8 Most Effective Software Development Outsourcing Models
Software outsourcing is a popular strategy for businesses that lack the in-house expertise to build custom software. Outsourcing gives you the skills and expertise you lack, enabling you to build and run custom software with the help of an expert agency.
When identifying which outsourcing software agency to hire, it's important to understand the different outsourcing models available and how they work. Choosing the right model can be overwhelming when you're looking for a software development agency that fits your business.
In this article, we'll explore the 8 most effective software development outsourcing models. These models range from staff augmentation to onshore outsourcing and many more. Reading this article will equip you with the information you need to make an informed decision on what model will work best for your business. Keep reading to learn more.
What Is Software Outsourcing?
Software outsourcing is the process of hiring a third-party, external software development team to build your application. This offers an alternative to creating an in-house development team, which is usually costly and requires long-term employment commitments. As a result, software development outsourcing is an excellent way to build high-quality custom software without the trouble of direct management and long-term employment expenses. This approach addresses why companies outsource software development: to streamline operations and reduce costs while maintaining high quality standards.
8 Most Effective Software Outsourcing Models
You may think software development outsourcing is as simple as finding and hiring a bespoke software development agency. However, it’s important to consider different outsourcing models first, as the approach you choose will ultimately affect development costs and your access to resources.
Staff Augmentation
Staff augmentation is when your business hires personnel from an external agency on a short-term, project-based basis to leverage their skills. In this case, staff augmentation means employing developers from a software development agency, much like you would hire temporary workers through a recruitment agency.
This outsourcing model is useful if you have an existing in-house development team that lacks certain skills needed for your new project. On the other hand, if you don’t already have an in-house development team, staff augmentation is not a viable option – you might as well hire individual freelancers or a software development agency on a per-project basis.
Project-Based Outsourcing
Project-based outsourcing is a project delivery model in which you hire a development agency to complete a clearly defined scope of work. Once the project is completed, you and the development team can part ways with no strings attached unless you agree to a further project. As a result, project-based outsourcing requires you to provide the development team with a project scope that has a clear endpoint.
Typically, with project-based outsourcing, you pay a fixed price instead of an hourly rate. This makes project-based outsourcing an ideal choice for businesses with a tight budget, as you will not encounter any unexpected labor fees. However, the fixed-priced nature of project-based assignments also means that you are given little flexibility in terms of modifications during project development.
Dedicated Team
Unlike staff augmentation, where you use external developers to supplement skill gaps in your existing team, the dedicated team model involves hiring an entire team, from developers to QA specialists, to create your software.
This outsourcing model is excellent if you want a hands-on approach to development and to manage your remote team directly. However, in order to do so, you’ll need some knowledge of software development or else your management could be misguided, resulting in an inefficient process. What’s more, hiring an entire team of developers often makes the dedicated team model costly.
Offshore Outsourcing
Offshore outsourcing refers to hiring a development agency from a foreign country to build your project. While this typically offers a low-cost option, giving the pick of companies across the globe, that may not always be the case. For instance, if a U.S. business hired a U.K. development agency, they’d be paying similar prices as an onshore team.
Offshore development agencies also aren't bound by the same legal frameworks and regulations as onshore companies. This means that if any legal disputes arise, such as IP issues, your business has little recourse. Additionally, cultural differences, including language barriers, can cause communication problems that may lead to a subpar product. Nevertheless, offshore outsourcing is a good choice if you’re looking for low-cost development options.
Nearshore Outsourcing
Nearshore outsourcing involves hiring a development agency from a nearby country. Yes, this could still be considered offshoring, but it mitigates many of the negatives. For example, if a U.K. business hired a German development agency, they’d get the quality of onshore development with a closer cultural understanding compared to an offshore team, but at a lower cost thanks to exchange rates.
Further still, if a French business hired a German development team, they’d get the above benefits, plus legal protection due to being in the European Union. Consequently, nearshore outsourcing is perfect for companies that want to reach customers in their neighboring countries, while enjoying the benefits of working with an offshore team.
Onshore Outsourcing
Onshore outsourcing is where you hire a company that resides in the same country as your business – for instance, a Californian real estate company could hire a Californian based software development agency. This is an excellent choice for businesses looking to support local economies and also build a high-quality product.
Since onshore teams are bound by local laws and regulations, you can expect a certain standard to be upheld. For example, states may legally require accessibility protocols, which onshore teams will follow, whereas offshore agencies may not implement them. What’s more, having a common understanding of culture means that conventions are followed in terms of how software functions, looks, and feels, making your software easier – and more familiar – to use.
Hybrid Outsourcing
A hybrid approach combines multiple outsourcing models together into an integrated solution that can adapt as needs change. For example, a company could maintain a small offshore dedicated team for ongoing maintenance and new feature development, while also leveraging domestic talent for user experience design through staff augmentation agreements.
The versatility of hybrid outsourcing empowers companies to fine-tune their outsourcing approach and access specialized talents as their priorities shift. With this agility, businesses can properly balance cost efficiency with targeted onshore expertise. However, unlike other outsourcing models like time and materials, hybrid outsourcing requires a higher level of coordination and management.
Time and Material
Time and materials is a relatively simple form of outsourcing wherein you pay, as the name suggests, for the time and materials required to develop your software. This model, which is also referred to as an “hourly-rate project,” allows for a high level of flexibility – if you want to add new features halfway through, it’s not a big deal, as the development team will be paid for the extra time.
As an agile approach, the time and materials model is an excellent option for businesses who have quickly changing needs or perhaps haven’t fully fleshed out their idea. However, a time and materials-based contract can quickly become expensive. So, although flexibility is advantageous, having a clearly defined project spec is still recommended.
Why You Should Choose Idea Maker When Outsourcing Development
After reading this article, you'll notice a few key outsourcing approaches that stand out to American companies: onshore, project-based, and time and materials. At Idea Maker, we’re happy to work with several outsourcing approaches, so long as it allows us to effectively meet your requirements.
So, if you’re ready to start your development, choose Idea Maker. We have a team of dedicated developers ready to help elevate your business. All you need to do is schedule a free consultation with us to get started.
