The Pros And Cons Of Software Development Outsourcing During A Digital Transformation

The Pros And Cons Of Software Development Outsourcing During A Digital Transformation

By: Julio Lopez

October 6, 2021

Digital Transformation

Digital transformations are complex, requiring a significant investment of time, money and effort. Digital transformation occurs throughout an entire company — not just one area — creating new forms of communication, a new level of unity and an overall more robust company culture. This leads to increases in efficiency and productivity. A report from the International Data Corporation (IDC) states that global spending on technologies and services for digital transformation is estimated to total $6.8 trillion between 2020 and 2023.

Such a transformation often includes the outsourcing of software development — a trend projected to expand in the next few years as organizations grapple with their digital transformation goals. Historically, organizations have chosen to outsource software development to enhance their digital transformations primarily because of the cost savings. However, this reason is no longer a priority. Nowadays, the strategy is more about accessing the most innovative technologies and top engineering talent.

Also, evolving at a rapid pace is the nature of work itself. Having transformed from top-down and hierarchical to collaborative and multidirectional, companies must now reinvent their engagement models and cultures if they want to benefit from their digital transformations. In fact, business leaders believe their companies will lose competitiveness if they don’t commit to a next-generation operating model.

Furthermore, digital transformation may be less about novel technologies and more about connectivity. Organizations understand that their ability to adapt to this new economic model ensures the survival of their company. They must go digital in order to automate and improve processes to provide better CX, deliver projects faster and increase business agility.

Yet, even with the writing on the wall clear and indelible, companies looking to enhance their digital transformations by building custom enterprise software continue to question their choices. They wonder, for example, if it’s better to hire permanent employees or outsource a software development group.

Outsourcing software development involves delegating the task of building a software product to another company, such as a consultancy. Here are the key advantages and disadvantages of outsourcing software development:

Advantages Of Outsourcing

 Cost reduction: Outsourcing allows you to control costs. This is the primary reason companies do it. A business can pay for services as it needs them and can avoid making major investments in infrastructure, software, and personnel.

 Proven workflows and processes: Because the outsourcing company likely has worked with many different clients, it can often implement processes that have been demonstrated to work within a certain industry.

 Quick time to market: The outsourcing firm can manage and optimize workflows based on best practices.

 Scalability: Outsourcing companies often have large talent pools, allowing a business to scale projects more quickly than it could if kept in-house.

 Top talent: Outsourcing firms have access to unique talent and industry experts that are available to consult and discuss solutions with — an added value for the company.

Disadvantages Of Outsourcing

 Business failure: A company is at risk of failure if it loses control of the project and can’t manage the outsourcing company effectively.

 Communication issues: These can occur when dealing with offshore firms with different cultural backgrounds.

 Limited motivation: Compared to in-house developers, the outsourcing firm might lack the same level of motivation to see a project through to successful completion.

 Limited control over development team: If the outsourcing firm uses freelancers and gig workers, the hiring company is not just one but two steps removed from the developers doing the actual work.

 Low-quality code and documentation: If the outsourcing firm lacks rigorous quality controls, the code and documentation its workers produce might be subpar.

Companies considering outsourcing should weigh these pros and cons carefully before making a final decision on whether it will benefit their firms. Digital transformation is an investment, but the associated costs, whether hiring in-house or outsourcing, will ultimately result in significant returns in efficiency, customer loyalty, and speed, making a business more successful and profitable.

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