A Complete Guide to IT Outsourcing: Types, Pros & Cons, Examples and Best Practices

IT outsourcing has become the route to escape the shortage of a talented workforce and hefty prices. More companies are entrusting their technology-based tasks to third-party service providers to ensure a keen focus on key business operations.IT outsourcing has become the route to escape the shortage of a talented workforce and hefty prices. More companies are entrusting their technology-based tasks to third-party service providers to ensure a keen focus on key business operations.

According to Statista, the global IT outsourcing market revenue is estimated to reach US$541.10bn in 2024. As it encompasses a wide range of services, more organizations are weighing their options and geared towards outsourcing.

What is IT Outsourcing?

IT outsourcing is the method of employing external service providers to handle various technology-related business processes, application services, utility services, and infrastructure solutions and achieve desired business outcomes hassle-free.  

IT outsourcing services largely entail Cloud-enabled solutions, SaaS (software as a service) based solutions, and more. Although the process may seem simple, choosing the right service provider is paramount to leverage the benefits of outsourcing. It also involves structuring a mutually beneficial contract and a win-win for both the company and the external services provider. 

Simply put, when there’s an IT task, companies hire external service providers instead of in-house employees. 

The Aim of Outsourcing are:

• Accessing specialized skills quickly
• Lowering operating costs
• Freeing up resources
• Greater focus on the core business activities

How does IT Outsourcing Differ from Business Process Outsourcing (BPO)?

Although both IT and business process outsourcing involve hiring third-party service vendors, they differ significantly in terms of the nature of responsibilities. For example, BPO covers a wide variety of non-IT tasks like finance, human resources, customer services, etc. 

In contrast, IT outsourcing is focused on software development, Cloud-based services, and IT infrastructure management. Companies can hire developers through vendors to extend teams or totally hand over projects and examine end products.

This IT outsourcing guide also discusses the type of services companies opt for.

What Are the Different Types of IT Outsourcing?

There are various types of IT outsourcing, but based on the location of the company and the service provider, the three main types are:

• Offshore: The vendor is located far off in a distant country.
• Nearshore: The vendor is geographically closer to the client’s country.
• Onshore: The vendor is in the same country as that of the client.

Let us study them in detail.

1. Offshore IT Outsourcing

Offshore outsourcing is the process where the service provider is located in a distant country. This provides access to cost-effective services, and the huge variation in time zones ensures round the clock development without having to pay separately for night shift charges.  

2. Nearshore IT Outsourcing 

Nearshore outsourcing involves choosing software vendors in neighboring countries, ensuring cost-effective solutions and real-time services. Additionally, due to location proximity, companies have the benefit of reaching the vendor with ease. For example, a US-based company leveraging the services of a Canadian company is an example of nearshore outsourcing

3. Onshore IT Outsourcing

Onshore outsourcing involves choosing an IT outsourcing company that is located in the same country. This leads to cost savings in terms of infrastructure and quick accessibility of talented experts onto the project. It also ensures communication in the local language, cultural alignment, and real-time services.

Pros of IT Outsourcing

The key benefits of IT outsourcing are:

1. Cost Reduction

Outsourcing managed services can ensure significant cost-saving as companies do not have to undergo infrastructure changes. Moreover, they do not have to pay for full-time employee benefits like health care facilities, holiday & leaves, etc.

2. Scalable Teams

An IT outsourcing company provides flexibility in adding or reducing various team members as per the latest business requirements. This helps with smooth handling of the project.

3. Enhanced Focus

By handing over IT tasks to experienced professionals, companies can free up resources to focus on core business tasks and ensure greater productivity.

4. Tightened Security

Professional IT workers stay tuned to the latest technology trends and can build industry-standard code with up-to-date cybersecurity practices. This helps to ensure optimum security against malware and minimizes potential intrusions.

5. Future Proof Solutions

Integrating essential services, data storage, scope for scalability, and a well secured IT infrastructure, helps to build futuristic solutions under the outsourcing business model. 

Although outsourcing is a win-win for clients and service providers, it is not free from faults. There are a few limitations to outsourcing, like loss of control, data compromise, and communication challenges.

Cons of IT Outsourcing

• Limited Control: Having an external party working on the project can somewhat reduce direct control over IT operations and the level of personalization.
• Security Concerns: It is mandatory to check whether the service provider offers NDA (non-disclosure agreement). Otherwise there’s a risk of data breaches and plagiarism of the ideas in the outsourcing industry. 
• Communication Challenges: Time zones and cultural differences can lead to communication barriers between the clients and the outsourcing team.

Key Areas of IT Outsourcing

1. Software Development

Software development outsourcing is a strategic approach that helps companies build modern solutions while saving cost and time. It helps to eliminate expensive in-house teams for building short-term or long-term solutions. 

2. Cybersecurity

Outsourcing cybersecurity services equips the company with top-tier talent for safeguarding data and protecting business integrity. The diligence and knowledge of external cybersecurity experts helps to build and ensure brand values for the company. Additional security services from a dedicated team can be costlier but with outsourcing advantages companies find it budget-friendly.

3. Cloud Services

Outsourcing service providers can help companies with hosting, data storage, and managing Cloud infrastructure efficiently. This ensures reliability with optimum scalability of Cloud solutions for companies on a pocket-friendly budget.

4. Technical Support and Maintenance

Support and maintenance activities is one of the key outsourcing services companies opt for. This includes a range of services like hardware and software troubleshooting, remote assistance, client support, etc. Outsourcing them is popular due to availability of reliable technical assistance for a fraction of the cost which helps companies make judicious use of IT budget.

5. IT Infrastructure Management

This category of management involves services focused on servers, networks, storage systems, etc. Further it ensures greater server reliability and streamline operations ensuring proper running of systems and business operations.

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What are the Best Practices for IT Outsourcing?

1. Determine Whether the Project is Fit for Outsourcing

Projects with specific requirements that differ from the core business activities are best outsourced. The right outsourcing project helps to deliver the project faster and allows employees to focus on the core business operations.

For example, a startup trying to start & run an ecommerce business can outsource the website-building task and focus on daily operations. 

2. Choose a Trustworthy Provider

The IT outsourcing company works as your extended team and will access much data to simplify operations or accomplish business tasks. It is advisable to choose a reliable provider like JS Panther, as we offer 100% data secrecy & privacy with NDA. All our projects are covered with 60 days of warranty, and you can talk to the team over calls, live-chats, and emails.

3. Leverage Agile Methodology

Under the agile software development model, the project is divided into several iterations each taking just a few weeks to complete. This provides greater flexibility and agility and enhances the success rate of the project by up to 28%.  Additionally, you can implement necessary changes in the software with significant ease.

4. Don’t Focus Too Much on Price Alone

An inexpensive budget as the sole consideration for the project can lead to unidentified problems like poor quality code or services affecting the end product. Get quotes from a few companies and also weigh in the value for money offered by them. Try to find balance between the project cost and code quality and choose a company that matches your budget, requirements, and expectations.

5. Documentation is Control

Proper documentation paves the way for smooth tracking of the project and also helps with post-launch maintenance. Various stages like deliverables, code revisions, updates, and other changes must be properly documented in all forms including emails, meeting notes, manuals, bug submissions, etc. 

6. Own the Project

Regularly staying tuned to the project updates helps to optimize its pathway to success. Use of tracking tools like Jira, Basecamp, Trello, and others can determine whether the project is running as per the planned schedule and take necessary actions to overcome issues. Discuss with your agency whether they will transfer all rights at the end of the project as you are the real owner of the software solution.

Wrapping Up

This article explained everything in detail about IT outsourcing, including types, benefits and drawbacks, key outsourced projects, and best practices. At JS Panther, we offer world-class IT outsourcing services. 

As a leading agency, we offer 100% direct control over the project and use the best technology tools for building high-quality software.