Exploring Outsourcing Models: Which One Fits Your Business?
30/06/2023
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IT project outsourcing has long been regarded as the best way for businesses to save money while rapidly integrating modern technologies into their operations or products. But not all businesses can make results that are perfect and choose the right outsourcing model.
This article dives into different types of outsourcing, discussing their pros, cons, and optimal scenarios to help you choose the best outsourcing model that well suits your business’s requirements.
Why Businesses Are Turning to Outsourcing?
Source: talentbold.com
Companies outsource for different purposes based on their specific needs and circumstances. The following, however, are a few of the most common reasons:
- Reduce and optimize operational costs.
- Improve the company’s competence focus.
- Release internal resources for other purposes.
- Utilize external resources extensively.
- Improve business competitiveness and innovation.
Insights into Different Outsourcing Models
If you intend to outsource app development, you should be aware that there is no one-size-fits-all solution. Different outsourcing models will benefit various businesses. Consider the following types of outsourcing:
Location-Based Outsourcing Models
Source: Search Engine Journal
Nearshore
When you hire people from nearby countries, you can find the right team for less money and get more ability. Sticking to nearby countries reduces the risk of encountering different time zones and cultures. It is frequently used for jobs requiring constant communication and coordination.
Onshore
Onshore outsourcing means that the outsourced team you employ is located close to your company’s headquarters. When closeness and culture fit is very important, onshore outsourcing is a good choice because it makes it easier to communicate, work together, and follow local rules. It is frequently selected when sensitive or crucial operations must be conducted domestically.
Offshore
Offshore outsourcing is the contracting of services to companies located in a different country or continent (such as Asia), frequently with significant time zone differences. When cost savings is important and jobs don’t require a lot of face-to-face communication or planning in real-time, offshore outsourcing is a good idea. It is often used for non-urgent tasks or specialized services that can be managed remotely.
Relationship-Based Outsourcing Models
Source: PPD
Now that you have an idea of where you will search for outsourced talent, let’s look at the different outsourcing models you can use to meet your business’s goals and needs.
Project-based Model
The project-based model involves giving certain tasks or projects to outside service providers for a specific duration and scope.
| Pros | Cons |
|---|---|
| Flexibility and cost control | Limited long-term support and collaboration |
| Access to specialized skills | Less control over the project |
| Faster recruitment process | |
| Clear timeframe and results | |
| Focus on core competencies |
The project-based plan works best for businesses that need specialized knowledge or resources for short-term or one-time projects. It enables businesses to utilize external capabilities to efficiently achieve project objectives. It is also helpful for projects that have clearly stated goals and timelines.
Staff Augmentation
Staff augmentation is the outsourcing of specific roles or positions to external professionals who work as an extension of the internal team.
| Pros | Cons |
|---|---|
| Quick scalability of workforce | Potential challenges in communication and coordination with external resources |
| Full control over the project | Full responsibility |
| Access to specialized skills | |
| Temporary skill gap filling |
Staff augmentation is ideal for companies that need to hire more people quickly, get access to specialized skills, or fill temporary skill gaps. It allows businesses to hire more people quickly without having to go through long recruitment processes. This plan is especially helpful when there is a lot of work, specific project requirements, or a temporary demand for specialized knowledge.
Managed Team Model
The managed team model involves hiring a whole group of professionals who work under the client organization’s supervision and direction. The managed team approach is perfect for businesses that want to build a specialized team while sharing administrative and operational tasks.
| Pros | Cons |
|---|---|
| Dedicated resources and expertise | Potential challenges in coordination and integration |
| Reduction in administrative and operational responsibilities | |
| Long-term availability of resources |
Dedicated Team
By selecting this outsourcing model, your outsourcing partner will put together a team of experts who will only work on your project. The team is frequently housed in the facility of an external service provider but functions as an extension of the client’s organization.
| Pros | Cons |
|---|---|
| Full control and integration with internal processes | Higher cost |
| Tight collaboration and faster development | Low efficiency for short-term goals |
| Highly specialized skills and expertises |
The model of the dedicated team is perfect for businesses that need constant help, highly specialized skills, and easy cooperation with an external team.
Cost-Based Outsourcing Models
Source: My TechDecisions
Now, we will cover the possible cost-based outsourcing models. Here are the 3 main types of outsourcing pricing models to help you with the choice.
Fixed Price (FP) Outsourcing
The fixed-price approach in project payment involves agreeing on a price upfront based on estimated time and resources. It’s easy to implement and helps avoid overpayment, which is great! However, the challenge is that fixed-price models struggle to accommodate changes in project scope, like modifying unpopular app features after UX testing. This lack of flexibility can be a downside. Nevertheless, fixed-price projects excel when requirements are well-defined.
Time and Materials (T&M) Outsourcing
Using this model, you only pay for the time and resources that were actually spent on your job. The price will depend on how much software developers’ hourly rates and how long they work on your project.
Time and materials outsourcing (T&M) is usually used when a project’s needs are unclear or are likely to change over time. It can be changed and adapted to new needs, making it the best choice for projects that need a fast or iterative approach.
Performance-Based Outsourcing
Performance-based outsourcing is ideal when measuring the project’s success is based on specific outcomes or key performance indicators (KPIs). It aligns the goals of the client and service provider, fostering a drive to achieve desired results. However, it requires well-defined measures and standards for success.
Factors to Consider When Choosing an Outsourcing Model
Source: Bydrec Blog
When selecting an outsourcing model, it is essential to consider the following factors:
Understanding Your Business Needs
Before choosing an outsourcing model, it’s important to fully understand your organization’s needs. This means writing down each problem, business goal, or case, as well as the steps required to resolve each problem. Find out what tasks or processes you want to outsource as well as the desired outcomes of the outsourcing partnership.
Assessing Your Company’s Capacity and Resources
Evaluate the internal capabilities, resources, and expertise of your organization. Determine if you have the skills and capacity to manage the tasks on your own, or if outsourcing would be more efficient and cost-effective.
Evaluating the Complexity and Duration of Your Project
Different types of jobs need different outsourcing models. Evaluate the project’s complexity and duration to determine the level of control and flexibility required. A project-based model may be suitable for short-term or small-scale projects, whereas long-term or ongoing projects may benefit from a dedicated team or staff augmentation model.
Considering Budget and Cost Effectiveness
When deciding whether or not to outsource, the budget is a key issue. Analyze the financial aspects of outsourcing, including salary, infrastructure, recruitment, training, and administrative costs. Compare these prices to the pricing models that outsourcing providers give to make sure they are cost-effective.
Outsource With SupremeTech
Source: LinkedIn
Ultimately, exploring different outsourcing models is crucial for businesses aiming to find the most suitable approach to meet their specific needs. By carefully evaluating factors such as business requirements, internal capacity and resources, project complexity and duration, and budget considerations, a business can determine which outsourcing model best suits its goals.
If you are looking for a reputable outsourcing company, SupremeTech can help. Our company offers outsourcing models such as dedicated team, time and materials and flexible scope (DSDM) that strive to provide your business with prompt and effective solutions.
Contact and partner with SupremeTech right now to leverage our expertise and achieve the best goals!
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