Dedicated Team Model: Making Outsourcing Work
In 2015, the total value of IT outsourcing contracts was estimated at $ 63.5 billion. This year, the global business and government spendings on IT outsourcing are expected to reach $ 450 billion.
Offshore software development is trending. The question is, how to make distant partnership work?
If you’re launching a business app in April, you want your vendor to fix bugs by the end of March and start getting profit straight away.
The reality is quite different. 25% of IT outsourcing projects underperform. Every other third-party developer exceeds the original budget. In 10% of cases, offshore projects run over time. Obviously, the value of such endeavors is decreased.
So you’re pressed for money & cannot hire US-based IT specialists who charge $ 150-200 per hour? At the same time, you want your app to run smoothly on any device and do its job, right?
What if you hire…a dedicated development team?
What is a dedicated team?
If you google the term, you’ll find out most bloggers compare the model to “fixed price” and “time and material”. And that’s sort of confusing.
The dedicated approach to software development is rather a form of cooperation than a pricing model.
Here’s how it works. You address a reliable outsourcing company. Together you create a detailed project outline and decide how many developers, testers and UX designers you need. The company then looks for suitable candidates among its employees or at the local market. You study their CVs and portfolios and decide who’ll make the cut.
Your team gets down to work. You monitor their performance, track KPI, hold regular video standups or even face-to-face meetings (in case you’ve partnered with a company from a neighboring country). The dedicated employees devote 100% of their working time and effort to your project, and that’s what makes the model effective.
Benefits of working with a dedicated team
- Complete control. Literally, you’re the boss. You are free to choose project management tools and promote your company’s values among the dedicated employees. You can appoint a certified manager and even relocate him to your partner’s office to keep your finger on the pulse;
- Increased employee engagement. Several years ago David Upton from Oxford University studied over 1 thousand software outsourcing projects and arrived at a curious conclusion. It turned out dedicated teams make 19% less coding mistakes and are 30% more likely to stick to the budget. Developers who work on a project for some time (let’s say 18 weeks) learn more about each other, see each other’s weaknesses and do their best to achieve the common goal. Combined with proper management and shared beliefs (aka “corporate culture”), the dedicated partnership works wonders;
- Cost reduction. In the USA, Android and iOS developers charge $ 168 and $150 per hour, respectively. British vendors earn half as much. Eastern Europe (countries like Belarus and Ukraine) offers high-profile developers for $ 35 per hour. And yes, there’s India. The average hourly rates in Mumbai and Bangalore are $26 (Android) and $30 (iOS). It basically means you can reduce software development costs by 200-300% (mind quality, though);
- Flexibility. You can add extra IT specialists on board or reduce staff whenever you wish. You also save up to 60% on recruiting since HR-related tasks are handled by the outsourcing company.
The dedicated team model: addressing the challenges
All right, working with a dedicated team is a great way to cut development costs and improve the quality of coding. What about the sad stats I’ve mentioned at the very beginning of my post?
Forrester claims only 40% of IT projects meet their goals, citing poor management as the key failure factor.
Well, I don’t mean to offend anyone, but I think there’s a force more powerful than project planning and coordination. I’m talking about cultural misfit.
Geert Hofstede, a notable Dutch psychologist and former IBM employee, studied how people of different nationalities treat authority (the Power Distance Index theory). Nations with high PDI are more likely to accept superiority and follow your instructions. People with a western mindset, on the contrary, question any statement you make and eagerly come up with their own solutions.
According to Hofstede, US and European enterprises are more likely to establish beneficial cooperation with vendors from Latin America and Eastern Europe.
5 steps to successful outsourcing:
- Make use of independent rating platforms like Clutch.co to find software development companies from a particular region;
- Choose vendors with the desired skills and positive customer reviews;
- Visit their websites. Pay attention to UX. Also check the vendors’ portfolios, case studies and blog posts;
- Once you choose 5-10 best companies, contact their managers and briefly describe your case. See how quick, accurate and relevant their replies are;
- Now you’ve got enough data to form an opinion!
Hiring a dedicated development team is a smart move for small businesses and promising startups with no tech experience and limited budget. However, distant cooperation requires strong management skills and careful project planning. In order to mitigate outsourcing risks, you should find a reliable company with headquarters in US or Western Europe, sign a comprehensive contract and build trust inside your team.