This is the time where new competition is born every second. The core focus of organizations is one leveraging tool and techniques to get the best results. Outsourcing is one that is outshining the list. It helps you to manage the business and cut costs by 20-30%.
Besides having plenty of benefits, a higher level of effectiveness, round-the-clock work, and procurement of faster results, outsourcing allows companies to obtain high-quality services at less cost.
Despite the type, the company seeks outsourcing opportunities from the looking for web expertise to order fulfillment in case of supply chain management.
Many companies, big or small, have experienced cost savings with IT software development outsourcing to the offshore locations.
Today, the cost is the biggest motivator
- The analysis of 210 studies that are conducted in the past two decades reveals that 85% talk about outsourcing.
- According to the McKinsey Global Institute, outsourcing IT services reduce cost by 60%. There has been a drop of $121.14 million in non-IT operating costs as the IT outsourcing spent increased to $96.14 million in the US.
Is Outsourcing for You?
Cutting cost is undoubtedly important. Companies can hire offshore developers working in different geographical locations to get projects completed. But how to know if outsourcing is for your company? We will help you with this.
For that, you have to answer the below-mentioned questions:
- Is your budget tight?
- Is cost-cutting the only thing you wanted?
- Are you unable to look for the suitable developer as per your budget constraint?
- Are your resources not being utilized to their fullest efficiency?
- Is your company losing sales because of an inefficient process?
- Is your training cost exceeding when you turn-up employee turnover?
Nodded your head in agreement regarding one or more questions?
If yes, outsourcing to a reliable company is the right solution for you.
But wait! Before jumping to a conclusion too quickly, ensure the offshore development company answers the following questions for you.
Questions to Consider before Making the Outsourcing Decision
When you know that reducing cost is what your business is looking for in order to thrive and stay competitive, is offshoring the right solution? Will it be able to solve any problem?
As many companies outsource software development to cut-down operational cost or fit in the budget. In order to come to a solution, here are a few questions to consider:
- How to calculate outsourcing costs?
- Is there any hidden cost while outsourcing?
- How will outsourcing help you reduce cost for you?
- Are they any better practices to cut cost?
When you have answered these questions, it is important for you to know that infrastructure cost is a primary cost reduction factor to consider.
How Infrastructure Cost is Reduced via Outsourcing?
According to a CIO Magazine survey, small businesses spend about 6.9% of their revenue on their infrastructure costs.
This is above the recommended 4-6% range. Medium companies spent an average of 4.1% and large companies pay 3.2%.
Well, companies spend a lot on IT infrastructure costs. CIO Magazine also concluded that companies are outsourcing to reduce infrastructure costs.
Gartner’s managing Vice President Michele Caminos says,
“By lowering the cost to ‘keep the lights on’ – otherwise known as ‘run’ costs – you can start freeing up funds,” she said. “Since infrastructure and operations (O&O) comprises two-thirds of overall IT run costs, this is the most obvious area for reducing expenses.”
Gartner has predicted that global IT spending will keep on increasing every year. The sooner you choose to outsource, the better it is.
How to Calculate Cost & Savings?
No discussion on how to save money with outsourcing can be completed without knowing outsourcing cost and saving.
One of the best approaches to calculate outsourcing cost saving is with the help of cost analysis.
Here is the four-step approach to determine the outsourcing cost:
You have to analyze the core operations that have to be outsourced and specified in terms of quantity and quality with respect to business preferences. This helps you know what your core and non-core tasks are.
Now you must be aware of the tasks that you have to outsource and what quality standards you are looking for. Your savings will include hiring costs, salaries, software equipment, supplies, benefits, etc.
Next is to calculate the overall cost of outsourcing the development work. This includes hourly rate, multiple hours of work, transition cost to the cost of administration, etc.
From the total calculated amount, deduct the amount you receive from selling existing supplies and software.
Now is the time where you get your cost savings from outsourcing. This is calculated by getting the difference between the total in-house costs and total outsourcing cost.
When you are unaware of the actual cost of services may lead to false savings. Never assume potential savings. Be calculative and do your maths.
It is important to know how much your company can save by outsourcing to offshore firms. To know the actual cost, it is imperative to know if there is any hidden cost.
Are They Any Hidden Outsourcing Costs?
As outsourcing proves to cut-down costs for companies, it will be effective only when you take into account all hidden and indirect costs and calculate the overall cost.
A few of the hidden costs cost you may incur during outsourcing maybe:
- Contract creation
- Project management and monitoring during iteration
- Looking for the right outsourcing service provider
- Retraining existing staff for outsourcing methodologies
- A virtual environment for collaboration and communication
- Imposed intermediaries for project assurance
How Outsourcing Reduces Overall Cost?
The first thing every company looks for is cost reduction with outsourcing. Outsourcing to the best company means you get plenty of advantages besides cost.
How Outsourcing Actually Saves Your Money?
1) Cutting the hiring cost
The major cost incurred during inhouse development is the hiring cost. It is imperative that you collaborate with the outsourcing company having a diverse range of developers.
This benefits when you sometimes require a mobile app developer, quality analyst, web developer, etc.
They provide you with the best talent and you interview them to hire which one fits the best for your project.
2) Leveraging low wages in offshore countries
As hiring is a challenging task, looking for the right company that has developers with the right skills and expertise is a tough nut to crack.
When you know you have the right offshore company by your side, you can hire the dedicated team at hourly rates. In some countries like India, you can even get a developer as low as $15 per hour.
3) Improved in-house operations
Once you start outsourcing your business, the impact is clearly visible in the returns, sales, and revenue.
All the complex and repetitive tasks are handed over to the offshore development firm and the inhouse team then start working on the core operations. This helps in enhancing the customer experience.
4) No Training Cost
The digital ecosystem keeps evolving and every day a new technology or update emerges.
Training the in-house team to stay on your toes and be updated comes with a huge tag.
This can be avoided when you are working with a remote development team.
5) Latest technology stack at less cost
Hiring developers in every country comes with a price tag. In the US, you may have to pay $250-$850 per hour.
But when you take the help of Indian developers, they only cost $15-25 per hour having the same skills. This is one of the biggest advantages of outsourcing to India.
6) Pay Per Project without Commitments
When you hire an in-house developer, you have to pay for a resource despite knowing it is not being fully utilized.
But when it comes to outsourcing, there are plenty of commitments. You only have to pay for the services that you are outsourcing.
And once the project is completed, you can let them go.
How Can Outsourcing Turn Productive?
For the development of the right outsourcing team, a company requires patience, diligence and a clear understanding of the skills it requires in the long run.
This also means they will always be available whenever you need them.
To makes the most of outsourcing, you can also take advantage of the following:
Combine outsourcing with Out-Tasking
You now understand that the advantage of partnering with an offshore firm is. Once the project is completed, you may not require those developers to have a specialized skill set.
So, it makes sense to hire developers only for a project time frame. One thing every company is adding is out-tasking.
Out-tasking is one of the least dramatic forms of outsourcing. It is basically breaking up the delivery aspect of any kind of service by dealing with certain elements either internally or externally.
Outsourcing a few tasks of the complete project is basically termed as out-tasking. It helps you to relieve in-house workload and utilizes the skill set of the experienced individuals at its best.
As Google is one of the best companies that take pride in taking care of the in-house culture, it is a fact that the company is taking advantage of outsourcing services for years together.
While maintaining its reputation, Google is strongly implementing out-tasking techniques and allows IT specialists, developers to work on their tasks.
Taking Help of Intelligent Techniques
Intelligent outsourcing, better known as multi-sourcing involves working with more than one individual for each service element.
Companies when tying up with outsourcing agencies have multiple individuals.
Multi-sourcing has plenty of benefits:
- The result is goal-oriented when an expert provider is by your side.
- You know there is in-depth research as the professionals know how to outshine your competitors.
- The company enjoys more competition during the sourcing of each service aspect
- Since each partner is accountable to deliver one element of the service, the contingencies reduces.
- The inhouse team gets advice and training that may otherwise cost extra.
Alibaba initially started as a small Internet Company called China Yellow Pages. Today, it is now the world’s biggest global marketplace.
In 2014, this company scored the biggest IPO within a few days. You may not know that the founder Jack Ma outsourced the website development to a US firm.
This is because there was a shortage of talent in China. Well, this is one of the reasons for outsourcing.
Another reason includes that they were looking for workarounds and viable ways to grow while overcoming Chinese internet restrictions.
Even today, this brand relies on outsourcing partners today for production and multiple operations.
Therefore, multi-sourcing is one of the most intelligent ideas in terms of cost and risk reduction.
Companies have experienced while putting the procurement cost aside, this is a cost-effective and efficient solution to achieve profitable business outcomes.
Taking Help of the Hybrid Model
Today, even startups have a wide range of requirements including web development, mobile app development, web designing, digital marketing, customer resource management etc.
Management and maintenance of the complete network constantly. Considering the need for abundant expertise, you have to think if to hire a full-time in-house team member or outsource in order to bring in experts as per requirement.
Smart companies know it is good to adopt the hybrid model. In this model, the company hires individuals from an outsourcing firm that collaborates with the in-house team to do the required task.
Opera is a modern and light web browser. It was developed as a research project under Telenor using the hybrid model.
This is because the company wanted to avoid squandering all the in-hand money. The company wanted to outsource some tasks of the project to developers across 25 locations across the globe.
For taking advantage of outsourcing, company owners should have awareness regarding the market.
Easy access and approach to the outsourcing talent mean the project may get quicker and the product can reach the market quickly.
Also, looking for talent from a different geographical location takes advantage of different prices across various markets making the model cost-effective and efficient.