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IT outsourcing is the process of outsourcing certain Information Technology-related services and functions to an external service provider. It is a popular business model for companies of all sizes, allowing them to outsource the IT services they need on an as-needed basis, instead of hiring and managing their own IT staff.
In this article, we will look at what IT outsourcing is, its pros and cons, types and collaboration models, solutions and services you can access, and what to ask a provider.
IT outsourcing involves using external service providers to deliver IT solutions in order to achieve business outcomes. This could be in the form of IT-enabled business process, application service or infrastructure solutions.
In a world where tech companies are looking for ways to enable digital transformation and accelerate backlog delivery, the advantages of integrating IT outsourcing resource can give you big gains over the short and the long-term.
By outsourcing their IT services, businesses can benefit from increased efficiency and cost savings, while still getting the expertise they need.
One of the main reasons why companies are looking to outsource IT is as a means of tech support for their in-house team or to fill certain tech skills gaps. Outsourced IT services give CTOs and CIOs access to top engineering and digital talent around the world, usually at a lower cost and much faster than ramping up a team of full-time employees.
IT outsourcing enables enhanced speed of project delivery without the need for lengthy and costly recruitment processes. Organizations and their tech leaders who utilize IT outsourcing to meet specific IT needs also gain precious time back to focus on innovation and growth and fulfilling their business strategy.
There are multiple advantages of adding external expertise, including:
Overall, outsourcing IT services can provide several benefits to businesses, including cost savings, access to specialized expertise, increased focus on core business functions, scalability, improved service quality, and reduced risk.
Depending on the geographic proximity to the exeternal team, as well as the number of outsourcing vendors onboarded, there are four main types of IT outsourcing commonly agreed upon.
Nearshore outsourcing or nearshoring involves the transfer of IT services to a third-party provider in a neighboring or nearby country. This type of outsourcing is often chosen for similar reasons as onshore outsourcing, such as cultural affinity, language similarity, and similar time zones.
Offshore outsourcing or offshoring involves the transfer of IT services to a third-party provider in a different country. This type of outsourcing is often chosen for cost savings and access to a wider pool of skilled labor.
Onshore outsourcing or onshoring involves the transfer of IT services to a third-party provider within the same country. This type of outsourcing is often chosen when businesses want to maintain a similar cultural and language environment, and may provide better control over the outsourced work.
Multisourcing refers to the practice of outsourcing different components of a business process or IT function to multiple third-party service providers, rather than relying on a single provider. Multisourcing is used to gain access to a broader range of skills and expertise, reduce dependency on a single provider, and improve service quality by leveraging the strengths of different providers. It also enables businesses to spread their risks by diversifying their outsourcing relationships.
There are various types of tech services that can be outsourced to an external vendor, including:
There are several IT outsourcing collaboration models that businesses can use to work with third-party service providers. Some of the most common models include:
In an extended team or staff augmentation model, the third-party service provider provides additional qualified staff to work with the business’s existing employees. The outsourced team acts as an extension of the customer’s in-house team and is commonly used to fill gaps in technical skills or capacity, or to support shorter-term projects. In such an organization, the customer remains firmly in control of the software development process, including workflow, as well as the organization of the team, the tools and project methodology.
Also refered to as managed team, the dedicated team model is a popular outsourcing option for companies looking for a flexible, cost-effective way to complete complex, long-term projects. The advantage of the dedicated team model is that it provides businesses with access to a group of professionals who are solely dedicated to their project or service. Following the Agile methodology, dedicated or managed teams have their own governance models, which ensure regular customer engagement, while giving the team the autonomy to speed backlog delivery and ensure faster go-to-market for the customer’s product or service.
In this model, the third-party service provider takes full responsibility for the management and delivery of a specific IT function or set of functions. This can include everything from infrastructure management, network and equipment monitoring and maintenance to cloud support.
These are just the top three most commonly used IT outsourcing collaboration models, Choosing the right one for your business will depend on a range of factors, including the company’s goals, the complexity of the IT function being outsourced, and the level of control and involvement you wish to maintain.
There are several pricing models commonly used in IT outsourcing, including:
The choice of pricing model will depend on several factors, including the project’s scope, complexity, and the level of risk involved. It is important to choose a pricing model that aligns with the project’s objectives, and that provides transparency and accountability throughout the project lifecycle.
IT outsourcing has become a popular business strategy for companies looking to reduce costs, access specialized skills, and improve efficiency. Here are some of the most popular IT outsourcing locations:
These are some of the most popular IT outsourcing locations, but there are many other countries and regions that also offer skilled IT professionals, lower costs, and a favorable business environment for outsourcing.
While entrusting product development to an IT outsourcing company can help to overcome resource inadequacies, there are challenges of outsourcing. For example, finding a long-term partner that ticks all the right boxes when it comes to software quality, development costs and ease of collaboration.
First and foremost, it’s important to determine the reasons you need IT outsourcing, and then continue your search from there. Many organizations start by outsourcing their IT Software Maintenance while others focus on whether a nearshore or offshore outsourcing location would suit their needs and budget best.
When working with an IT outsourcing vendor, it’s important to look for certain key factors to ensure a successful partnership. Here are some things to consider when choosing an IT outsourcing vendor:
To help you make an outsourcing analysis, here you will find articles on how IT outsourcing works, what to expect from your outsourcing partner, how to choose between multiple vendors, and how to successfully onboard an outsourced team to expand your in-house development team’s capacity.
To support your strategic decision-making, you will also find specific content comparing outsourcing models and contracts, exploring outsourcing locations and assessing the benefits of outsourcing development.
Whether you are new to the IT outsourcing arena or simply looking to expand your knowledge, you will find a wealth of IT outsourcing content to help you make informed decisions in future.