Software Development Outsourcing Hub

Chapter 4: How to Prepare Your Organization for Outsourcing

Paavo Pauklin
November 28, 2023

Unlocking outsourcing success starts with strategic early planning. Knowing how to prepare your company for outsourcing is essential. In this way, you can achieve smooth processes and cost-effective results. 

Let’s go through key insights to get your organization ready to maximize outsourcing. Our experts at Netcorp have put together a 5-step guide so you can boost value and meet your software KPIs. 

Step #1: Make Sure Software Outsourcing Is Right for You

Outsourcing can enable top advantages, such as access to IT experts, cost savings and so on. Even so, not all projects are well-suited to outsourcing. 

Audit your company’s current critical gaps to find out where outsourcing may be most useful. Nearly half of businesses choose outsourcing simply because they require software specialists. In today’s competitive market, these experts are otherwise difficult to capture. 

Other signs that outsourcing might be a good fit for your business include:

  • You’re keen to stay flexible and scale needs up/down as needed. 
  • You don’t have the capital to hire a permanent in-house team.
  • Your business doesn’t have a core competence in software.  
  • You have an ambitious timeline and want to launch your product quickly. 
  • You could benefit from expert guidance to clarify your project requirements and roadmap.

Keep in mind that not every business or project is best served by outsourcing. If these signs don’t align with your objectives, in-house hiring may be a better choice. 

In-house development is ideal when you have long-term IT needs, want 100% control and can afford a full team. Choose in-house vs. outsourcing to plan how to prepare your company for outsourcing.

Step #2: Clearly Define Which Part of the Process to Outsource

(Source: Deloitte’s 2022 Global Outsourcing Survey)

Once you’ve confirmed that outsourcing fits your needs, you should decide how to implement it. 

Start by considering your IT pain points. Outsourcing is most effective in areas that are consuming too many internal resources. It’s also valuable to bridge any skills gaps or expand manpower. 

You should also analyze your company’s value proposition. Take for example new innovation or digital transformation projects. To get this done, you may need extra manpower on your team.

Commonly Outsourced IT Areas

In essence, you can effectively outsource any IT areas, as long as they meet your goals. For example, 79% of custom software and app development is outsourced today. 

In addition, innovation, new trends and/or latest technologies are well-suited to outsourcing. These IT functions may include:

  • Cybersecurity
  • Next-gen tech
  • Big data and analytics 
  • IoT solutions
  • UI/UX software design
  • Cloud computing
  • QA testing 
  • MVP development

Whichever IT area you choose, clearly define your scope to align your outsourced teams from day 1. 

Step #3: Consider All Software Outsourcing Costs

Next, analyzing outsourcing costs helps how to prepare your company for outsourcing. You’ll want to take a holistic look at the costs to create a realistic budget.

While outsourcing offers significant cost savings, diverse factors impact the final price. For example, the size and scope of your project may determine manpower requirements. The IT expertise involved will also influence the types of specialists you’ll need. In turn, this may incur different per-hour rates.

Understanding “Time and Materials”

The two main cost categories for software outsourcing are “time and materials.” “Time” is usually the #1 most expensive area. This category entails paying for the hours your developers spend on the project. Typically, this is charged per hour for each expert. 

“Materials” is another substantial cost area. It includes IT licenses, tools, equipment, servers and more. Usually these costs are easy to plan, as they depend on your tech stack and outsourced team processes. 

Additional Cost Categories

Outsourcing may also involve some extra costs. These tend to be minor compared to “time and materials.” 

  • Contract negotiation. You may be responsible for negotiation fees when creating a contract. This is especially true if there are numerous revisions. 
  • Knowledge transfer and transition. Hours spent transferring business or IT knowledge may be charged separately. 
  • Recruiting your IT partner. With outsourcing, you don’t have to worry about the hefty costs of recruiting developers. Yet, you will have some minimal expenses to research and screen potential IT partners.

Overall, the costs of outsourcing are significantly reduced compared to in-house. In fact, selecting outsourcing can save you up to 53%

Even so, you’ll want to stay prepared by building an outsourcing budget that covers all your bases. For a full breakdown of outsourcing costs, be sure to check out our in-depth cost comparison

Step #4: Choose the Ideal Outsourcing Strategy

Outsourcing can be implemented in unique ways, depending on your needs and vision. Project success will often hinge on choosing the right outsourcing model. 

Keep in mind that your outsourcing strategy should be tailored to your vision. By nature, outsourcing is highly flexible. You’ll want to analyze your IT requirements and then mold your strategy accordingly. 

Strategies to Build Your Teams

As a rule of thumb, the key question is whether you want to keep project control in your hands or hand it off to a partner. 

Under Your In-House Management

If you want to handle management internally, you should opt for extending your teams:

  • Body Leasing / Dedicated Teams. “Lease” remote developers or teams to add to your internal IT group. 
  • Resource on Demand. Reserve developers on demand for your team, usually on an hourly basis.

Under Your Partner’s Management

In contrast, you can entrust your IT needs to a partner through options such as:

  • Outsource All. Allow a provider to manage your full technical needs. 
  • Project-Based. Hand off a specialized project to a partner, while your in-house team focuses on other areas. 
  • Managed Services. Enable a partner to handle ongoing needs on an hourly/monthly rate. This is usually best for daily operations, maintenance or specialized tasks.

“Mix and Match” Hybrid Options

Finally, you can leverage hybrid options to offload specific tasks to a partner. 

  • Outsource Special Projects. Solely utilize outsourcing for a special project, such as a mobile app.
  • Keep Maintenance Dev Team and Outsource the Rest. Keep up an internal team for maintenance, but leverage experts for other areas.
  • Create an R&D Center. Use outsourcing exclusively for innovative research.

Strategies to Integrate Your Teams

Now that you’ve set up your outsourcing teams, focus on how to integrate them. No matter the model you choose, your internal teams may struggle to adjust. 

Internal resistance while software outsourcing can derail your IT project. Yet, it’s also an opportunity to address team issues and get feedback to improve processes. 

To minimize internal resistance, start by listening to your staff. Let them air their concerns and make suggestions. In response, you should stay transparent about changes and communicate constantly. 

Other ways to integrate your teams fully include:

  • Make your internal teams feel valued
  • Have an open-door communication policy
  • Clearly define individual responsibilities 
  • Build a hybrid company culture
  • Manage expectations with empathy 

Step #5: Discover the Perfect IT Outsourcing Partner

Finally, hiring the right IT partner is key to how to prepare your company for outsourcing. Although 78% of companies achieve positive outsourcing relationships, it's not a guarantee. You can increase your chances of success by finding the perfect partner

Take your time when screening IT partners. Ideally, your partner will meet all your minimum requirements, including:

  • Past experience. Verify your partner’s portfolio in detail and look for past projects that are similar to yours. Don’t forget to check for top client reviews and referrals, too.
  • Technical fit. Make sure your chosen partner has expertise in the IT areas that you require for your product. Check their current roster of developers and ask about tech stack specializations. 
  • Alignment with business objectives. Your partner should have business prowess and get to know your goals in depth. The product vision and timeline should speak to these priorities. 
  • Key resources and infrastructure. Confirm that your partner has the equipment, tools and more to handle your project. Their agile processes should also be clear and well-defined.
  • Working style. Understand your partner’s working style by interviewing team members. You might even do a trial kick-off meeting. This guarantees your communication practices, quality expectations and so on are fully aligned. 
  • Teaming logistics. Select a partner that will work with your company’s daily operations. Consider their time zone and remote experience for seamless collaboration. 
  • Airtight security and IP. Double-check that your chosen partner has industry-best protocols for security, data, IP, etc. 
  • Realistic pricing. Get an honest quote for your project. You should feel confident in the contract and know exactly what’s included in the pricing. 
  • Relationship transparency. Finally, your partner should inspire confidence and optimism. Look for shared values, such as honesty, communication and long-term commitment. 

Though this checklist can help you narrow down candidates, follow your gut feeling. While technical skills are crucial, relationship values tend to determine project success.

Step #6: Compile Your Outsourcing Contract

Once you’ve discovered the ideal partner, cover all your bases with an airtight contract. 

Take your time to understand the full scope of a well-established contract. Be sure to define clauses for:

  • Partner resources (including team size, tools, processes, etc.)
  • Project scope and objectives
  • Clear deliverables and milestones
  • IP, data and security protections
  • Legal compliance
  • Pricing terms
  • Change and amendment policy
  • Reporting requirements
  • Risk mitigation strategies
  • Contract approval process

For each of these outsourcing contract best practices, stay specific as possible. Get all agreements and decisions in writing, so that you have a legal backup. 

Protect Your Intellectual Property

A thorough contract is your best insurance against IP and data theft. Pay special attention to intellectual property clauses. You should always sign a Non-Disclosure Agreement (NDA). In addition, clarify in your contract:

  • Who owns the code and assets
  • What security protocols are in place
  • How data will be accessed, used and stored
  • How your partner will protect company confidentiality

In turn, this will safeguard your business from bad actors and conflicts over your IP.

Get Ready for Software Development Outsourcing With Netcorp

Equipping your organization for outsourcing takes careful thought and consideration. With our expert guide above, you now know how to prepare your company for outsourcing. Leverage our 5-step process to analyze your needs, costs and strategies in-depth. 

What’s more, discovering the right IT outsourcing partner is a key factor to success. At Netcorp, we’re ready to take your software to new heights. Our experts drive results by elevating transparency, efficiency and innovation with every project. Get in touch with us to learn how our pro teams achieve high-caliber products that fit your vision.

How to Solve Common Problems in Cooperation
Some additional text that can go here and give more information on what the topic is about.
Making it Work / Managing an Outsourcing Team
Unlock the secrets to successful software development outsourcing with our comprehensive guide on effective team management strategies.
Hiring a Software Development Outsourcing Partner
Learn how to choose a software development outsourcing partner, and how to make an informed decision.
How To Prepare Your Organization For Outsourcing
Essential strategies and insights to set your organization up for software outsourcing success
Software Outsourcing Costs
Learn how to make your software outsourcing investments work for you with expert costs and pricing strategies.
Does Outsourcing Work For Us?
Determine if outsourcing will meet your company's key IT objectives.
Introduction to the Basics of outsourcing software development
Skip to the next chapter to learn more about all the costs associated with software outsourcing.
Introduction to the Basics of outsourcing software development
Lorem ipsum dolor sit amet consectetur adipiscing elit facilisis sodales
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.

Software Development Services

Streamline your development process

Download the free copy of our "Software Development Outsourcing" e-book now to learn the best strategies for succeeding in outsourcing!

Get free e-book