, clarify the amount of work needed to be done and find a vendor with the utmost experience in your field.
How does the project-based model work in IT?
- It all starts with your requirements.
- When an IT vendor collects your needs, it can proceed with analysis and estimating costs and deadlines.
- Then, the time for negotiating budgets and deadlines comes.
- As a rule, there is a discussion of additional requirements and an outsourcing agreement discussion.
- When everything is approved, a contract should be signed.
- Work commences.
- Project implementation.
Quick quiz if the project-based model is for you
- Does your company have a one-time IT project?
- Do you have a defined set of tasks that require specialized expertise or resources?
- Is your company open to outsourcing IT projects to external providers?
- Is your project relatively short and simple?
- Can you provide clear requirements for your project?
- Can you guarantee that there will be no amendments to the requirements of the project after the contract is signed?
- Are you willing to rely on an external contractor to complete the project within a specified time and budget?
If you answered “yes” to all of the above questions, rest assured that the project-based model will be a good fit for your company. However, if most of your answers are “no,” you may want to consider other outsourcing models or evaluate whether the benefits of the project-based model outweigh the potential risks and challenges for your company.
Examples of project-based software development
If you can put a set of tasks into the sharp frames of a single project, you can use the project-based outsourcing model. Here are some software development tasks you can delegate to a third party with the PBO:
- Development of a custom e-commerce platform for a retail business. This is what Evozon did for Auchan.
- Creation of a mobile or web app for a telecommunication company. This is what MWDN did for Bezeq, creating for them an app BSupport.
- Design and development of an ML-based app for an advertising agency. This is what ELEKS did for Havas Group.
- Development of a project-management tool for a construction company. This is what MWDN did for iRoofing, a company for roof construction.
- Development of a data analytics tool for a financial service company.
- Creation of CRM software for a sales team.
- Design and development of a web-based learning management system for a college.
- Development of cloud-based accounting software for a small business.
- Implementation of new functionality based on blockchain technology for a FinTech company. Like MWDN did for Charge.
- Creation of a machine learning algorithm for a technology startup.
We should talk about the last example in more detail, as this is one of the ways where project-based outsourcing looks just like a research and development service.
Comparing R&D and project-based models of outsourcing
Even though sometimes R&D and project-based models of outsourcing can reach the same business goals for their customers, these approaches have more differences than things in common. Here are just some criteria to consider:
- Business goals and cooperation objectives
The R&D model is focused on building long-term strategic partnerships and developing new products and services, while the project-based model is focused on completing specific projects within a defined time frame and budget.
- Time frame
The R&D model is a long-term strategy, while the project-based model is about completing tasks fast, in several sprints.
- Customer involvement
Research and development requires a high level of customer involvement in the process, while the project-based model can be successful with little to no client involvement.
- Level of complexity
The R&D model is best suited for complex projects, while the project-based model is better fit for simpler tasks.
- Cost
The R&D model can be more expensive in the long run, while the project-based model can be more cost-effective for short-term projects.
- ROI
R&D is a more risky approach to investments as you can never be sure if your research and development will pay off.
Summing up
Among multiple approaches to outsourcing, the project-based model is one of the simplest and most popular. As a rule, this model is considered by non-technological companies that want to transform their business, making it more digitally adapted. If you’re a business coach needing a mobile app or a healthcare company in search of a personalized CRM, the project-based approach to software development outsourcing can be your first choice.
Keep in mind that choosing the right IT vendor is half of your success. Pay attention to the reputation of your contractor on the market, its previous experience, and the terms it sets in its contract. Contact MWDN to find out more about different types of outsourcing and calculate the cost of your dream project.