Offshore outsourcing, in the broad, is continuing to grow – according to GSA, 70% of companies surveyed suggested that they would outsource more in 2020, with half of those suggesting a big increase in outsourcing.

Why do companies continue to push more and more business operations towards external providers? The classic motivating factor is cost savings, but that’s no longer the case. While businesses look to optimise costs, the choice of outsourcing vendor is now primarily influenced by the perception of partnership and trust. Businesses are looking for reliable technology partners offering value-added services and unrivalled expertise.

This article offers some best practices for hiring an effective offshore software development team, covering the following topics:

The rationale behind offshore outsourcing

In the past, outsourced software development had a cost-cutting reputation: outsourcing as a quick and cheap method to get things done. As a result, companies associated IT outsourcing with affordable if second-tier solutions.

However, the outsourcing world has changed dramatically over the last decade. In part because vendors have improved their game, but also because companies increasingly struggle to build, in-house, the resources required to keep pace with a rapidly changing technology environment.

Recent surveys clearly suggest that cost savings are a low priority when it comes to outsourcing. Instead, businesses outsource in order to access skills. According to Harvey Nash/KPMG CIO Survey 2019, skills shortages are at an all-time high with 67% struggling to find the right talent. The top three scarcest skills are big data/analytics, cyber security and AI.

So, main reasons companies outsource their software development look more like this:

A quest for skills and resources . Whether it is a lack of certain skills in-house or a restriction on available skills, many companies choose to outsource in order to accelerate projects beyond the abilities of internal teams.

. Whether it is a lack of certain skills in-house or a restriction on available skills, many companies choose to outsource in order to accelerate projects beyond the abilities of internal teams. Harnessing innovative technologies . Cutting edge tech including AI, advanced analytics and blockchain are entering the mainstream, but competency in these technologies remains relatively uncommon. Offshore outsourcing brings innovative technologies on board, giving companies a competitive edge.

. Cutting edge tech including AI, advanced analytics and blockchain are entering the mainstream, but competency in these technologies remains relatively uncommon. Offshore outsourcing brings innovative technologies on board, giving companies a competitive edge. Optimising operational costs of IT. Rather than just using outsourcing to cut costs on existing processes, companies are doing so – via cloud vendors, for example – in order to change existing processes: streamlining IT and optimising legacy IT systems.

Types of outsourcing engagement models

It’s not just the rationale that’s changed – organisations are also adopting unique models that extract better value. In our How to succeed at outsourcing software development white paper we highlight three engagement models that account for the majority of outsourcing approaches:

Out-staffing . Whether a company chooses to augment staff numbers, hire a full team or indeed a full development centre, out-staffing helps to increase staff count and team size – and indeed the number of teams on a project. However, the organisation is in control of the team, and the outcomes.

. Whether a company chooses to augment staff numbers, hire a full team or indeed a full development centre, out-staffing helps to increase staff count and team size – and indeed the number of teams on a project. However, the organisation is in control of the team, and the outcomes. Product development . Alternatively, companies can contract for product development services where the entire project is outsourced against set requirements, at a fixed price. Outsourcing product development fulfils a particular need – a specific application, for example – and leads to a custom solution. The vendor is in control of the development process.

. Alternatively, companies can contract for product development services where the entire project is outsourced against set requirements, at a fixed price. Outsourcing product development fulfils a particular need – a specific application, for example – and leads to a custom solution. The vendor is in control of the development process. Innovation outsourcing. R&D or innovation outsourcing operates at a higher level: instead of providing product specifications, companies hire a partner to evaluate the market state, develop a proof of concept and to examine the investment return of potential development projects.

The model of choice will depend on the rationale behind IT outsourcing a software development project. The motivations behind also influence how outsourced software development teams are structured.