Numerous companies often face the need to outsource certain Information Technology (IT) operations. Whether it’s a lack of expertise or resources, this strategic move can lead to cost savings and enhanced efficiency, paving the way for smoother operations and improved results.
And, there’s no shortage of options when it comes to IT outsourcing models. In fact, the worldwide IT Operations market reached a value of US$ 9680 million in 2022 and is projected to surge to US$ 22380 million by 2029!
But, choosing the right model can be a bit of a challenge. Each model offers its own set of benefits and challenges, making it crucial for companies to consider their options carefully.
This article explains the different IT outsourcing models, highlights their strengths and weaknesses, and offers advice on selecting the model that best suits your project’s needs.
What is IT Outsourcing?
IT outsourcing involves partnering with external service providers to deliver infrastructure solutions, applications, and business processes supported by IT, all aimed at achieving the goals of the company.
Organizations have the flexibility to outsource a multitude of IT tasks and services from proficient providers. These services include programming, bespoke application development tailored to specific business needs, and many more.
But, as it applies to all companies, a strong outsourcing plan can let companies enjoy the growth perks from IT service providers.
So, business owners should nail down their mission and core competencies, pick the right IT vendors, lay out clear contracts, and manage deals for long-lasting, win-win partnerships with external providers.
IT Services You Can Get
- Analyzing data
- Conducting technical training courses
- Crafting websites
- Developing and maintaining software/applications
- Offering consulting and professional services
- Providing tech support
- Testing software/apps
How does IT Outsourcing differ from Business Process Outsourcing (BPO)?
Nope, they’re not the same thing. Both IT outsourcing and BPO involve getting external vendors to do some work for you, but they focus on different areas. IT outsourcing is all about tech stuff, like software development and IT infrastructure management.
BPO, from the name itself, is broader and deals with non-IT business operations like finance, HR, and customer service. Each one serves its own unique purpose in helping a business operate smoothly.
Signs You Need an Outsourcing Company
Companies need tech to keep things running smoothly. Staying ahead of the competition is crucial in today’s ever-evolving IT world.
But when’s the right time to outsource? Here are some signs it might be time to outsource IT services:
- Spending a lot on IT services: A significant portion of the budget is dedicated to IT operations. To save money, it might be time to reach out for help.
- Not a tech company: This one goes without saying—if tech isn’t your expertise, leaving it to the professionals would be a wise choice.
- Inefficient systems or processes: Are you always trying to fix broken systems? An outside perspective might help identify the root cause of the issues.
- Missing project deadlines: If technology is hindering project deadlines, it might be time to consider outsourcing IT services.
- Still using old systems: Technology is constantly evolving. If you’re still using outdated systems or software, it could be time to outsource for a modern upgrade.
- At the risk of cyber attacks: If you don’t have the proper security measures in place and are at risk of cyber attacks, outsourcing can provide access to advanced security solutions.
Benefits of IT Outsourcing Services
There is a reason why companies acquire professional outsourcing.
If this is your first time, there are some benefits to outsourcing IT services that you should consider:
- Simplify organizational tasks: Rather than getting caught up in tedious processes, consider outsourcing to focus more on your core strengths and offerings.
- Cutting IT costs and related expenses: Various costs come into play, like labor expenses, infrastructure, and continual training.
- Global talent pool access: IT experts can assist companies in meeting current technology and compliance needs. Moreover, due to the lack of tech talent, forming an in-house IT support team becomes even more challenging.
- Keep staff flexible: The outsourced technical team can expand or reduce based on your business needs, providing services and support as needed.
- Enhanced Security: Getting extra security features like data monitoring and protection can help keep your cybersecurity in check and reduce the risk of intrusions.
Now that you’re familiar with the basics of IT outsourcing, let’s look at the different types of outsourcing models.
Location-Based IT Outsourcing Types
Let’s start by checking out the location-based IT outsourcing models. We’ve got three main types: onshoring, nearshoring, and offshoring.
Onshore Outsourcing
Onshoring refers to outsourcing within the same country. The most significant advantage of this type is that you can deal with a company in the same time zone. Plus, there’s no need to worry about language barriers or cultural differences.
But be aware—onshoring could also involve higher costs due to the country’s labor standards and other expenses.
Nearshore Outsourcing
Nearshoring is outsourcing to a neighboring country or region. It offers most of the advantages of onshoring, like similar time zones and cultural similarities, but involves lower costs due to cheaper labor and infrastructure expenses.
Moreover, nearshoring allows companies to access specialized expertise that might be lacking in their home country.
Offshore Outsourcing
Offshoring is when a company outsources to a service provider in another part of the world. Typically, this involves outsourcing to a country with lower labor costs, like the Philippines.
Offshoring can be beneficial for companies on a strict budget, but it does come with some challenges. Language barriers and cultural differences can sometimes result in miscommunication and delays.
StarTechUP, based in Cebu, Philippines, offers IT outsourcing services to companies worldwide. With a team of highly skilled professionals and competitive pricing, StarTechUP is well-equipped to handle various IT needs, from software development to technical support.
Contact us here!
Relationship-Based IT Outsourcing Models
Next, we have the relationship-based IT project outsourcing model. This model is based on long-term partnerships between the company and the service provider.
There are three main types of relationship-based outsourcing:
Dedicated Team Outsourcing Model
This IT outsourcing model, also known as “fee per team,” means the vendor hooks you up with a dedicated team of developers specifically for your project. Having a dedicated development team available to you is akin to having an in-house expert team.
For the outsourcing company, it’s a good move to choose a team that vibes well together and can nail your project. The crew might have software pros, testers, analysts, or project managers. Your project budget depends on the roles and skills of your team members.
Pros:
- You’re collaborating with professionals who really get your project (including business goals and customer needs).
- The outsourced team might just feel like part of your own crew.
- Full transparency about everything going on in your project.
- You can count on the team to bring real value to your project.
Cons:
- Very short projects won’t work in the long run.
- Keep your dedicated team busy with a backlog of tasks.
- Sometimes, you’ll have to wait for your outsourcing vendor to find and hire the right people. This isn’t a problem for teams with diverse talents.
Ideal for:
- Long projects.
- Projects with initial requirements and assumptions (needed to allocate the right people to your team).
- An Agile development process.
Among all IT outsourcing models, the dedicated team model stands out for its close collaboration between you and the outsourcing company. Over time, your dedicated team might identify areas for improvement not only within the project but also within your company as a whole. That’s why this model can be highly valuable for larger organizations going through digital transformation.
Project-Based Model
Next up, we’ve got the project-based model. It’s a staple in IT outsourcing companies, especially big in the software development scene.
Here’s how it goes: you hand over your software development process, from planning to release, to an outsourcing company.
The outsourcing company assigns a Project Manager (PM) to oversee the whole workflow. The PM ensures everything sticks to the agreed specifications and timeline, taking charge of delivering the final product.
If you’ve noticed, your control over the entire project in this model is kinda limited. The vendor’s PM takes the lead with the development team, and you get the updates through regular check-ins, demos, and such.
Meetings with the PM and team can flexibly fit your schedule, ranging from an hour on a week day to twice a week. Your approvals, especially for documentation and design, are crucial. For example, before moving on to detailed screen designs, approval for wireframes post-UI/UX design is needed.
Pros:
- Establish clear timelines and outcomes when working with an outsourcing partner to ensure clarity on deliverables.
- Minimal time commitment with the project manager overseeing timely, quality work, freeing you for high-priority tasks.
- Vendor accountability involves documenting project requirements, while execution and delivery rely on the vendor.
Cons:
- Limited control over the project, as the outsourcing company manages the entire development process.
- Possibility of miscommunication or delays due to language barriers and cultural differences.
- Costly if changes need to be made during the project’s development stages.
Ideal for:
- Short-term projects.
- Projects with clear and defined requirements.
- Companies are looking for less involvement in the development process.
Staff Augmentation Model
The staff augmentation outsourcing model involves hiring remote professionals to supplement the existing in-house team.
This model is a game-changer if you’re finding your development process sluggish, facing a crunch in rare or advanced expertise, or when you need just a handful of experts to guide you through your project rather than a full team.
Pros:
- You can get just the right number of experts, whether it’s 0.5 full-time equivalents (FTE) or 100 FTE and beyond. Keep in mind that the dedicated team option really kicks in at 10 FTE.
- Easy to scale up and down to match your business needs.
- The hybrid model is super flexible. Your in-house crew won’t have to rush to pick up new skills.
Cons:
- You’re fully responsible for project-related risks.
- You handle onboarding and managing outsourced professionals.
- There might be communication gaps and collaboration challenges.
Ideal for:
- Relevance to long-term and short-term human resources needs.
- Firms with a well-defined project vision and the capability to manage the risks of overseeing remote workers.
- Companies seeking to enhance their existing teams with specialized expertise or skills.
While a project management company supports your decision, we recommend selecting a vendor that monitors their employees’ performance and assists in issue resolution. This practice greatly enhances the quality of services you receive.
IT Outsourcing Pricing Models
IT outsourcing pricing models dictate how costs are figured out and billed for IT services from an external provider. These models differ based on the services outsourced and the preferences of the client and service provider.
Let’s see what the most popular pricing models are for IT outsourcing:
Time and Material (T&M) Model
With the T&M model, you pay for the actual time the external service provider puts in and any materials or resources used. It’s a good fit for projects where the scope isn’t completely nailed down or might shift as things progress.
Simply put, you get billed based on how many hours or days the resources were used.
Fixed Price Model
In fixed-price outsourcing arrangements, the service provider gives you a set price for a certain project or scope of work. They agree on the price right at the start, no matter how much effort or resources they end up putting in.
This way, clients know exactly what they’re paying, but it means the project’s scope needs to be crystal clear and well understood from the get-go.
Outcome-Based Model
This model is all about hitting specific goals or results, not just checking off tasks or counting hours. The service provider and the client hash out what outcomes they’re aiming for and decide on a pricing structure that rewards achieving those goals.
In short, you only pay when those agreed-upon results are successfully delivered.
Value-Based Model
The value-based model sets prices based on the real value that you get. The outsourcing provider and you will shake hands on important KPIs or business metrics that show how much value the services bring to the table. Then, the price is decided based on hitting or surpassing those goals.
Generally, this model more common for areas where it’s easy to measure results, like sales or marketing services.
Subscription-Based Model
Just like a subscription, this setup means you pay a set fee regularly to get certain IT services or a bunch of services from the provider. This fee is usually charged every month or year, and you can use whatever services you’ve signed up for whenever you need them.
Ideally, you can reduce costs and get more predictable pricing with this model.
How to Choose the Right Outsourcing Model
No one knows the IT outsourcing services you need for your organization better than YOU. If you’re not sure about the best fit for your company, here are some factors to consider when choosing an outsourcing model:
- Scope of work: What is the complexity and size of your project? How many resources do you need? Is it a short-term or long-term project?
- Budget: How much can you afford to spend on outsourcing services? What are the potential costs associated with each model?
- In-house capabilities: Assess the skills of your in-house development team to determine if you need additional resources or specialized knowledge from an outsourcing provider.
- Project control and management: How much involvement do you want in managing the project? Do you prefer to manage and oversee outsourced professionals, or would you rather leave it all in the hands of the service provider?
- Timeframe: Do you have a strict deadline or flexible timeline for the project? Some models, like staff augmentation, allow for easy scaling up and down to meet changing timelines.
Work with StarTechUP!
Offshore software development has taken the world by storm recently, and it’s easy to see why!
At StarTechUP, we offer a variety of IT outsourcing services tailored to meet your unique needs and requirements. Working for more than 10 years in the industry, we have gained a wealth of experience and expertise that allow us to deliver top-notch solutions to our clients.
So whether you’re looking for IT staff augmentation or SaaS application development, we’ve got you covered!
Contact us today to learn more about our services and how we can help your organization grow. We look forward to working with you!
