Crafting an Effective IT Outsourcing Strategy for Your Business

Globalization and democratization of services have opened gates to closer international cooperation both between countries and private companies. This change has affected many areas, including e-commerce, production, and IT, of course.

With a chance to work and communicate remotely, many businesses started to delegate complex enterprise application development to external partners who could deliver outstanding products at much more reasonable prices.

Information technology outsourcing (this is what it’s generally called) has quickly conquered its popularity and now this industry generates nearly $541 billion per year (as of 2024).

Nonetheless, with the rise of countries and companies desiring to take on your project, it has become a bit hard to choose the right partner and establish a long and lasting relationship with them.

To overcome all the challenges you may encounter along the way, we’d rather suggest developing an exhaustive IT outsourcing strategy that would outline all the nuances and help you make the most of your partnership.

What Is IT Outsourcing? Definition and Principles

Information technology outsourcing (ITO) implies hiring third-party software development companies or individuals to build IT-related applications, services, or infrastructure solutions.

In simple terms, company outsourcing refers to contracting fragments (or whole projects) of work that may be completed inwardly to outer software teams or service providers.

Professional services organizations mainly focus on selling IT consulting or technology services, which is why IT outsourcing makes up the biggest part of the industry.

What Can Strategic Outsourcing Give You?

The flexibility of the outsourcing engagement model (we’ll talk about types and options a little later) allows you to entrust a whole range of activities while enjoying some awesome benefits. Here are just a few:

Expense Savings Here and There

Guess one of the biggest perks of outsourcing? Saving capital, of course. When you outsource non-essential jobs to countries where labor’s more affordable, you can cut a dozen lines in annual financial statements. Those savings can go right back into growing your business or spending on much more profitable initiatives.

Pass to Expertise and Premier Know-how

No company can do everything well. Moreover, every company must be able to delegate so as not to get scattered over trifles. Outsourcing lets you bring in experts for software development, financial audits, or marketing—whatever you need. Plus, you get access to global talent without the bother of hiring full-time members.

Maximum Output with Reasonable Input

The whole point of outsourcing is to adequately distribute the resources you have. When you hand off tasks that aren’t central to your business, your workforce can concentrate on what they’re truly great at.

Scalability Both Up & Down

If your business is booming but hiring slows you down, outsourcing is exactly what you need. It lets you adapt to market changes, whether it’s launching a new product or running a busy season, and grow without missing a beat. And vice versa.

Why You Can’t Do Without a Good Strategy

IT outsourcing undoubtedly has a lot of benefits, but it can quickly get problematic if it’s not managed right.

You might run into losing control, miscommunication, or unfulfilled expectations. That’s why having a substantial outsourcing strategy in place is a must. It helps you avoid risks, stay in line with your long-term goals, and have a plan B for managing everything.

6 Steps to Developing Effective Outsourcing Strategies

Assessing Your Conditions and Goals

Before plunging into outsourcing, it’s necessary to figure out which IT tasks are central to your business and which aren’t.

Core functions are the ones that affect your business’s success and should stay in-house. Non-core tasks, on the other hand, cover managing IT infrastructure or routine support, and are perfect for outsourcing because they don’t directly impact your main business plans.

After sorting your IT functions, the next step is to set clear goals for what and why you’re outsourcing. Are you trying to save budget, improve service, or add new technology? Knowing exactly what you want will help you create a good strategy and find the right outsourcing match.

Deciding on the Best Outsourcing Model

When deciding on the right outsourcing model, it’s essential to know your options and how they can work for your firm.

Offshore outsourcing, which means working with vendors in faraway countries (India, Malaysia), usually offers large cost savings but can come with miscommunication challenges.

Nearshore outsourcing is when you team up with vendors in adjacent countries, which simplifies communication and holds more cultural alignment. Onshore outsourcing keeps everything local, though it’s usually more expensive.

If you want to balance both expenses and convenience, you’d better choose hybrid models that mix offshore, nearshore, and onshore outsourcing in business to get the best of each.

Also, you’ll need to decide between several software development engagement models: managed services and staff augmentation. With managed services, the vendor takes a full IT function for you.

On the other hand, staff augmentation means the vendor provides just extra staff who work alongside your team, which is better if you want to stay active but need more help.

Picking the Ideal Outsourcing Partner

First, check out potential agents and see what kind of experience they have, along with their technical skills, reviews, use cases, and past work. It’s best to ask someone who’s done projects like yours before, especially in your industry.

Don’t forget to look at the legal aspects too! Make sure your potential partners follow industry standards and regulations, as well as check their policies on intellectual property rights, data security, and contract terms.

One reliable option to consider is SCAND. The company has a great reputation in the IT outsourcing space and can help you build the right solutions for your demands.

Developing a Detailed Contractual Agreement

Make sure to sign Service Level Agreements (SLAs) to set arrangements between you and the vendor. They should cover performance metrics, response times, and service availability.

Next, explicitly describe the project’s size, costs, and deliverables in the contract to avoid scope creep and budget overruns.

Finally, think about how to deal with risks, such as late deliveries, data breaches, or service collapses. By adding clauses that address surprising situations and what happens if they occur, you can protect yourself.

Placing Open Communication

To provide transparency, start using Slack, Microsoft Teams, or good old email. Regular check-ins and updates will help keep everyone on the same page.

It’s also good to clarify roles and responsibilities for both you and the vendor’s team. Make sure every part of the project has a specific point of contact.

Monitoring and Amending

Monitoring and optimizing your outsourcing partnership is vital to keep everything under control.

Regularly check the vendor’s performance against the metrics set out in the SLA. Keep an eye on the indicators, such as response times, system uptime, and project milestones. Also do periodic audits to review how things are going and provide feedback.

Common Troubles You May Face

When you’re outsourcing, there are a few common bumps in the road you might undergo.

Number one is communication barriers, especially if you’re working across different hemispheres. To fix this, set detailed rules on how and when to negotiate, so everyone stays in sync.

Quality can sometimes be a problem too if you don’t have clear expectations. To avoid this, make sure your Service Level Agreements (SLAs) are detailed with performance goals and quality standards.

The big risk of employing an outsourcing strategy is hidden charges. To avoid unexpected fees, be thorough when setting up contracts. Clearly outline the project costs and any extra charges that might come up. Also, allocate a little extra budget set aside, just in case.

Verdict

At the end of the day, building a good IT outsourcing strategy requires planning and knowing what your business really needs. If you follow the steps we’ve covered, you’ll dodge the usual risks, find the right partner, and keep communication clear for the best results.