Using Outsourcing to Survive in a Changing Economy

Any market declines when the economy is unstable, and the IT industry is no different. IT products that are still in development and not yet profitable may risk cancelation, subject to the company's approach to this predicament.

Employers often prefer to recruit experts for certain jobs, rather than a big team; senior and mid-level pros, as well as experienced developers, are always preferred in this situation. As a result, there has been a spike in demand for them.

However, given that tomorrow's events are uncertain, is it important to recruit seniors? How can new projects be started and teams assembled when things are changing so quickly? If you're asking yourself this, kudos to you! This means you are a capable manager who understands the hazards and considers options to reduce them. Konstantin Shakurov, head of analytics at the IT company SimbirSoft, offers his perspective on the matter.

What if you are too cautious, occasionally indecisive (this is only natural, though, as each choice might cost a substantial portion of the budget), and unsure of what to do with the project team moving forward? What if you are concerned that your rivals may be more concentrated on the task at hand while you are torn between numerous challenges? What if you want to focus on the primary activity that generates revenue and entrust the administration of the team to experts? Outsourcing is a remedy for that.

Just ten years ago, who would have considered letting a third party do their financial management? Today, though, it's common for businesses to outsource their accounting needs. This also holds true for cleaning, catering, staff entertainment, design, copywriting, social media marketing, and other services. The same goes for IT, as more and more businesses are realizing that outsourcing everything not directly tied to their profile is the best course of action. Those who are good with money have no doubts that it is more efficient.

Some businesses continue to worry, nevertheless, that the outsourced staff will be less motivated and invested in the company's affairs, that it will be hard to influence and manage, that the project idea or source materials may be stolen, etc.

The most common argument is that an internal team will be less expensive and that its members care more about the outcome. This, however, isn't always the case.

Five "benefits" of internal teams that won't help you much

Let's look at five common arguments for shifting focus to internal experts at a challenging period for your business's finances. Hopefully, the knowledge provided here will help you cut costs where possible.

1. “Hiring your own development team is not that hard”

Amid a crisis, organizations require expertise, and demand for mid- and senior-level pros rises. Thanks to the expertise of professionals who employ tried-and-true procedures, methods, and solutions, this lowers the costs of their training, boosts the work rate, minimizes errors, and provides a scaling effect.

However, such professionals are picky about their employers. They often wait for the best offer before accepting one. They have learned to maximize their own profit due to the rapid paycheck growth in IT. Head hunting also is a thing. Furthermore, it is frequently done by either industry giants or sizable businesses that cater to the public sector.

It might be challenging to find a highly qualified employee under these circumstances. A lot of your time and resources will be used up throughout the hunt. Once you've landed an expert, it's crucial to retain him by offering suitable working conditions and the bonuses that were promised in the contract. All of this involves increased expenses. We'll get to that later, however.

2. “Employees of your organization are consistently more driven towards success”

An in-house expert might pursue personal interests. He can generate his own KPIs, for instance, if they are based on the number of completed tasks. In a bid to have a larger budget, some increase their staff. Others wish to modify the project's technological stack, aesthetics, or other aspects to fit their idea of how things should be.

When outsourcing, the business and the contractor have similar objectives. The client wants the project finished, while the contractor wants to execute it in line with the terms of reference and acceptance criteria, and both parties want to make money.

3. “It is simpler to manage your staff”

There are certain issues with time cost transparency for internal teams. In some organizations, employees may not accurately record how much time they spend on a task. When we explain the nature of our pipeline to candidates from such teams, we frequently hear the following response: "We don't check the hours for tasks like that; we just jot down that we worked 8 hours, and that's it. I think it will be very stressful, and I'm not ready for that."

With the use of metrics and performance monitoring, the outsourced team is constantly compelled to increase its effectiveness. Any departure from the ideal process entails a danger to their reputation. Any hour is an administrative unit that cannot be idle. As a result, the outsourcer can always state that the customer profited from each hour the expert worked for them. As a consequence, the company enjoys the services of a contractor who carries out the work within the allocated budget and in accordance with predetermined approval criteria. With outsourcing, businesses may operate with greater transparency since it is always known how much will be spent, on what activities, and at which quality level.

Control is also necessary for internal projects. The product owner must still evaluate the criticality of the assigned task implementation, even if a full-time team is working on such tasks. Otherwise, without planning, task appraisals, and sprints, projects risk turning into black holes. One frequent example was recently brought up in the community: even the leaders in the finance tech industry occasionally get into circumstances where most of their code is completely unnecessary and development is moving far too slowly. As a result, the resource is idling, but the days go, and wages are paid.

4. “An internal team will guarantee the idea's safety and ongoing development”

Here's a story: A fintech company founded a startup with a promising product concept. The market was expanding, therefore they didn't even look at the MVP. They assembled a group and went to town writing code. Although the product had not yet begun to generate revenue, investors had already expressed interest in it. Investments started to show up, and the team began expanding, as skilled experts were lured by the high wages. The development was going on successfully. However, the company's lead developer made the decision to quit one day. Nobody anticipated that, and there was no updating of the documentation. As a consequence, the work halted and the expertise was lost along with him. In order to resume the normal development procedure, new initiatives and expenses will be needed.

100% in-house is always risky and necessitates careful consideration of documentation safety and regular updating. However, there are other potential issues here. The cost of replacing a highly specialized expert can run as low as 75% of a yearly wage for basic developers and as high as 200% for managers. An outsourced team will protect the company from these issues, guarantee the security, updating, and transfer of all documents and artifacts, and most importantly - the continued development. You may be confident in a fast time-to-market indicator in this situation.

An outsourcing company's operations are based on maintaining ongoing development. Even if one of the experts leaves, a replacement will arrive right away. By then, he will have had a thorough onboarding, be fully engaged in the project, and no further "burn-in" time will be needed.

5. “Hiring a third-party contractor is less profitable than paying your team wages”

The IT industry has produced a specific Employee Experience (EX) that includes agile techniques, high compensation, innovative work, as well as financial and social perks that require expenses. And yet, despite this, there is still a significant degree of mobility among IT professionals, making it challenging to win an employee's loyalty.

The primary factors in choosing an employer are a high income, benefits, and interesting projects. However, a good corporate culture, events, and internal process organization that promotes employee growth and professional development are required to create the right IT atmosphere (changing projects, training, etc.). All of this necessitates expensive resources and skills, which may not be available in businesses from non-IT sectors. Outsourcing and outstaffing will relieve your company of this burden. Only variable expenses will be incurred by you as the client, while internal costs are always fixed.

When doing work in-house, a company only has one performer—its own IT department, while outsourcing always lets you find a contractor who is more cost- and quality-efficient. As we previously stated, there is a possibility of staff bloating which might lower output and quality.

There is also a possibility of running into another issue amid economic uncertainty. If you are faced with the need to shut down an internal team's ongoing IT project, they will have to be sacked. This entails risks, such as the possibility of attracting the attention of oversight agencies in the event that a sizable team is released. The benefit of outsourcing is that once the project is finished, the company does not have to worry about how to keep the professionals engaged.

As demonstrated by the experience of various businesses, the price-to-result ratio of in-house developers is poorer over time as a result of decreasing motivation, lower technical proficiency, and steadily rising wages. The likelihood of downtime, unrealistic expectations, and financial waste increases if a company's operations are not designed to make every hour of an employee's labor productive.

When should a company opt for an outsourced team?

Here are some circumstances when clients are prepared to outsource their projects:

• when implementation deadlines are tight;
• when an IT product needs a thorough examination, including a suitable methodology for project and development management, quality service, architecture, etc.;
• when there isn't a fully functional IT department or experience carrying out relevant projects.

A company might waste a lot of time developing its IT department, structure, processes, etc., if it wants to cut costs. Meanwhile, time is more important than money for a business that values its customers. The customer also obtains process expertise and all of the contractor's experience in addition to the team of professionals.

Outsourcing services always adds value since a business gains expertise, collected knowledge, and risk reduction. An experienced company is always aware of potential issues and understands how to mitigate them. For instance, we have a quality assurance service that keeps an eye on hazards and proactively works in the client's best interests, mentors who can help an employee with a project if he runs into a wall, and architects who can design intricate systems. This means guaranteed problem solving for the client.

Every change must be done skillfully. Start by creating a hybrid setup, where the core will be your in-house expert group, and the reinforcements will come from trustworthy outsourcers. This will give you the best possible working structure.

Learn more about the development processes in IT from our article: How to Make an MVP App That Everyone Will Love

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