Let’s assume you need development and decided to contact a service company. The reasons may be different: you do not have your own IT department, your team is slow to deliver functionality, or you are dissatisfied with the quality. The final decision on selecting a contractor is postponed due to uncertainty about which interaction model to choose and concerns about the loss of control over the development process. It is right to ask such questions if financial indicators and the overall well-being of the business are at stake.
In this article, we will share recommendations on reducing the possible risks of IT outsourcing and outstaffing based on our experience. To help you develop a strategy for working with an external contractor to weigh all the options, we have prepared an overview of popular cooperation models and reward formats:
Classic outsourcing or turnkey development
How it works:
The supplier takes over the entire development process with full responsibility for the organization and management of the team, the quality of results, and associated risks from business analysis to support decisions.
When to choose:
if you have no experience in development, and at the same time, there is no goal to accumulate technical competencies inside.
- Full delegation
Such projects, as a rule, are conducted according to a cascade model, and the project manager monitors all stages. Your active participation will be required when collecting requirements before the start of work and during the acceptance of each stage.
- Minimum risks
The project’s solution to the project’s risks is on the supplier’s side. If the performer did not take something into account or made a mistake with the assessment somewhere, this is his headache. The SLA may provide a fine for violation of deadlines.
- Long start of work
Before proceeding with the development, the contractor will try to consider all the nuances to reduce the risks. This will require business analytics, technical specifications preparation, final estimates approval, etc.
- Insufficient control
The contractor appoints the team of programmers and may not report on the decisions that the company makes during development. All communication is conducted indirectly — through a manager, which means it will not be possible to control the internal quality of the product.
- Lack of flexibility
The contractor will not be happy with the new introductory, since the fixed requirements guarantee the work’s timing.
- Dependence on the performer
Supose the contractor did not take something into account and ran into difficulties. In that case you risk either overpaying or getting constantly shifted deadlines since changing the contractor in the middle of the project will lead to high costs.
How to build cooperation:
turnkey outsourcing will not protect you from all risks, so you should choose this model cautiously.
What to pay attention to: firstly, this is the most expensive model of interaction for the service’s customer, which is easily explained – the contractor puts all potential risks in the estimate. The triggered risks affect the internal quality of the product, which you will learn about only after the launch. This model seems attractive when the development budget is limited, and the whole strategy of outsourcing the service is to save costs. Still, in reality, such projects are more expensive. Paradoxically, such a strategy of eliminating financial risks leads to even more significant risks, since you can get an unnecessary product at the exit or overpay with the support of the system due to poor quality. Therefore, this format works only for small projects.
IT Outsourcing and outstaffing from the back
What formats of interaction are possible here?
- Dedicated team
How it works: the client gets a team of IT specialists at his disposal, taking into account the requirements and specifics of the project on a long-term basis. A dedicated team can replace the entire staff of developers or work side-by-side with an internal team, provided that the areas of responsibility are clearly delineated.
- Invoice in the “form” for business
It consists of: free service, online opening, substantial withdrawals without commission. Management of the dedicated team remains on the vendor’s side. The contact person can be not only the project manager but also, for example, a team leader, depending on how technically prepared the client is.
When it suits:
you understand the development lifecycle and know how to build processes for practical work, but at the same time, you do not have your own resources to implement the project. For example, if a full-time team is busy with the server part and you need a redesign – then you attract a dedicated team of frontenders. At the same time, the internal team can not be distracted from strategic priorities.
The team is pre-assembled by the contractor, and its structure is further adjusted in accordance with the needs of your project.
- Partial delegation
Minimal effort is needed for management since administration is primarily the responsibility of the supplier.
- The high degree of control
No decision is made without your knowledge. You directly affect the results and quality.
- Establishing processes
The client must appoint responsible persons, record their responsibilities and allocate time to interact with the external team.
- Knowledge transfer
The client must ensure that documentation is maintained on the project to reduce dependence on a specific supplier.
- Payment for downtime
The client must provide the team with a full load.
How to establish cooperation:
you will be required to monitor the team actively, so ask for transparent reporting, agreeing on the format in advance. These can be daily and weekly reports on the status of works of varying degrees of detail. Remember, as a buyer you want programmers to work only on your project. Ideally, a dedicated team should be located in one office.
Staff Augmentation – another option
How it works:
The supplier provides you with individual specialists so that you complete the team yourself. The equipped people integrate with your employees or specialists from another supplier.
When to choose:
in the case of an established but slow development process, or a shortage of rare competencies, when the bandwidth of the in-house team does not allow to achieve the required pace, and several people are needed, not the whole team.
- Full control
You own your project from start to finish and participate in making every decision.
- High flexibility
Easy scaling to adapt to changing business needs. Suitability for long-term and short-term interaction, for example, solves one specific problem.
- Responsibility for risks
The customer bears all risks associated with the project. The client selects technologies and approves the implementation plan. The specialist involved only follows his instructions.
- Attraction costs
Checking the competencies of the personnel involved takes time. All suppliers have a different understanding of the gradation of specialists, so it is in your best interest to conduct technical interviews before signing the contract.
- Management efforts
The management of freelance professionals falls on the customer, so when selecting specialists, pay attention to soft skills to avoid communication difficulties.
How to establish cooperation:
look for a direct supplier who cares about the quality of the services provided. The white-label model is often practiced on the market when developers are resold under the guise of their employees. As a result, when several intermediaries have put their marginal profit into the developer’s bid, you not only overpay but also do not get the desired results.
At first glance, attracting dedicated teams or expanding staff seem to be similar models. Different suppliers may even present these concepts as identical and interchangeable, calling everything simply outstaffing. In fact, this is not the case. In the case of a dedicated team, the supplier bears more responsibility, and in the case of expansion, the customer. Also, outsourcing and outstaffing are primarily about profitability, and there may be different options for pricing, so next, we will look at the formats of rewards.
Innovations at a doorstep: Invoicing
At the same time, everything remains conservative among B2B service companies, and it is not surprising that digital service providers are actively trying to change this. The point here is not in fashion but in the features of digital development. Let’s highlight four common ways of invoicing:
You pay a pre-determined price based on the estimate of labor costs that the contractor provided before entering into the contract. If the project is simple, small, and there is a clear vision of the result, then the model will do. Do not forget that the main risk is getting low internal quality since this is the only non-fixed parameter.
FFF: Fixed Price, Fixed Time, Flex Scope
Often a business needs to specify a deadline and budget in the contract, but there are no strict volume requirements. In this case, for the sake of the overall quality of the product, you can change the volume — that is, excluding the least priority parts of the functionality from the release to meet the deadlines and budget without compromising the project. In practice, this format is scarce.
Time & Materials
You pay for the hours worked. The format is suitable for working in conditions of high uncertainty, where the amount of labor is often determined on the go, and the team size can change throughout the project.
The supplier sets a budget and reserves a certain number of hours for work performed regularly. A tariff is formed, according to which you pay a monthly subscription fee. If it took less time in one month, the unworked hours are burned out, and everything spent over the tariff is additionally billed. The retainer is suitable for dedicated teams that support a project where there is always a task flow, but it is not stable.
Considering the best option possible
Anyway, the cooperation model assumes that the client must provide the necessary amount of work. Otherwise, the customer will have to pay for days or weeks of downtime. And even if, for some reason, the customer can afford to pay for downtime, the supplier will not be happy about it, as he will receive a highly demoralized team with low labor discipline. Unfortunately, there is no proven approach to attract qualified developers for ultra-short work periods. At the same time, there are periodic mentions of such a model as SEaaS (Software Engineers as a Service) on the network, but it should not be taken seriously. “Cloud Programmer” is fantastic so far.
In theory, you can get a programmer for a couple of hours in countries with a highly competitive environment. For example, some Indian companies are engaged in body shopping. This is when a client can come and take a developer “off the bench” for a couple of hours at any time. Of course, there is no need to talk about any quality in this case.
Before applying for the service, calculate the budget based on the full employment of programmers — the number of people X the rate per hour X the number of working hours per month. When companies first started developing digital products a couple of decades ago, outsourcing the entire project to an external contractor was the main alternative to hiring their own developers.
In this article, we have analyzed new partnership models that, with a competent approach, allow you to build win-win relationships. Regardless of the format of cooperation, attracting an external supplier is beneficial because you get access to experience and advanced development methods without spending resources on finding and attracting full-time employees. How much will you save? On average, hiring a specialist will take two months, which will delay the launch of your project and deprive part of the projected profit. And after commissioning, you will not have to fire programmers, which will avoid the legal hassle associated with official full-time employment.
Therefore, we recommend reducing the number of potential suppliers to 3-5, paying attention to how long the company has existed, whether it actively demonstrates its expertise in the external info field with the help of cases and articles, and whether it is possible to request feedback from previous customers, etc. If you still have doubts, start cooperation with a small one, honestly reporting your suspicions. Having received the first results on the classical model and a fixed price, it will be easier for you to transfer to the next stage of the development of an already dedicated team.