When outsourcing, customers typically take the...
In 2013, the global IT outsourcing market was worth $ 288 billion, and the industry is expected to grow by 5.84% in 4 years. While cost reduction remains the key reason why enterprises outsource software development, many companies focus on quality and assign high-profile IT specialists from multiple destinations to one project. What is the global delivery model & how does it work? Read on to find out!
An insight into the global IT services delivery model
Ok, what is the global IT project delivery and what makes it different from traditional outsourcing?
If you outsource application development, your project is typically executed by IT specialists who work from the same country & office. Going global, you employ developers from several regions.
There are 5 types of IT services delivery:
- Onsite. You hire specialists and locate them in your office;
- Offsite. Developers assigned to a project work remotely, so the vendor bears the costs of materials, hardware and office space;
- Offshore. Developers work in another country where hourly rates are lower. You monitor the process with the help of Basecamp, daily video standup meetings, regular reports and other project management tools;
- Nearshore. Developers work in a neighboring country, so you can hold frequent face-to-face meetings;
- Hybrid. Your company can benefit from combining the onsite and nearshore cooperation. Thus, you employ IT specialists from a neighboring country where software development is cheaper and locate them in your office (aka “in-house team extension”).
The hybrid model incorporates the cost-efficiency of software project outsourcing and the benefits of face-to-face interaction and is, therefore, frequently chosen by enterprises.
25% of all IT outsourcing projects fail due to poor management and cultural misfit. It can be hard to find a common ground with developers from a “mentally distant” country; how can you possibly connect the dots and build a multi-national network?
The model actually works, and here’s the proof. According to the study conducted by the University of Massachusetts, 80% of IT outsourcing vendors use at least one type of the GDMs (with Hybrid delivery taking the lead). The scholars cite seamless workflow, 24/7 project execution and increased speed as the major advantages of such cooperation. Cost reduction is an obvious plus: by outsourcing IT tasks to several destinations, the Coors Brewing Company decreased software development and maintenance costs by 40%.
The benefits of IT outsourcing
- Flexibility. First, you consult a reliable outsourcing company and estimate the project. Once the scope is more or less clear, you employ just enough IT specialists to handle the tasks. You can always reduce staff or get more developers on board. Also, your employees work around the clock (“follow the sun” model);
- Cost advantage. For example, you want to create an iOS application. Let us compare developers’ average hourly rates in different countries. British vendors charge $ 70 per hour. In the USA, developers earn twice as much. The countries of Eastern Europe (like Belarus and Ukraine) shine with $ 35 per man hour;
- Access to a larger talent pool. Your choice is no longer limited to the vendor’s in-house staff or one country. The GDM approach allows you to focus on developers’ expertise and ensure high quality of the product;
- Lower portfolio risk. You invest a considerable sum into a long-term outsourcing project, and you certainly don’t want to lose the money. If you work with one offshore custom software development company (particularly from a financially unstable country), the chances for success are pretty weak. That’s why enterprises tend to distribute their assets globally. Here’s an example. A French company hired 2 thousand IT specialists from France, Romania, India and Egypt. By diversifying its staff, the company mitigated portfolio risk by 27%, while the increase in project management costs was insignificant;
- Full control over the development process. That’s right, customer is the boss. It’s you who approves candidates, controls KPI and accepts work. You are free to promote your company’s corporate culture among offshore employees and choose project management strategies and tools.
Software development project: the challenges of outsourcing
- Management & coordination. An average outsourced project runs over time and exceeds budget by 10% and 48%, respectively. You need an experienced project manager to monitor teams from different locations and create risk portfolios for every region (sometimes onsite presence is required);
- Inability to plan costs. Since 29% of IT projects fail due to inadequate cost estimates, the global delivery opponents often cite cost planning as the key reason against multi-national cooperation. Wages inflation and political tension can surely cause capital outflow. But that’s exactly the problem you can solve by going global! If you distribute IT departments around the world, you no longer fear financial crises;
- Intellectual property protection. Once you partner with an outsourcing company, you will surely sign a non-disclosure agreement. Some IT experts, however, urge enterprises not to outsource software development to Asian countries where IP legislation is unclear. It is better to choose an offshore company with headquarters in the USA or Western Europe, so that your contract falls under the international jurisdiction;
- Cultural differences. Cultural misfit is the reason why 16% of IT outsourcing projects fail. Geert Hofstede, a notable Dutch psychologist, discovered direct correlation between employees’ nationality and the ability to follow instructions (the Power Distance Index). According to Hofstede, US enterprises are more likely to establish beneficial business relations with vendors from Eastern Europe (who possess a good command of English, great expertise in software development and Western mindset).
The benefits of GDM IT outsourcing include cost reduction, increased flexibility and timely project execution. However, the global approach involves several risks. Is the game worth the candle? By all means! Provided you find a company you can trust, you can successfully mitigate the risks and establish long-term (and mutually beneficial!) outsourcing partnership.