This year, more than a quarter of a trillion dollars will be spent on information technology outsourcing. The explosive growth of the outsourced custom software development business is no fluke.
Globally, companies of all sizes look outside of their own internal information technology departments to contain costs, reduce risk, and to get their products to market faster.
Custom software development is expensive. Depending on the project, numerous specialists may be required to bring a software product to market, including: database designers, software architects, frontend programmers, backend programmers, user experience designers, and testers.
Hiring all of the right people at the right time is difficult and expensive, and many HR departments lack the subject matter expertise to distinguish skilled programmers from novices. If a firm hires these employees too soon, then it will be paying them to sit idle, but if a key employee is missing, then the entire project could be stalled.
By outsourcing their custom software development, firms can offload these problems.
Outsourcing companies already have qualified staff on their payroll, and they only bill for time that is spent creating value for the client. With this arrangement, a firm does not have to spend money and time to train or hire expensive employees. Furthermore, when the project is completed or transitioned into a support phase, the client-firm is not left with expensive idle employees.
Roughly half of information technology projects fail. This is understandable because many projects require employees to use unfamiliar tools to do something that they have not done before. Making matters worse, project managers are expected to accurately forecast time and budget before the project is fully understood.
Outsourcing reduces the risk of failure because past success is the best predictor of future success. For any given software project, there is likely a software outsourcing company that specializes in that type of problem and has successfully solved it. If a software outsourcing company has solved a problem once, then chances are they can do it again.
By hiring an experienced outsourcing company with past relevant successes, a firm can reduce risk of project failure. Also, experienced outsourcing companies can provide more accurate estimates of time and cost.
In today’s crowded marketplace, being first can be more important than being perfect.
Even firms with large, competent information technology departments can benefit from outsourcing their custom software development when they need to quickly bring a product to market.
Information technology departments are often bogged down with heavy processes, hierarchies, silos, and resource constraints. An outsourcing firm can operate free of these constrains and deliver rapid prototypes better, faster and cheaper.
Speed, cost, and risk-mitigation are only three of many reasons to consider outsourcing. A software outsourcing company can also bring a wealth of industry experience, best practices, competitor insights and new ideas.
Although outsourcing is used by businesses of all sizes across the globe, it is most common in rapidly changing industries like media, energy, and financial services. Industries whose core business is not information technology can benefit the most from staying lean so that they can react nimbly to a turbulent market.
Outsourcing is not the answer to every information technology problem, but it should always be seriously considered.