What are the Problems of Software Development Outsourcing?


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June 13, 2023

Software application development is the most frequently outsourced IT services function, with around 60% of companies outsourcing this function in part or in full.

However, according to the Barometer of global outsourcing, 20% to 25% of outsourcing relationships don’t last longer than 2 years and 50% of them – no longer than 5 years.

Although many outsourcing projects are short-term or one-off projects, a common factor that breaks down partnerships is failed relationships and disappointing project outcomes. A popular example was the Virgin Blue- Navitaire saga.

In 2010, Virgin Blue Airlines hired Navitaire, an eCommerce service for growing airlines. But their software broke down two times in three months, and it took 24 hours to fix the issues, leading to thousands of cancelled flights and grounded passengers.

For as many successful outsourcing projects you've heard, stories like this are commonplace in the outsourcing ecosystem, negatives you would rather not experience. So while there is no denying the benefits of software development outsourcing, before embarking on it, it is necessary also to explore its potential challenges and how to avoid them to ensure a successful partnership.

This article looks into some pitfalls associated with outsourced software developments and tips that help you avoid them. But first, let's look at what software development outsourcing entails.

What is Software Development Outsourcing?

When you hire a third-party company to make software for your business, this is called software development outsourcing. This strategic move can be motivated by various factors such as cost reduction, acquiring specialized technical prowess, or accelerating the expansion of your development brigade.

The collaborative endeavour between your company and the external entity makes it easier the leveraging of external talents and resources to drive your software projects to completion.

When it comes to software development outsourcing, there are two main groups based on how close they are geographically:

Nearshore Outsourcing: This model entails forming an alliance with a firm situated in a neighbouring or closely located country. Many people prefer nearshore outsourcing because it can find a good mix between low costs and high quality work.

The teams can also talk to each other and work together better because they are close to each other and often share the same time zones. This can then shorten the time it takes to finish a job and improve the team's general working relationship.

Offshore outsourcing: It involves working with a company in a faraway country, usually on a different continent. When companies are looking for the most cost-effective way to create software, offshore hiring is often the best choice.

But this plan might have some problems, especially when it comes to communication, because of big time zone gaps and possible cultural differences. Still, the ability to save money and get help from a large group of technical experts are strong benefits that keep many businesses interested in outsourcing.

The pros and cons of each nearshore and overseas outsourcing approach are different. Which one an organisation chooses depends on the needs of the project, its budget, and how much it wants to connect with the remotely located team.

Modern communication tools and technologies have also made it much easier to manage and work with remote teams, whether they are nearshore or overseas. This has continued to enhance the growth of the software development outsourcing business.

Now, let’s delve into the problems of software development outsourcing.

The Challenges of Outsourcing Software Development

Finding reliable vendors

Choosing the right outsourcing vendor is crucial to the success of software development projects. However, issues can arise if the vendor lacks reliability, fails to meet deadlines, or experiences financial instability.

Over-dependency on a single vendor without adequate backup plans can leave organisations vulnerable to disruptions and delays. Conduct due diligence when selecting outsourcing vendors, considering their track record, financial stability, and security practices.

It is best to first hire providers on test projects which may last for a few weeks. This approach helps you to assess their reliability and capacity before embarking on major projects.

Language and Communication barriers

Effective communication is key to successful software development outsourcing. Unfortunately, it remains one of the biggest challenges to deal with when considering employing outsourced teams, especially in the offshore model.

Living in the Western part of the world, it is easy to assume that most people speak our language and that one could easily find a provider on the same terms.

Many ideal outsourced teams for your project may well be among the 7% who speak Spanish or the 16% speaking Mandarin. Also, cultural differences come into play, as working styles and practices may differ. 

These barriers can lead to misunderstandings, delays, and misaligned expectations, which result in errors, rework, and compromised project outcomes. A few ways to mitigate these barriers are to establish the following:

  • Robust communication channels: Employ a variety of communication channels, such as video conferencing, instant messaging, and project management tools, to facilitate regular and transparent communication.
  • Clear documentation and specifications: Provide comprehensive documentation, including detailed requirements, user stories, and design guidelines, to ensure clarity and minimise misunderstandings.
  • Cultural awareness: Encourage cross-cultural understanding by organising training sessions, promoting diversity and inclusion, and developing a shared understanding of norms and practices.

Maintaining Quality Control and Code Standards

It is more difficult to control the quality of work when using outsourced software support, with factors such as cultural differences, different approaches and methodologies, as well as unverified skill levels that can contribute to sub-par results.

Some characteristics of poor service are products that are riddled with bugs and prone to crashes or incompatibility with existing infrastructure. Clients run into these situations because they fail to verify their service providers properly or hire the cheapest possible services.

While it is important to work within a budget, the challenge is in getting high-quality work done at affordable prices too.

Finding providers with verifiable work quality and access to talent hubs in areas with lesser costs of living can help you negotiate highly skilled service while staying on budget. The best way to mitigate this is to define and enforce coding standards, conduct code reviews, and implement quality assurance processes.

Ensuring Data and IP security 

Outsourced software development carries with it crucial security and privacy concerns as sensitive information passes through various systems and networks outside your organisation's direct control.

It is a valid worry that third-party providers can take advantage of your relationship to compromise your data security, leak sensitive data, steal intellectual property or even expose your systems to hackers. We recommend the use of non-disclosure agreements (NDAs) and robust security measures to protect intellectual property and sensitive data.

Time Zone Differences

Outsourcing often involves working with teams from different cultural backgrounds and time zones. Varied work practices, holidays, and time zone disparities can impact project coordination, collaboration, and responsiveness.

These differences may lead to misalignment in expectations, delayed responses, and difficulty resolving issues promptly. We recommend hiring outsourced teams within a favourable timezone and using the established communication channels to streamline workflows that ease the time discrepancies.

Lack of Control and Oversight

One of the benefits of software development outsourcing is that you can afford to relinquish control of a project and focus on other business operations. However, entrusting direct control and oversight level a part of or all your software operations to an external entity requires a giant leap of faith.

This is because in-house management shows more commitment to monitoring progress, ensuring adherence to project timelines, and maintaining quality standards challenging. It is challenging to find a careful balance between trust and effective management. One way to proceed is by maintaining active oversight and periodic performance evaluations of the outsourcing partnership.

Transition and Knowledge Transfer

When transitioning software operations to an outsourcing partner, organisations face the challenge of transferring knowledge and expertise smoothly. Incomplete knowledge transfer can lead to gaps in understanding requirements, limited domain knowledge, and difficulties in maintaining or enhancing the software after the project's completion. Before proceeding with projects, it helps to first facilitate effective knowledge transfer through documentation, training, and collaboration tools.

Cost Management

While outsourcing can help reduce costs, it can also lead to unexpected expenses if not managed effectively. Factors such as hidden costs, fluctuating exchange rates, and insufficiently defined project scopes can impact budget management and potentially exceed the initially estimated costs. To deal with this problem, you should develop a comprehensive budget that factors in potential costs and regularly reviews financial aspects throughout the project lifecycle.

Software development outsourcing offers numerous benefits, such as cost savings, access to specialized skills, and increased flexibility. However, it is essential to recognize and address the potential problems that can arise during the outsourcing process. To mitigate these problems, organisations must proactively implement strategies and best practices. Clear and open communication channels, defined coding standards, robust security measures, cultural training, effective project management methodologies, careful vendor selection, comprehensive knowledge transfer, and diligent cost management are key areas that require attention. By recognizing the potential challenges and implementing appropriate solutions, organisations can minimise the impact of these problems. With effective management and proactive measures in place, software development outsourcing can be a successful strategy to leverage external expertise, drive innovation, and achieve business goals.However, a study from… points out that only 16.5% of the world’s population do. This means that m

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