Popular Approaches to Software Outsourcing Models

A survey conducted by Deloitte in 2020 reports an increase from 20% to 50% in the number of firms resorting to outsourcing, a significant chunk of which fall into R&D. It is evident that software outsourcing is an integral norm among the tech and manufacturing industry.

Outsourcing can be a valuable tool to boost ongoing innovation, accelerate product releases, and sustainable business success with the right and systematic approach. However, with a hasty and unorganized process, outsourcing can be a business mess up, which is pretty tricky & hefty to manage. A big concern for companies looking to outsource is getting the right expertise to get the job done. There is a talent shortage globally, and since every company looks forward to profitable business returns, finding the right talent is crucial.
In fact, the CIO Agenda Reports published in 2017 by Gartner identifies talent as the “single biggest issue standing in the way of CIOs achieving their objectives.”
Now it is worth starting with the basics and understanding them. Here we are talking about the Service Models.

A company can choose from different software outsourcing models for software development, product testing, or maintenance of a software product. They are as follows:

Staff Augmentation

Staff augmentation is a commonly used and often applied software outsourcing model. The client-side evaluates the existing workforce and decides which skills are required and a lack of skilled professionals. The task of sourcing expert professionals depends upon an outsourcing firm. Besides that, the outsourcing group must monitor proper allocation, staff leave balances, paid time offs, and the number of hours they spend working for a client project. The outsourcing team might be required to provide workspace, but that depends on the client-vendor agreement.
The client-side controls aspects like project management, task allocation, distribution, team building, work assignments, hiring-firing, promotion of employees. The client-side can discharge anyone in case their performance is not up to the mark.

Dedicated Team

The dedicated team is somewhat different from staff augmentation. In the dedicated team model, the outsourcing partner provides an end-to-end team on a long-term basis. Since a dedicated team involves a group of professionals solely built to address a project pipeline, the responsibility rests upon the vendor partner to monitor people management, task allocation, attrition, micromanagement, etc. The outsourcing vendor must ensure the task status is on the right track and enact quality standards and efficient managers to take care of the same. The provider's job is to chalk out the best process for the team and then ensure it is followed. The provider is in sync with the ongoing project, reports status, and suggests project management. Although the provider gets responsibility for internal projects and product decisions, the client usually wants to keep control and maintain surveillance over the entire product roadmap at a high level.
Dedicated team model has some perks such as a predictable and defined budget, fully committed team members who have a thorough understanding of client requirements. A dedicated team is valuable, especially when the project scope is not strictly defined and requirements change based on circumstances. In such cases, the client always gets a team ready to act no matter what.

Project-Based Outsourcing

The third model, project-based outsourcing, is five folds away from the dedicated team approach. The client is most concerned about the result, not the methodology and means that go under it.
The model emphasizes the end goal and the final product to be delivered, which the outsourcing provider must reach within a stipulated timeline. The client needs are defined, the time frame is established, and the rest depends on the partner to meet all the requirements. Project-based outsourcing is about the "what and when" factor rather than the "how and why" factor. With the widespread implementation of agile methodology in software development, the borders between dedicated teams and projects have overlapped.
Project Based Outsourcing

Choosing the suitable outsourcing model

That first and foremost rule of software development outsourcing is - understanding what your actual needs are. If you are not clear about what you want, then your endeavor might fail. Once you have a clear end picture, you can go ahead, take the right direction, and implement it.
By needs, it means meta projects such as:
  • The extent of flexibility you need to implement on the project.
  • The implications and risks you're willing to overlook by moving the whole project to the service provider's side.
  • The extent of your control over the project development.
  • The responsibilities you wish to assign to the provider.
In a nutshell, here are the conditions which should prompt you to go for either of the three outsourcing approaches:
  • If you wish to have total control over your project and want to monitor its entire development process, and all you need is a team of talented professionals quicker and maybe cheaper (somewhere offshore), consider the staff augmentation model.
  • If you have a lengthy project roadmap that is subject to frequent modifications, if you don't wish to micromanage and need a committed team of experts to carry out development to maintenance, if people management and payroll is not your thing — the dedicated team model is the way to go.
  • If you have a well-established & clear-cut project requirement, try the project model if your development time frame is limited and you wish to avoid project underestimation risks.
There are many factors to consider if we are looking for the best fit while avoiding the cons. Everything in the world has both pros and cons. All the three models of software outsourcing described above are just stages of increased responsibilities upon the service provider. The more you push the project towards the provider, the more capital you need to dish out. The staff augmentation model is mainly in need of your own doing, where you manage a team, allocate tasks, micro-manage, hire staff, fire teams, you dictate almost everything. If you wish to halt the project, staff augmentation is best suited for that. But the attrition and the project failures will be on you. You build something on your terms in staff augmentation.
It is not the case in a dedicated model. You transfer a considerable amount of work to the provider. You need not worry about every aspect of the model but keep a hovering eye over what's going on. The project's finer details are on the provider, but your call is the last call on what you want. You can dictate sudden modifications in the mid-term owing to a dedicated model agreement, but the provider decides how to approach the issue and make it happen. If the project fails, the blame falls on both of you to consider this model quite seriously.
The project-based approach completely takes off the burden of development and puts it on the provider. You lose control over the whole process; you can no longer influence the people management, you have no control over transparency, you cannot alter it midway since it involves increasing the budget. Project-based models require a well-defined and fixed approach because they cannot be stopped once the ship sails.
Therefore, the cost and responsibility factor in these three models work like this:
Staff Augmentation (more responsibility but lesser cost), dedicated model (lesser/partial responsibility but increased cost), project-based (most minor responsibilities, higher cost).
Staff Augmentation
We will bypass the conversation about payment schemes and models in this blog. It is to note that payment models and software outsourcing service models are not dependant on each other. The payment model depends on the sort of agreement between the client and the provider. It involves loads of intricacies of its own, such as currency, taxes applied, geographic region, local service prize, etc. Since the service models are often overlapping, the payment models will vary from business to business. Hence the payment models deserve a separate blog themselves.
Ever since the advent of the fourth industrial revolution, software services have become an integral part of every domain across industries. More and more companies are looking towards outsourcing their software development projects to an external service provider, and they have a good reason for that.
As the world economy increases, the number of software projects increases and gains speeds worldwide, thus warranting more and more 3 rd party vendor companies with their expertise to come up and offer their services. All the product owners have to do is choose from a big bucket of options.
Although the blog sheds light on the basic software outsourcing models, each model has advantages and cons. Each benefit and disadvantage might vary depending upon project scope and related attributes. Every option has to be carefully assessed as per project-specific demands, and a suitable model & project roadmap must be established that meets the optimum necessities. Remember, there are no absolute best or worst project models; it is only about how well you chalk out the perfect plan to make it happen.
References
https://www.gartner.com/en/documents/3597441
https://www2.deloitte.com/us/en/pages/operations/articles/global-outsourcing-survey.html