IT Outsourcing Strategies: Types, Pros, and Cons of IT Outsourcing in 2020

November 21, 2020 - 6:52 am - Post by Zignuts

What exactly is outsourcing in business, and especially in the tech industry? Modern companies are faced with uncertainty as now, new trends and technologies arise and change fast. To keep up with the trends and remain competitive, businesses that come from various fields, including information technologies, might use outsourcing. It is a convenient way to deal with particular problems and complexities as it has many advantages.

Information Technology outsourcing strategies are important enablers of the sustainable competitiveness of the companies involved in the technology-intensive industry. As a result of successful outsourcing experience, the company can get the advantages of heightened dynamic abilities, market-oriented change, strategic adaptability, agility, and improved efficiency and effectiveness.

What Are Outsourcing Strategies? The Definition

Outsourcing is the process of engaging a third-party service provider individual or organization outside of your company, either locally or globally, to deal with certain business activities that are beyond the capacities of the in-house team. It is a common business practice that enables businesses of all sizes to grow as and when they require it, without major risk or investment.

Outsourcing strategy is a plan developed on the analyses of the functions that should be expertly delivered by an external service. It indicates that the company defines tasks that are tough or difficult to achieve with its own resources and starts seeking for the companies that have all the adequate tools and qualified staff to deal with the task within the stated time frame.

IT outsourcing strategies is the practice of engaging resources outside of an organization to handle specific information technology roles. Companies often outsource data storage because it is cheaper to contract a third party than to buy and maintain their own data storage devices and facilities.

The Advantages and Disadvantages of Outsourcing

Why do companies choose to outsource IT? Well, that development strategy is more affordable, faster to perform results, and usually gives you a chance to meet your quality standards. However, there are even more advantages if you look at this form of cooperation from the management or marketing point of view!

The Benefits of Outsourcing

Reduce costs

It is one of the most significant benefits of outsourcing. however, we believe, that IT outsourcing is something more than just money — it is a way of making business more powerful. IT outsourcing costs less than an in-house team if your company doesn’t have a consistent need for related IT projects development and is based in an expensive region in terms of IT development like the USA or Western Europe, Australia, Canada, etc.

There are companies (based in Asian countries, India happens to be the most popular one) that allow their services at a more cost-effective price in comparison with the US and EU companies, but they have proven to be of effective quality.

Improve efficiency & effectiveness easily

Outsourcing results in greater efficiency and effectiveness, as you engage with skilled companies or individuals who can handle complex tasks and can provide the most effective and proper solutions for your business. As they have a better knowledge of the field and extensive experience, productivity, and efficiency increases.

Focus on core-competence of the organization

Task outsourcing improves the strength of your team which is essential for small and medium businesses with limited non-IT resources. Their workers may focus on those tasks they are particularly good at and leave other types of work for remote specialists. That will help your business to increase and improve major business activities as well as to perform the development strategy.

A great idea for businesses working in the non-IT sector is to outsource all IT-related tasks with the help of one service vendor.

Better equipment without buying it

IT outsourcing services providers invest their resources into getting the most suitable equipment, software, and specialists to propose to you. With their help, you will get sufficient quality of IT products developed on your to demand and reach more powerful security standards without spending money on software and hardware you’ll probably require for completing one task per year.

Skilled and Experienced Resources

Outsourcing saves your time spent on the selection and training of the experts for the in-house team. Companies that give outsourcing services have extensive experience, highly-qualified, and educated specialists who will be able to develop the project.

The Disadvantages of Outsourcing

Time Difference

This can be a curse as much as a blessing, and in the most critical cases, it can significantly hinder the communication flow between you and your outsourcing partner.

Language Barriers

The language barriers can result in miscommunication and wasted effort unless you and the vendor you partner with have at least one language in common.

Different Work Habits

Different Work habits can be the result of different cultural environments, can hinder your organized workflow, and will definitely require getting used to.

Long Distances

Extremely long distances between you and the outsourcing vendor can turn business trips into an expensive and tiresome experience.

Types of Outsourcing

Outsourcing is an umbrella term that includes a few more particular definitions. Offshoring, for one, often comes up as a synonym for outsourcing, even though the two terms are not exactly interchangeable. Outsourcing strategies can be divided into:

Offshoring

Also known as offshore outsourcing, it means outsourcing IT services to a distant location to benefit from cheaper costs, more favorable financial conditions, time zones, or a wider talent pool. The time variations we are talking about here are at least 5 or 6 hours.

Nearshoring

Nearshore outsourcing is related to offshoring, albeit with one significant difference: this is that nearshoring means outsourcing software development or other IT works to a location that is much closer to your location — usually in the same time zone or one within a couple of hours of it.

Onshoring

Also called homeshoring refers to assigning a number of business processes to various locations within national borders. Usually, the preferred location has more affordable labor and operational costs.

Infrequently, the word “homeshoring” is also used to define a situation in which employees work from home.

Furthermore, outsourcing strategies are normally classified into the following categories:

Every business that seeks an outsourcing service should examine its business methods and highlight an outside team should change the functions or operations. Based on the examinations, they will be able to determine the best outsourcing strategy.

 

Professional Outsourcing

This is the way of engaging individual experts or professionals to deal with multiple, small tasks e.g. your company needs mobile app developers, so you determine to outsource the specialists who can fill in the gap and implement their services.

IT Outsourcing

IT outsourcing is the use of outside service providers to adequately perform IT-enabled infrastructure, software development, maintenance, support, etc. for business outcomes. It’s usually more economical to reach a third-party IT service rather than build your one to deal with particular functions.

Multisourcing

This strategy means to engage IT services in combination with other business works.

Manufacturer Outsourcing

If you want to produce products under your trademark, you might look for a manufacturer that already has all the required facilities and is able of rendering your services.

Process-Specific Outsourcing

Process-Specific Outsourcing means to engage an outsource that practices in a small or specific service.

Project Outsourcing

When you have excessive projects, and you cannot perform all of them, you search for a third party that will handle one or a number.

Most reliable IT Outsourcing Strategies

It cannot be said that there are right or wrong outsourcing strategies. The success of outsourcing depends on a number of aspects that every business should think of before engaging outside services.

Successful IT Outsourcing Strategies: Steps To take into consideration

Outsource the right things for the right reasons:
Do not only fall for a cost-driven strategy but make sure that both outsourcing and your business strategies are followed

Describe what you expect:
Develop a sound business case that describes the business purpose of outsourcing and how this action supports your company’s goals

Pick the right vendor:
The vendor should satisfy your requirements and the ability to perform tasks of any complexity. Also, do not undervalue your in-house team and make sure that top management is involved in the process

Create an effective contract:
It should indicate strategic objects and precisely define expectations for the vendor and the company

Track the process:
Make sure that you are getting what you have paid for. The reporting on the project progress and transparency are extremely essential

Conclusion

Corporations worldwide assumed that the main advantage of IT outsourcing was the fact that it helped them to get a great competitive advantage.

In 2019, India, China, and Malaysia are considered to be leading outsourcing destinations in terms of cost-effectiveness. However, South Eastern countries, such as Ukraine, are best regarding pricing and quality delivery. While in 2020, Indian companies are also changing the way of outsourcing services to focus more on quality to ensure providing their clients High-Quality Solution in a Cost-effective way.

Why does the outsourcing approach work well? First, with outsourcing helping hand, your in-house team can finally focus on its direct tasks. Second, you save costs and time. Third, you release resources to make a step forward — launch a new service, improve your product quality, or continue niche research.

It depends on context, but you’ll hardly find a company that can not benefit from hiring a dedicated development team. Exception — companies that have a constant need for custom IT solutions or plan long-term digital projects. In those cases, it is better to invest in a regular IT department.