How to Avoid the Risks of IT Outsourcing

Whatever your company’s reason for outsourcing IT functions like software development, it’s important to go in eyes wide open.

While the data shows that working with nearshore and offshore partners is widely accepted and fruitful, there are pros and cons to consider.

This post is designed to help companies avoid potential negative effects of outsourcing. To accomplish this, we’re going to take three common issues outsourcers have with their partners and give you actionable advice to avoid falling into the same trap.

If you want to learn more about the state of outsourced software development, how leading companies choose their partners, and how to avoid some common IT outsourcing pitfalls, download our white paper, “The 9 IT Outsourcing Stats Every Business Needs to Know”.

IT Outsourcing Challenge #1: Reactive Providers

According to Deloitte, 46% of companies that outsource application development say a major challenge with the arrangement is that their providers are reactive rather than proactive. In other words, they’re merely taking orders, not driving the app dev process. This puts significant pressure on the in-house team doing the outsourcing – further strapping resources that were probably quite strapped in the first place!

Think about it: If a team is too short on bandwidth or specialized experience to complete a project, it’s unfair for their nearshore partner to not bring a layer of proactivity and suggestions to the table.

But this negative effect of outsourcing is avoidable. It comes down to the makeup of the outsourced partner’s team. Strong account management structures and on-staff business analysts add strategic insights that will improve both the end product and the relationship. A great software development partner should be able to take an idea and a framework and actively add value at every stage.

IT Outsourcing Challenge #2: Lack of Innovation

The same Deloitte study showed that 33% of outsourcers feel their partners aren’t innovative enough. The issue here is just a like a lack of proactivity: If your in-house team needs to focus on other core initiatives or simply lacks a key ingredient of the project, why should it be expected to think about new and creative ways to take a product to the next level?

Fortunately, this pitfall is also quite avoidable. Simply look for a team with experience in next-generation technologies and methodologies. If they’re simply touting themselves as C#, Python, Visual Basic or JavaScript experts, they’re likely more interested in looking backward than forward. Look for experience in cutting-edge tech, like cloud, RPA, AI, machine learning, AR, and VR.

IT Outsourcing Challenge #3: Turnover

Stability is almost as big a problem as a lack of innovation for firms that outsource software work. Twenty-nine percent of respondents told Deloitte that their partners’ staff attrition rates are too high.

This presents a number of problems. Institutional knowledge is lost, relationships are constantly shifting, and work quality varies with time. High turnover at your nearshore development firm, in other words, is the absolute last thing you want.

How can you avoid this trap? Again, perform your due diligence. Ask about your potential partner’s average staff tenure, compensation (it should ideally be above-average for their geographic location) and culture. Don’t simply take their word for it, though. Check out their local and global social media accounts to see for yourself. Western-style offices and staff events are great indicators of an engaged, loyal, and hard-working team.

The Bottom Line: Questions You Need to Ask Your Vendor

There are pros and cons to IT outsourcing. To experience the former, it’s necessary to avoid the latter. A few well-placed questions during the vetting process and a little bit of online legwork can help you find the right software development team for you.

When you’re seeking a nearshore or offshore development partner, don’t forget to ask:

  • What is the exact makeup of the team who will work on my project?
  • What specific value will each team member bring?
  • What technologies do you work in today?
  • What technologies are you considering adding in the near future?
  • How long does your average employee stay with the company?
  • How are your employees compensated? What benefits do they receive?
Take your time, do your due diligence and make sure to check a partner’s potential proactivity, capacity for innovation, and turnover rate. If you like what you see, there’s a good chance you’ll avoid the most common risks of IT outsourcing.

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Is IT outsourcing right for your business?

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The 9 IT Outsourcing Stats Every Business Needs to Know