Software outsourcing is becoming an increasingly common practice in business.

According to Computer Economics’ 2018/19 IT Spending and Staffing Benchmarks study, last year, large companies increased their IT spending on nearshore software outsourcing from 6.3% to 8.7%, while medium companies increased their spending from 4.7% to 6.5%. Many of today’s tech giants such as WhatsApp, Google, and Slack owe their success to outsourcing software development. There are many reasons why companies choose to outsource software development. From mitigating a project’s risk to making up for a lack of in-house skills, working with an outsourcing company helps deliver a high-quality product on time.

At Hooligan, we specialize in software development outsourcing. We’re known for having a robust workflow process, which places us in a unique position to explore what companies should know before outsourcing their software projects.

Here are the key things we think companies ought to know before outsourcing.

Be Clear on What You Need

Before you begin searching for a development partner, you need to know exactly what your company needs. Having a detailed project specification that outlines how your software should function helps avoid any misunderstandings in the development cycle which can lead to delays. According to software matching service SourceSeek’s 2017 Global Software Services Report, 12% of software development projects fail due to a lack of communication. Similarly, a further 12% fail due to a lack of clear goals. With a detailed specification in place, the next step is to identify the skills you need to complete the project and evaluate how they compare with the skills of your internal team. For example, you might find that your team has strong mobile development skills but lacks expertise in user interface design. Once you know what’s missing internally, you can outsource them to a development team. With software outsourcing, you only pay for the expertise you need.

Decide What Type of Outsourcing Is Best for Your Project

Generally speaking, there are three ways to outsource your software development: local, nearshore, and offshore. Each type has its advantages, so it’s worth considering each one in detail before choosing an outsourcing partner. Outsourcing locally provides access to homegrown talent. Working with software developers in the same city ensures clear communication channels. With local outsourcing, however, companies are restricted to a smaller talent pool based on geographic location. Nearshore outsourcing is when companies choose an outsourcing partner in a neighboring country. This method is generally more affordable than local outsourcing and provides companies with a larger pool of talent. Time zones are usually compatible, as is the cultural fit and communication style. Offshore outsourcing is when companies hire an external development team in a different region. This methodology is popular because it provides access to a worldwide pool of talent. Offshore outsourcing can help companies reduce costs while maintaining innovation and quality. It enables companies to scale up their teams without establishing a completely new internal infrastructure. The right software development outsourcing partner for your business depends on its needs.

Prepare to Protect Your Intellectual Property (IP)

Before proceeding with an outsourced development project, you may want to meet with a legal team to create a non-disclosure agreement (NDA). Confidentiality, especially with a brand-new product, is absolutely essential. You should ensure that the NDA details those who should have access, where source code is stored, who is responsible for specific tasks, and what information is considered confidential.

Know Your Growth Strategy

Having a solid growth strategy in place before outsourcing can assist in defining a roadmap for development. It can also help refine the scope of a project and identify what functionality the software may require in the future, even if it isn’t implemented in the initial stages. According to research by IBM, 37% of companies outsource for growth, so it’s important to consider the future of your product even at the early stages. A clear growth strategy outlined in advance enables your development team to prepare for future adjustments. With this knowledge, the team can plan ahead and make sure they are creating a product fit for exponential growth.

Have Realistic Milestones in Mind

In our experience, companies tend to underestimate the amount of time a software development project takes. It’s therefore worth having a rough idea of some key milestones in advance and allowing extra time for testing and adjustments. Project milestones need to be realistic, achievable, and measurable. According to the State of Software Development report, unrealistic expectations are the number one cause of delivery problems for software teams. Once you’ve chosen an outsourcing partner, confirm that they’re able to meet these milestones, and be prepared to compromise if the team needs more time for testing.

Know Your Budget – But Also Know It Is Not Everything

According to Deloitte’s 2016 Global Outsourcing Survey, 59% of companies outsource to cut costs. Although it is important to have a clear idea of your budget in advance, it’s not something that should define an outsourcing project. It’s important not to sacrifice quality as a result of cost. The core aim of outsourcing is to have a quality product made by experts. Deloitte’s research shows that 31% of companies outsource to enhance service quality. An outsourcing development partner should be chosen based on the skills and expertise they can bring to your project to produce a top-tier software product.

To summarize, the key points that companies should know before outsourcing their software are:

• What skills are missing in-house and what skills are needed externally
• What purpose the product serves, its functionality, and how the work should be executed, all outlined in a project specification that establishes key milestones
• What kind of outsourcing option is best – local, nearshore, or offshore
• How to protect intellectual property with an NDA
• The importance of having a clear growth strategy in place
• The project’s budget and the importance of quality