Software Development Outsourcing Hub

Q&A About Deal Breakers in Software Outsourcing

January 29, 2024

Getting started with software outsourcing can be intimidating. You may have heard nightmare stories about partners who stole IP, went over budget and more. Most likely, you have lots of questions about IT outsourcing. 

Fortunately, we’ve got answers. Keep in mind that 78% of outsourcing relationships are overwhelmingly positive. Like any business relationship, it’s key to do your due diligence and address your concerns. In this way, you can minimize the risks and enhance your overall experience. 

To help you know common obstacles, our experts at Netcorp have collected Q&A on IT outsourcing. Often these challenges are “deal breakers,” so we’ll offer strategies to overcome them, too. Discussing these issues in advance will give you confidence as you work with your IT partner. 

1. Are My Intellectual Property Rights Secure?

There’s nothing worse than discovering your provider has stolen or leaked your IP. That’s why it’s essential to lock down your rights. 

Often risk management for IP focuses on creating airtight contracts and paperwork (check out our “How to Protect Software Intellectual Property: Best Practices” guide for more). These legal documents are your first line of defense, so be sure to:

  • File for copyrights, patents and trademarks (in all applicable locations). 
  • Have your partner sign a Non-Disclosure Agreement (NDA) and Proprietary Information Agreement (PIA). All developers should also sign an IP Assignment Agreement.
  • Professionally manage source code licenses during and after development. 

Besides this extensive paper trail, address IP concerns during your partner search. Assess the local IP protections and laws for your provider’s location. If your business is in the European Union, retain top protections with a EU-based partner. Other locations may also offer strong IP laws to give you peace of mind (see here for a country ranking)

At the same time, you’ll want to ensure your partner doesn’t accidentally leak or lose IP. That’s why you should always discuss IP awareness training and security protocols.

2. How Can I Ensure Data Security?

Data security today is a must-have for IT outsourcing. 83% of businesses experience more than one data breach annually. Specifically, remote teaming can make your business vulnerable. That's because every team member has their own unique working environment.

Whether your IT partner is local or global, it’s essential to get industry-best security. To that end, choose a software partner with a robust data security plan that includes:

  • Ongoing back-up schedule
  • Ongoing cloud storage solution
  • Disaster recovery plans
  • Top security protocols (i.e. data encryption, network monitoring, up-to-date apps/tools, etc.)
  • Staff awareness protocols (i.e. access controls, file sharing limits, device policies, etc.)

Every business has different needs, especially if sensitive or personal data is involved. Be sure to include the security plan within your contract to clarify expectations. It’s also a good idea to define emergency communication, so that you’re informed ASAP of any issues. 

3. What If Communication Breakdowns Occur?

Communication is the #1 reason why IT outsourcing fails. You can beat the odds by establishing fluid communication channels (check out our “Achieving Effective Communication in Software Development Outsourcing” guide for more information). Often this involves regular check-ins, top PM tools and clear KPIs. Well-documented processes are also useful to set expectations and loop in stakeholders.

The more detailed your plan, the more seamless communication will be. Before hiring your partner, don’t forget to ask about language and cultural barriers, too. For example, it’s worth checking team members’ English level during a trial meeting. Standards for deadlines, quality, etc. should also be defined upfront. 

Overall, you can prevent misunderstandings by over-communicating. And keep in mind that the best IT partners are known for their transparency. If your partner is resistant to open channels, you may want to look elsewhere.

4. Will the Quality of Work Meet My Standards?

Poor quality is one of the biggest fears when undertaking IT outsourcing. A low-caliber project can cost you resources, customers and overall reputation. Yet, you can leverage controls to guarantee the coding quality and consistency is up to par. 

First, verify that your partner is using agile for software development. This methodology removes common quality problems by using continuous feedback loops. As you can imagine, agile ensures high-quality deliverables on an ongoing basis.

What’s more, your partner should have rigorous QA and testing within your timeline (check out our latest guide to find out why software testing outsourcing is critical for product success). After all, 62% of software errors come from untested code. QA aids teams in finding bugs/errors, so you can reduce downtime and dissatisfaction. Confirm that your partner will handle QA testing, and that it’s included in your project scope. 

5. Where Is the Best Location for IT Outsourcing?

With IT outsourcing, you’ve got the world at your fingertips. That said, not all remote developer locations are created equal. Certain regions may be better suited for your working culture, tech stack and/or budget. 

Nearshoring – when you and your partner are located in the same region – is recommended. That’s because you’ll have closer cultural proximity and may share a language. You’ll also reduce time zone differences, which helps create overlap in working hours. 

Of course, every IT outsourcing destination has unique tech specializations. In some cases, you may choose a partner based on their level of expertise in a language or technology. Just be sure to research local laws (such as IP and data) to ensure your product is protected.  

Price is also a major factor in choosing a location for software outsourcing. Overall, Eastern Europe, Latin America and Asia/Pacific offer the most cost-effective rates. These regions have excellent talent, plus low rates compared to the U.S. and Western Europe. Check out our robust guide to the best IT outsourcing locations for more!

6. How Can I Manage Time Zone Differences?

Time zone differences can vary when you undertake IT outsourcing. Ideally, you can set up at least 3-5 overlapping hours for seamless collaboration. Otherwise large time zone disparities can affect the project’s alignment and timetable. Team motivation may also be lackluster unless you can engage developers from afar.  

Let’s say your partner is located 4 hours away. In this case, you may coincide for the full morning. It’s important to protect these hours for meetings and feedback sessions. During other times of the day, remotely manage the project with your preferred tools. 

However, if your partner is across the world with 8+ hours of difference, this can get a little trickier. Trust is critical in these cases. Although you’ll want to avoid micromanagement, you should set up regular reporting (daily, weekly, etc.). You may also utilize more robust protocols, such as an on-site PM and top asynchronous tools (such as Loom, Asana, etc.). 

7. What If the Project Exceeds the Budget?

Cost is no longer the #1 factor that drives IT outsourcing. Yet sticking to your budget is still a vital part of any project success. 

Even industry leaders struggle with this. Just consider Forbes’ famous example of Denver International Airport’s automated baggage system. Scope creep led to the project getting 16 months delayed and going $569 million over budget. Experts say this happened because industry stakeholders were ignored. As a result, project requirements weren’t properly documented. 

To avoid this happening to you, realistically estimate your project vision and scope. Take your time with this. Do initial market research, interview stakeholders and get to know customer pain points. From here, you’ll get a solid understanding of requirements, such as team size, tech stack, etc. 

Next, you can pinpoint your project within your contract. Avoid hidden fees and scope creep by detailing every key feature. That way, you’ll be able to avoid adding new functions or changing them during the project. 

While there are several pricing models to choose from, usually a Time and materials (T&M) contract is best (check out our “The Pros and Cons of Fixed Price vs Time and Material Contracts in Software Development Outsourcing” guide to find out why). This type of contract charges you by developer hours instead of milestones. In other words, you can prioritize goals, make changes and pivot directions as needed. All this without incurring the extra costs of a fixed price contract. 

8. What If I Choose the Wrong Software Provider?

Last but not least, your software provider may not live up to your expectations. Some red flags that it’s time to call it quits include:

  • A low-quality end product
  • Missed deadlines and project delays
  • Inflated costs and/or lost revenue
  • Unclear IP ownership 
  • A lack of shared values (i.e. transparency, integrity, etc.)

Before you move on, you should first assess the risks and benefits. Check your contract and collaborate with stakeholders to understand your legal obligations. In extreme cases, paying breach-of-contract fees may be worth it to sever ties. 

Ideally, you’ll have an exit plan included in your contract. (Just consider that 50% of outsourcing relationships end within five years.) A good plan will allow you to get closure and prepare the transition. Consider how to handle knowledge transfer, sensitive data and maintenance in the interim. 

Even if you had a negative experience, try not to burn bridges. Use the lessons you learned to do a more rigorous vendor evaluation in the future. And don’t forget to include an exit plan in your next contract, too (find out more in our latest guide)!

Overcome Common IT Outsourcing Challenges With Netcorp

Get peace of mind as you kick off your next software project by addressing all your deal breakers. While IT outsourcing has its challenges, you can boost your chances of success with our Q&A. 

Your best safeguard against the risks of IT outsourcing is getting the right partner. At Netcorp, we work closely with you to clarify your concerns. Our tech teams are known for their transparency and business prowess. Get in touch with us to discuss your project vision and begin building an elite product today!

Want to cover all your bases when searching for a software outsourcing partner? Use our top 25 questions to choose the right one!

Paavo Pauklin
Executive Board Member

Paavo Pauklin is a renowned consultant and thought leader in software development outsourcing with a decade of experience. Authoring dozens of insightful blog posts and the guidebook "How to Succeed with Software Development Outsourcing," he is a frequent speaker at industry conferences. Paavo hosts two influential video podcasts: “Everybody needs developers” and “Tech explained to managers in 3 minutes.” Through his extensive training sessions with organizations such as the Finnish Association of Software Companies and Estonian IT Companies Association, he's helped numerous businesses strategize, train internal teams, and find dependable outsourcing partners. His expertise offers a reliable compass for anyone navigating the world of software outsourcing.

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