Why do businesses outsource software development?

There are many causes for outsourcing software development projects, whether it’s to fill skills gaps, prevent inbound cyber threats, or address the challenge of improving customer experience (CX).

In 2016, business leaders reported that the primary motivation for outsourcing was cost reduction. In 2020, a joint report by Harvey Nash and KPMG found that the top reason technology leaders outsource work is “access to skills not available in-house.”

Another survey, the CGS 2020 Business Process Outsourcing Trends (covering IT/software projects, including accounting or manufacturing and beyond), found that 45% of responding executives cited improving customer experience as the primary motivation for outsourcing 36% cited cost reduction.

In this article, we explain the question “why do companies outsource software development?” — which, by the way, is much more complicated than simply looking for a “good deal” on staff.

Outsourcing is a crucial tool for digital transformation

In general, outsourcing is one of the essential tools for digital transformation.

IDC predicts that by 2022, 80% of revenue growth will come from digital offerings or functions. Today, this means that the survival of organizations depends on their ability to deliver solutions.

Steve Bates, head of KPMG’s Global Lead CIO Center of Excellence, said: “There is only one strategy and technology is driving it. The opportunity for IT here is to make it accessible to everyone, enabling frictionless and empowering teams to use technology to unleash creativity — without burdening them.”

Whatever the reason, outsourcing done right can be a catalyst for “unleashing the creativity” that technology offers and removing the burdens associated with the sector. Those burdens may be labor costs or a lack of in-house talent.

However, outsourcing software development without a proper strategy is not suitable for you. Julio Plascencia, head of software engineering at Tiempo, warns that “if IT objectives are not aligned and synchronized with business objectives, the impact is negative, regardless of the development methodology chosen.”

| The CX factor

According to Adobe, CX leaders are much more successful than their competitors. They are three times more likely to exceed their 2021 business goals than those who have not yet adopted “customer obsession.”

Data from the third edition of Salesforce’s State of the Connected Customer report shows that customer expectations will remain to rise for the foreseeable future.

75% of customers expect companies to deliver better experiences through new technologies, while 73% say that a single “exceptional” experience will raise the bar for all brands.

While new technologies allow companies to understand customer intent, behavior, and emotions — and their impact on outcomes on a visual level — the Adobe report also notes that the customer focus is creating a “digital divide.”

In essence, high consumer expectations are widening the gap between companies that can afford to evolve with their customers and those that struggle to overcome the barriers and friction caused by inferior technologies.

It’s worth noting that Salesforce and Adobe published their findings just before COVID turned into a vast global crisis and forced everyone online. For brands, “great experiences” now need to inspire, engage and provide personalized information with a dash of empathy.

Ultimately, it seems we’ve reached a point where CX may be the most compelling reason to outsource, as technology and data are now crucial to building direct, long-term relationships with customers.

In general, outsourcing is a strategic measure that allows organizations to use external resources to achieve key business objectives.

These strategic objectives vary from one organization to another. However, the broader trend suggests that an increasing number of organizations are using outsourcing services to deliver business value with limited resources.

According to the survey results, several respondents reported using outsourcing to overcome challenges that may make it difficult to achieve large-scale goals: overall, 18% say labor costs are the biggest challenge to growth, 16% say quality assurance is the biggest challenge, and 12% struggle to increase capacity.

As you might expect, there appears to be a close correlation between customers’ most significant challenges and the reasons for outsourcing.

• 36% are seeking to increase capacity
• 36% hope to reduce labor costs
• 36% want to improve service quality
• 35% want more time to focus on their core business.

With a more hands-on-deck, you can get more done in less time by working with outsourced teams. Bringing talent in from the outside can mean a higher return on your software investment.

However, achieving these goals requires considerable effort and coordination.

In our recent employee survey, Angel Almada, Tiempo’s director of software delivery, advises that companies looking to accelerate time to market and reduce costs should look for a service provider that masters the methodology they use internally to build products.

Let’s assume you’re used to using an agile process. You require to work with a team of experienced Agile professionals. Otherwise, you may inadvertently work with a company committed to outdated (slow) waterfall practices, which can cause delays, quality problems, and financial losses.

Whatever your reason for outsourcing

Ultimately, companies still rely on outsourced service providers to help them save money. Increasingly, the reasons for outsourcing links to the biggest challenges facing modern business.

For many organizations, software outsourcing companies in India is the only way to compete in the digital world when meeting growing consumer demands, creating seamless, multi-channel experiences, protecting consumer privacy, and keeping systems secure.

However, not all outsourcing businesses are the same. Companies should focus on selecting partners that are aligned with their overall strategy and deliver long-term value.

Can help you navigate this area and find a partner with the technical expertise, communication skills, and resources to deliver results.