Strategies for Cost-Effective Outsourcing in 2024

A Primer On Software Outsourcing 

Towards the end of 2023, the European Central Bank discovered banks within its territory lost millions of euros due to the “unavailability or poor quality of outsourced services”.

The bank was surveying the regional banks it supervises to test how prepared they were to deal with operational risks such as hacks, and aging systems when it discovered that contractors falling short of their promise cost banks 148 million euros or $160.59 million in 2022 — a 360% increase from the year before. 

Although we’ve written at length about outsourcing, this revelation from the ECB underscores the need to continue to talk about the subject matter. 

Most importantly, it highlights the importance of proper strategy and planning when considering outsourcing. 

For this reason, we’ll be kickstarting the new year with an article on how to properly prepare to outsource. 

If you’re new and want a more granular teaching on the topic, you can consult this guide —or use our blog to find an article tuned to your level. 

Why Companies Outsource Software Development 

Perhaps one of the most noticeable changes in the outsourcing landscape over the last few years has been the change in the importance of considerations to justify outsourcing. 

Companies outsource software development for multiple reasons that are often the combination of factors that include:

  1. Cost Savings
  2. Flexibility and Scalability
  3. Access to Global Talent & Expertise

However, there is an increase in the number of companies choosing to outsource more and more of their process for strategic reasons other than these three. 

Regulatory compliance, risk mitigation, and a focus on core competencies are fast becoming the leading reasons companies outsource in recent years. 

As an example of a situation that exemplifies this, in 2018, GSK’s CEO, Emma Walmsley, announced the company’s plan to “scale back operations in Africa as part of the company’s strategic realignment” and in a recent press release on the eve of the company’s close of business in Nigeria in August 2023, it had this to say: 

“In our published Q2 results we disclosed that the GSK UK Group has informed GlaxoSmithKline Consumer Nigeria PLC of its strategic intent to cease commercialization of its prescription medicines and vaccines in Nigeria through the GSK local operating companies and transition to a third-party direct distribution model for its pharmaceutical products…The Haleon Group has also separately informed the board of its intent to terminate its distribution agreement in the coming months and to appoint a third-party distributor in Nigeria for the supply of its consumer healthcare products.”

GSK is transitioning to an outsourcing model in several markets.

GSK is transitioning to an outsourcing model in several markets.

More recently, American multinational consumer goods company —Procter & Gamble (P&G), also announced a strategic portfolio restructuring in the Argentinian market in what can be considered a risk mitigation attempt due to the recent economic challenges in the country. 

How To Outsource Software Development For Cost-Effectiveness 

With that said, having a proper plan is perhaps the biggest factor for correctly outsourcing software development.

The success of your outsourcing expedition is contingent on the careful planning and consideration of all the various factors that could be at variance with your goal of profitable outsourcing such as communication barriers, time zone differences, access to specific expertise, etc. 

While outsourcing can be expensive, carefully evaluating potential risks, outsourcing partners, and preparing for a limited number of challenges can ensure a smooth process. 

In our experience at Alabama Solutions, efficiently outsourced projects are characterized by detailed consideration of and approach toward each of the following points by clients: 

  1. On Objectives And Requirements: Being able to clearly articulate project requirements including functionalities, features, and other specific requirements, and the goal of your outsourcing journey based on the assessments of your organization’s internal needs drastically decreases the odds of errors and sets you up to a great start with your outsourcing partner.

Furthermore, it is also a good way to prepare for establishing effective communication channels with your partner that should come after your contract and involve regularly scheduling meetings and collaboration to help maintain transparency and keep the project on track.

  1. Nail The Right Outsourcing Model: When it comes to the issue of efficiently outsourcing, nailing the right outsourcing model for you is perhaps the most consequential. 

Choosing between onshore, nearshore, or offshore outsourcing depending on your project requirements, and budget constraints is essential to effectively outsource software projects. With the increasing talent shortage around the world and the ever-expanding geo-political and social-cultural issues in several outsourcing destinations, getting this point right means you’re halfway toward the finish line of efficient outsourcing.      

  1. Maintain A Strong Project Management Structure: Maintaining a strong project management practice (e.g., Agile, Scrum, Waterfall) ensures that you’re regularly on top of the progress of your project and can evaluate the performance of your outsourcing partner better. 

In addition, it guarantees steady assessment of the quality of deliverables and breeds flexibility and responsiveness crucial for promptly addressing issues that may derail projects away from the budget projection.  

By following these steps, you will have developed a strategic approach to outsourcing software development that is crucial for achieving success efficiently. Having sufficient consideration of these points which are characteristics of efficiently outsourced software projects in our experience means you would have maximized the benefits of outsourcing software development, minimized risks, and increased the odds of successful delivery of high-quality software solutions.

Choosing Where To Outsource Software Development 

Since nailing the right outsourcing model and choosing between onshore, nearshore, or offshore outsourcing is the most tasking of these points, I’ll walk you through some helpful tips in this section.  

In a recent blog post, I mentioned that founders are outsourcing more tasks to Latin America from the West and that much of this is going rather unnoticed. The reason for this is due to the current volatility of global politics but it is also due to the availability of native human expertise, proximity, as well as an abundance of affordable labor compared to elsewhere. 

In vetting for outsourcing clients and determining between onshore, nearshore, or offshore outsourcing, you’ll almost always want to choose nearshore. 

I’ve talked about nearshoring at length on this blog so I naturally strongly encourage you to read our articles on the topic for deeper knowledge.  

Notwithstanding, the most important thing to know is that nearshore outsourcing is a type of outsourcing where companies only outsource their tasks — whether it be software development tasks, administrative or other IT tasks, to service provider companies within their region or close to their region. 

I touched on one of the reasons why companies choose nearshore outsourcing in the previous paragraphs already however to restate it simply,  it’s mainly to serve as a buffer for geopolitical tensions that could make evacuating work from troubled regions hard as it is in the classical type of outsourcing. 

With nearshore outsourcing, you’re likely to be familiar with the culture as well as the political situation of possible outsourcing destinations within your region so your odds are reduced for disruptions that could throw your business operations into chaos. 

If you’re a founder in North America or Europe interested in outsourcing nearshore, do well to read the reasons we listed as to why North American companies are choosing to outsource to LATAM in the article linked in this section. 

The most important of these reasons is what we believe should be your priority when choosing where to outsource. 

You should also note how and why Uruguay is the knight in shining armor of Latin America.

Companies interested in nearshoring to Uruguay are spoiled with choices and all kinds of bonus perks that include vast IT infrastructure, long-standing economic and political stability, as well as some of the best IT talents with English proficiency that South America has to offer.

To close the curtains on this article on a high, I hope that this piece provides guidance to your outsourcing journey and helps you do so efficiently. It might be getting difficult to outsource cost-effectively since some of the go-to destinations for doing so in recent years have changed in more ways than one, however, it is also true that there are very competitive replacements and those are the ones you should go for when you’re looking to outsource cost-effectively this new year.

In conclusion, If you find this article helpful, then you’ll like our Founder’s Guide to Software Outsourcing.

You may also reach out to our team for consultations if you are looking to outsource or need help bringing your product idea to life. 

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