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Software Outsourcing Models: Which Suits Your Business the Best
14 min.

Have you ever felt that you might not be getting enough from your outsourcing software development model? It is right that if you outsource software development, you will end up saving money, but is outsourcing here to stay? Well, it is! From 2016 to 2018, Deloitte reported an increase from 20% to 49% in the number of businesses using outsourcing companies. This tells us that outsourcing software development is growing in acceptance and use. You should understand the different types of software outsourcing development models which are covered below in order to choose the one that fits your needs the most.

software outsourcing business model

Software Development Outsourcing Models Overview

Location-Based Software Development Outsourcing Models

Onsite

The term “onsite” refers to outsourcing services to a company that will send qualified personnel to work in your workplace for a predetermined amount of time. Basically, it means that they perform the same duties as your internal staff while being considered third-party service providers. Onsite outsourcing is very similar to staff augmentation, the only difference is that with onsite outsourcing, all your developers would be third-party, whereas in staff augmentation, your in-house developers get a helping hand from third-party experts and they might work remotely.

This strategy is cost-effective because onboarding, training, and employee benefits are not required. The outsourced personnel adjust to your systems more quickly because they are on-site, which is another benefit of this model. While the main disadvantage is, you would have to manage everything with these developers and provide a place to work from. 

Onshore

Onshore outsourcing, also known as onshoring, is the practice of contracting with a service provider who is located in the same country as you but is independent of your business. 

Same time zones, no language barrier, and a smooth transition are the major reasons why you would want to opt for this software outsourcing business model. The major disadvantage, like with onsite outsourcing, is that you are only able to use domestic talent. Because of this, there can be a shortage of competent talent, or you might end up paying high rates.

software outsourcing models helps to find developers in a different way

Nearshore

The outsourcing of services to a provider in a neighbouring or nearby country is known as nearshoring or nearshore outsourcing. For example, if a company located in the UK decides to outsource from Portugal, this would be called Nearshore outsourcing and since the vendor is located in Portugal there are no differences in the time zone which will make it easier to communicate and if at any point they think that a face to face meeting is necessary it would take less than an hour on a plane to sit down and discuss everything in person

Nearshore outsourcing is typically reserved for mid-sized to large businesses that can afford the higher developer rates compared to offshore partners in exchange for simpler communication and a competent development team.

Offshore

Outsourcing the services of a development located in another country, usually on another continent, is known as offshore outsourcing. An example of offshore cooperation is a North American company working with developers from Central Europe.

This is the outsourcing model that is used by a lot of businesses due to the fact that it is the most economical model. You can choose to work with the least expensive developer who meets your standards for quality without having to spend a lot of time and resources on the hiring process. 

application development outsourcing model

However, it can be difficult to outsource jobs to foreign countries. In addition to the time zone difference, a language and cultural barrier may also exist. Offshoring is an excellent decision for businesses of any size and price range if you work with a reliable outsourcing vendor and there is a comparison of the best countries in Eastern Europe for outsourcing software projects.

Relationship-Based Software Development Outsourcing Models

Staff Augmentation

Imagine you have six developers in-house working on a project, and all of a sudden you feel the need to hire three more for your project. That is where staff augmentation comes in. Your outsourcing partner will provide you with the required amount of experts, but you will have complete control over the project and will not have to spend company resources and time hiring the required personnel. For a general overview please go through outsourcing software development pros and cons.

Let’s look at the pros and cons of staff augmentation.

Pros

  • Quick short-term solution – You don’t have to spend months hiring the right personnel, your partner will provide you with experts according to your requirements
  • Flexibility – Onboarding developers according to your needs couldn’t be easier, you can have as many as you want and if anywhere you feel like there isn’t a need for so many developers, you can simply let them go without any problems.
  • Cost-effective compared to in-house hiring and firing processes.
  • Top Talent Access – if your in-house employees are having difficulties in overcoming certain obstacles, you can bring over an experienced developer who will help guide your personnel in the right direction, so your experts will gain invaluable experience by working with top talent.

Cons

  • You should be aware of the fact that it might be difficult for the third-party staff to get used to your processes and methods especially if they join mid-project.
  • Unlike outsourcing, you still need to oversee everything as in this case your workforce has just expanded.
Find out How the Outstaffing Model Fits You

Dedicated Team

A dedicated team is a quite popular outsource software development service delivery model. It is when your outsourcing partner sets up a dedicated team exclusively to work for you. It is like having in-house staff that is managed by you but without going through the pain of finding, hiring, and training the staff. The number of professionals in the group completely depends on your needs, there is no minimum or a maximum number of developers that you should hire and to find that number, we have a discovery phase during which we get to know your needs and analyze them and only then we decide how many experts are needed. 

Some advantages of having a dedicated team are: 

  • Complete control – You as a business owner will still have complete control over all the processes, you can set everything up according to your own needs and decide how the dedicated team will function
  • Quick Integration – There is a good chance that the staff that you have been provided with knows each other and has had to opportunity to work together before, so in terms of cohesion, they don’t need much time to get to know each other and just need to understand their tasks and start working.
  • Longevity – a dedicated team suits best if you are looking for a long-term partnership with complete control, even though the developers will always be third-party employees but they might work with you for decades if required.
  • Proven experience  – Usually vendors will have developers in their pool with experience in your industry. 

While Dedicated Team does look good in terms of the pros, how about we look at the cons too: 

  • Technical Expertise – It is a must that either you or one of your project managers have the required technical skills and knowledge in order to operate a group of developers. Without it, you won’t be able to give them tasks to perform 
  • Communication difficulties – if a company decides to have an offshore dedicated team, they might find it difficult to communicate because of a language barrier and a time zone difference. That is why one has to make sure that the experts that they are going to hire either speaks English or they are fluent in the language spoken by the personnel.

Project-Based

If having a managed team is one of the most popular trends in outsourcing, then the Project-Based model is the most popular outsourced software development model! It is when you completely outsource the development of your project.

Your partner takes care of all the requirements, and it’s their job to research, develop, and deliver. You don’t necessarily need any tech expertise because your partner can completely take over the project and let you focus on the business while they work on the development side. 

There are a lot of advantages when looking at a project-based collaboration, some of them being: 

  • No Technical Expertise Required – As mentioned before, you do not have to know anything about development, frameworks, etc all you have to do is find a reputable partner who will help you create what you need 
  • Focus on your business – As an owner of a company, you get to focus on your business and the growth of your enterprise, without having to worry about anything else.
  • Less Time Wasted – You can have minimum communication with the staff to keep yourself updated and save time.
  • Less Responsibility – You just have to tell the vendor about your project requirements, the rest is up to them and if they mess anything up, it is completely their responsibility to fix it! They have to deal with the development processes and inform you about the project risks.

Although there are numerous reasons why a project-based model would suit you, there are some drawbacks as well, like 

  • Less Control – Since everything is looked after by your outsourcing partner, you have less control over the application development and will not be able to micromanage it even if you want to. 
  • Finding the Right Partner – It isn’t a disadvantage but one must make sure that they find the right partner because everything related to the development of your project will be in the hands of the partner. So do make sure that if this is going to be your outsource software development model, then you do thorough research and find the perfect partner for you.
  • Lack of Flexibility – Because usually you agree on everything that will be in the project before it starts, and then you can’t usually change anything. 

Contract-Based Software Development Outsourcing Models

Time & Materials

The name kind of explains it all, you only pay for the time that is spent on your project. So it is one of the software development outsourcing models where you discuss hourly rates beforehand with your partner and depending on the hours spent on the project you will usually have to make monthly payments to them. 

It might be remote work or you might have developers onsite, it doesn’t matter where your software developers are. The only thing that matters is that they track the time spent on your project and provide you with detailed information so that you can monitor it. 

You can choose this model if you would like to make monthly payments, keep track of the hours spent, have a scalable team, and control your budget. It is one of the more flexible options out there, which is why most companies choose it when they outsource, but keep in mind that there is a possibility of going over your budget with this approach, and if you end up with incompetent employees or partners, you are in for a ride! 

Fixed Price Model

You pay a fixed price for the services of your partner. Sounds simple? Well, it does sound simple, but it is not one of the most popular software outsourcing models out there. You may be wondering why? Well, let me tell you why! Because there is zero flexibility when it comes to this model, and even if you don’t have any tech expertise, you still know that all these projects, especially those that are long-term, can’t be preplanned with 100% accuracy.

There is a high probability that something will change, maybe the tech stack that is being used will have a different update, or maybe you will feel the need to change the project according to your needs. All that will lead to a lot of conversations, budget changes, and timeline changes. That is why flexibility is the name of the game. 

The fixed price model does have a fixed amount, but if you assume that it will help you stay within budget, that does not happen as often as you would like to think. Still, there are times when it might suit you, that is when you need a short-term solution and are 100% sure of your requirements. If you don’t want to be involved in the development process, it will be completely controlled by the vendor.

Which Outsourcing Model Suits Your Business Tasks and Values?

One thing that we need to get out of the way is that no matter if you are an early start-up or an enterprise, some solutions will suit you more for long-term projects and some will be more of a short-term answer to your problems. It is also essential to understand how to outsource software development.

Staff AugmentationDedicated TeamProject Based
ScopeNot SetEstimated Predefined
TimelineNot SetEstimatedPredefined
ControlHighMediumLow
FlexibilityHighMediumLow
Team ScalabilityHighMedium or HighLow
Responsibility for Execution & DeliverablesClientSharedOutsourcing Provider
Client Involvement HighMediumLow
Client Technical Expertise/LeadershipRequiredRecommendedOptional
Communication with Outsoursed TeamDailyFrequentOccasional
Overlap with In-House teamHighSomeNone
Product Management ClientSharedClient
High Level ManagementClientSharedOutsourcing Provider
Task ManagementClientOutsourcing ProviderOutsourcing Provider
Project ManagementClientOutsourcing ProviderOutsourcing Provider
Operations Supervision ClientOutsourcing ProviderOutsourcing Provider
Workflow DevelopmentClientOutsourcing ProviderOutsourcing Provider

For example, in the classic outsourcing software development model, if the contract was only for the project and the staff would leave when it was completed, project support would then be the client’s responsibility, but with a dedicated team, you may keep 2-3 employees and hire more people when necessary, allowing the project to continue for years.

If you are interested in learning how much does it cost to outsource software development? Or software development cost factors, please check these articles out, so you can have an insight into terms of the cost. 

So what model will suit you best if you are looking to outsource?

Early Startup

If you are an early startup and would like to have a cost-efficient long-term application development outsourcing model, then an offshore dedicated team is your best bet and do not forget about the discovery phase because it will give you a better insight to what you need before getting started. You might have some problems with the language and time zone differences, but it is the most cost-effective variant that you can choose according to your project scope. If you want it to be a dedicated team or a project-based partnership, it depends on whether you have an in-house tech expert who can control a whole group or if you would rather focus on your business and let your partner deal with the development. 

startup mem

Pre-seed and Seed Startups

Being a pre-seed and seed startup, you have to analyze your needs, if you have in-house employees then staff augmentation is what you should be after because it will make your life easier in terms of complete control and integration of the onboarded third party personnel. If you don’t have tech expertise and an in-house team, you can go for a time-and-materials, project-based offshore or nearshore partnership. It will provide you with the necessary personnel and time to focus on your startup.

Medium Business

As a medium-sized business, it would be ideal for you to have a nearshore or onshore partner so you don’t have to worry about the time differences and you can have constant communication with your personnel depending on your needs. 

Staff augmentation, a dedicated team, or project-based collaboration depends on whether you have in-house personnel and what the duration of the partnership will be. 

Enterprise

As an enterprise, it is very important that your outsourcing partner specializes in what you are looking for exactly and is competent enough to keep up with your standards and needs, in terms of new projects or features, a dedicated team would suit an enterprise the most and in terms of needing a helping hand, staff augmentation is the way to go. It would be ideal for an enterprise to have a dedicated team because they would need developers who are focused solely on their project instead of having other things to deal with.

Time and materials model specifications would be the best selection as well because an enterprise does need a lot of flexibility in terms of long-term collaboration.

What Software Development Outsourcing Model Does ProCoders Provide?

We do provide services like staff augmentation and dedicated teams, but we tend to stick to the time and material method because we believe in scalability and flexibility, and we like to be fair with our clients, this way they can have complete control over the budgets and are kept in the loop in terms of the time spent and resources utilized. We also have something called the ‘Discovery Phase’ during which we make sure that we create a plan of action in terms of your requirements, give you a ballpark estimate in terms of the time and resources required, and let you know how many experts would be needed for the job! 

Start your Discovery Phase with ProCoders Today!
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Profitable engagement model for a Startup: Front Egg use Cases by Procoders

FrontEgg is an Israeli SaaS startup that offers plug-and-play development solutions to other SaaS businesses, the company fosters innovation in SaaS by providing startups with “out-of-the-box” solutions that they can easily plug into their systems and used to launch their business.

When they first reached out to us, Frontegg only had its CEO, CTO, and a small local staff to put all the good business ideas and knowledge to use. To get their business off the ground, extensive software engineering was necessary, but they were also aware that extending a development staff in Israel can be difficult.

In just two weeks, ProCoders were able to put together a small group of highly qualified, English-speaking Full Stack engineers and developers for Frontegg after realising the company had huge needs and a tight timeframe. Along the way, there were never any issues when the business encountered unforeseen needs. ProCoders was able to quickly find new talent.

As a result, there was a core group of developers who took care of continuing issues as well as a temporary pool of talent that could be called upon when new features were being developed. Frontegg had found the perfect combination to launch their platform quickly.

Frontegg’s dedicated development team was able to function like internal employees of the company, reporting directly to the client. Daily operations were managed directly by the client, without the need to go via a project manager from ProCoders. 

With ProCoders’ help, FrontEgg was able to build and release the primary features of their product 25% faster. Create a well-functioning core team, offering a permanent answer to the company’s ongoing staffing issues and being able to meet any sudden increase in staffing requirements. Shorten development sprints while increasing project turnaround efficiency by up to 30% and lowering human resource costs by 38%!

FAQ
What are the three models of outsourcing?

Outsourcing software development has different models, but the three main models are listed below!

The three main models are:

  1.  Staff Augmentation – a type of outsourcing model that provides additional developers to your existing staff to fill positions within your company.
  2. Dedicated Team – You are in charge of a whole team without having to deal with the hassle of recruiting, hiring, and training personnel. There is no recommended minimum or maximum for the number of developers you should hire; it all relies on your demands.
  3. Project-Based – when you entirely outsource the project’s development. It is your partner’s responsibility to conduct the necessary research, create, and deliver the requested services. You don’t necessarily require any technical knowledge because your partner can handle the project entirely.
Can software development be outsourced?

Yes! It can be, there are numerous ways and models using which you can outsource software development regardless of at what stage your project is. Outsourcing can be seen as a way to reduce software development costs and to let you focus on your business while your partner focuses on development.

Is software outsourcing secure or not?

It is safe to say that usually, it is secure but be sure to do research about the potential partner, check their reviews, ask them to introduce you to one of their current or previous clients and try to gain as much insight as possible. 

It is also very important that before you share your business ideas, process or details with your partner, you should sign an NDA(non-disclosure agreement) to make sure that your secrets are kept safe and last but not least, thoroughly go through all the paperwork before signing anything, read the contracts, terms and conditions, so you can be sure about everything.

Conclusion

There are quite a few software outsourcing services and models to choose from but for early startups, the most profitable engagement model is a project based/dedicated team offshore partnership, for Pre-seed/seed startups an offshore/nearshore staff augmentation or a dedicated team option would be the best. For medium size businesses, a nearshore/onshore partner would suit them the best, and for enterprises, an onsite or onshore partnership would be ideal. 

If you are looking for a long-term partnership, then a time and materials model would be what you should choose, and if you need a short-term solution, consider a fixed price. Technical maintenance does call for a time and materials engagement model whereas one would go for a project-based partnership if one wants to develop a product.

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