Why Outsourcing Software Development Can Fail?
Outsourcing software development is an activity that may boost your business's results, but you must avoid its pitfalls. Learn more about how a company can fail in this endeavor!
From a strategic standpoint, learning about failure cases is just as important as knowing success stories. By looking at the mistakes made by other companies and understanding what caused them, you can conduct your business in a way that will only provide benefits. This is true in several scenarios, including if you are thinking about outsourcing software development.
This kind of arrangement is becoming more and more popular among companies of all sizes, especially in the IT sector. It is an alternative found by startups to deal with the shortage of professionals in the US market by accessing much larger talent pools in other countries. As you can imagine, it involves a lot of challenges.
Overcoming them is not so easy, which makes a lot of companies experience failure. But what exactly makes them fail? That is what we will talk about in this post. Keep reading to learn more about outsourcing and understand how to achieve success in this endeavor!
Are you not sure what outsourcing software development means? We will remind you! We are talking about a hiring modality that involves recruiting third-party talents, often coming from outside the USA. Unlike what happens in the traditional model, an outsourced professional does not have any formal employment ties with your company.
Instead, they are selected and managed by a specialized company, usually based on the same region where the professional comes from. It is an approach much valued in the IT sector, especially among startups. Why? Because it allows for much greater flexibility and scalability, besides considerably reducing costs related to labor.
When a startup decides to invest in this approach, it must choose one of its major formats: onshore, nearshore, and offshore. The first one is not really relevant, as it involves American professionals and does not offer many differentials. The other two, however, are more popular than ever.
Offshore refers to hiring professionals from countries located in faraway regions, such as Asia and Oceania. It enables access to cheaper labor, but it also presents a lot of setbacks. For example, it is much harder to establish good internal communication if your team has developers located in entirely different time zones.
That is why many companies that choose to outsource focus on regions such as Central and South America. Countries like Mexico and Brazil are home to several talented professionals ready to join your project and improve your results. Besides, they are located in closer timezones and have cultural backgrounds more similar to the American one.
Despite all the benefits one can achieve by outsourcing software development, not every organization that follows this path succeeds. In fact, many managers and CEOs become frustrated with the outcome for different reasons. And don't assume this only happens with small companies: there are cases of big enterprises failing when outsourcing their development.
Virgin Airlines, for example, once partnered up with Navitaire to create new software for booking and boarding. However, the product crashed twice in less than three months, and the time it took for the developers to fix the problem was considered too long, certainly costing many clients.
Another famous case involves a US state and one of the biggest tech companies in the world: IBM. Texas hired the New York organization to consolidate data centers for 27 state agencies.
However, the expectations were not correctly set and, after two years, IBM had only managed to work on the system of 5 agencies. Besides, it was later discovered that the company was not performing the number of backups agreed upon when the parties signed the contract.
Well, to make sure you don't experience failure in your endeavor, it is critical to understand where other companies have failed. Below, we will talk about the most common reasons that lead an outsourcing strategy to a shortfall.
Like any kind of strategic movement, outsourcing software development requires a thorough assessment of the market's situation and its major trends.
Suppose a startup chooses to go mainstream and outsources its development to the most common regions without actually studying about it. In that case, it may miss some important signals about the current scenario.
Think of India, for example. For decades, it has been known as a source of cost-effective, experienced professionals. But is it still true, or has the high demand increased costs and harmed the offer's quality? Conducting a risk analysis will ensure you don't put your money on oversaturated markets or invest in countries with poor infrastructure.
Proper planning will also provide the company with the opportunity to evaluate different potential partners. It is a common mistake to choose the first or cheapest alternative without thinking more deeply about it.
Many companies do not perform this assessment and end up falling into one of the pitfalls of outsourcing.
Knowing how to manage expectations is a key factor for success in any business, and it is not different when we bring it to the context of outsourcing. First of all, it is essential to start this movement with realistic expectations.
This will prevent you from falling for deals that are literally too good to be true. When looking for a contractor or an outsourcing company, keep in mind what you can actually expect from them.
Once you start a partnership, both parties must align expectations. Ideally, an SLA should clearly state what both the service provider and the hiring company must deliver to each other.
There is nothing better to set clear expectations than conducting transparent, periodic meetings. However, many companies fail in doing so, either because of negligence or because of communication barriers.
As we mentioned before, cultural and time zone disparities can lead to situations where managers and contractors struggle to connect with each other. If this happens, it will be hard to keep everyone on the same page, directly harming the whole project.
When working with intermediaries, it is also important to establish a good communication culture. The hiring party must be aware of all the support channels, using them whenever necessary. It is also relevant to be in constant touch with the outsourcing company's representatives.
When selecting a new member to a project's team, many companies focus solely on hard skills.
This is a classic mistake. After all, for workers to be productive, they must be part of an environment that motivates and keeps them engaged. If the selection process does not consider this point, it may end up hiring professionals who lack the ability to collaborate, have trouble meeting deadlines, etc.
To avoid this, a startup seeking to outsource must make sure its members fit into the company's culture and share common values. If a third party is designated to perform the hirings, it must have a way to ensure mindset alignment.
Outsourcing software development is a potential solution for scaling up your team and establishing flexible processes, resulting in growth and positive results. However, it is vital to be aware that not all companies that try this strategy succeed. Having that in mind will help you make the best decisions to take this huge step for your business.
Trust is one of the key factors for success in outsourcing. In this text, we discuss what you can do to establish trusting partnerships with service providers. Learn more!
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