10 Tips on How to Avoid IT Outsourcing Failures

Daniil Kopilevych
Daniil Kopilevych
Marketing Manager
Apr 25, 2018 9 min read
Team Extension
Team Extension Apr 25, 2018 9 min read

‘If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business,’
Lee Kuan Yew, founding father of modern Singapore.

With the economy going global and constantly evolving technology many companies find it increasingly hard to develop the whole spectrum of software solutions in-house. They are forced to maintain a competitive advantage by continually optimizing their operational efficiency, improving customer service, and bring new products to the market.

The answer to these challenges is the right team of software developers who not only ensure the end product’s quality but also focus on your overall business objectives and goals. And, this dream-team doesn’t have to be in-house. The team with just right skill set may be found either within your country of operations or outside of it, including other continents.

Sometimes the wisest decision is to outsource software development while keeping the focus on your core strategies. Outsourcing partners can help overcome difficult challenges by injecting your project with collective skills and expertise coming from a variety of their previous projects and clients.

Do it right, and outsourcing development is a great way to cut operating costs, scale up and take advantage of external skills and talents. Do it wrong, and you can end up in cost overruns, damaged customer relationships, termination of outsourcing arrangement, or, the worst, the ruination of your business. To ensure your smooth sailing, follow our checklist of outsourcing recommendations.

Tips on how to avoid possible pitfalls when hiring an outsourcing team:

1. Ask yourself: do I need to outsource?

Effective outsourcing initiative can really be a significant competitive advantage. Outsourcing is becoming increasingly popular among all types of companies due to its undeniable benefits. But, this doesn’t necessarily mean that you should do the same.

First and foremost, measurably define what you want to achieve (e.g., new software product development, cost savings, optimization of business processes, service quality improvement) and what resources you have to start implementing your idea. Then, find out what kind of things you lack (e.g., manhours, skills or expertise, budget to employ in-house developers).

Take time to analyze, calculate and gather your business metrics to find out if outsourcing brings value to a task, project, or your business as a whole. If you have enough resources to ride the whirlwind, leave it for in-house. But, if any of your employees are working more than 50 hours a week, you’d better consider hiring a remote team.

Outsource or In-house - How to Avoid outsourcing failure - Relevant Software Blog

But not only the what to outsource is important, but when as well. Avoid starting off with an outsourcing campaign when your business is undergoing major restructuring or a shift in senior management.

2. Determine outsourcing goals and scope

If you don’t know where you are going, you will never get there. After you’ve made up your mind to start an outsourcing project, you’d want to decide what exactly you want to outsource. Analyze your project to see what you can do in-house and what skills you don’t have.

For successful outsourcing strategy, it is critical to identify both long-term and short-term requirements, make sure you have a clear vision of the software development project that you’re outsourcing and prepare written responsibilities and expectations for your overseas team.

Get ready to answer multiple questions about the future software product from your potential outsourcing company. A right contractor will shower you with the questions about your business and project goals, will try to clarify as many requirements and expectations as possible before the project is underway, and will do their best to understand the unique nature of the project.

The more information you give to a vendor, the better they can estimate the size and cost of your project, align their processes with yours, and choose the most appropriate development methodology. Without clear goals, well-defined scope and responsibilities your outsourcing engagement may resemble the blind leading the blind.

And, never outsource activities that are unique to your business, your core functions, and strategic initiatives. The most successful option is to retain adequate in-house control over critical business functions, leaving non-core competencies to outsourcing providers.

3. Choose the right vendor right

A service provider that not only understands your industry but is also fully aligned with your business objectives and culture is your best bet. Thus, spending a little bit more time while choosing an overseas partner may save you a lot of troubles in the future. Do your research.

Firstly, shortlist at least 5 promising outsourcing development companies to choose from. Compare their range of services, benefits, perks they offer and study your vendors’ persona in detail. Take a look at their culture and values, their processes and approaches to get the clear vision of the companies. Then you need to thoroughly analyze and shortlist vendors.

Outsource or In-house - How to Avoid outsourcing failure - Relevant Software Blog

After that, you should hold a meeting with the companies’ representatives to find out their commitment to the future project, expertise in the field, and ability to solve your pain points. They need to educate you on their skill set, not the other way around. They have to know how to do the things you expect them to do. Period.

Whether you’re outsourcing design, software development or quality assurance, it makes sense to review the work of anyone you consider to work with. As well, do not hesitate to ask for CV of every individual developer or any other member of the offshore team to ensure you hire the best possible talents.

4. Focus on value over cost

Yes, outsourcing allows to save costs, but this shouldn’t be the only reason why you’ve turned to it. Never approach outsourcing as a cheap and easy way to offload the work. Outsourcing should optimize your business to free up time for strategic focus.

The rates of your outsourcing company are often a reflection of skills, experience, and work quality. Vendor A, for example, could have rates of $20 per hour, but staff the project with many junior developers with limited experience. Vendor B could have rates of $50 per hour, and staff the project with 3x fewer developers using more experienced people who need less time to cope with certain tasks.

Which of them will be more productive and bring more value to your project?

5. Don’t go for Fixed Price if possible

A fixed budget is attractive, no doubt. It gives a sense of control and security, as your outsourcing provider is bearing all financial risks and you don’t have to worry about overpays. Sounds good, with the exception that you will have to worry about many other things, and quality is one of them.

First, your fixed price projects always cost more. All the project risks will be included in your fixed bid, because your vendor will seek ways to cover uncertainties that inevitably occur in every project. Some will add up to 50% on the price for high-risk projects.

Second, the changes to the scope are inevitable as it’s almost impossible to determine every single detail of the project beforehand. Every change to the scope will go through time-consuming negotiations on whether this change is included in the fixed price or not. If it isn’t, then you proceed to ‘change request’ procedure, again leading to a project cost overrun.

Third, you will end up compromising on quality, creativity, and improvements, because the value of the work becomes less important than the price. The quality of work may suffer as your vendor will have to focus on hitting the agreed price by all means, rather than putting efforts on making better software.

6. Frame a detailed written contract

Outsourcing contract should reflect every specific detail of the project in order to avoid technical, communication and management issues in the future.

Write a contract with clearly defined service levels based on the rule of shared risk. The contract should be linked to a detailed Statement of Work in which everyone agrees to take responsibility for fulfillment of the appointed tasks. Before you sign the contract, make sure it covers the littlest details possible about your future project.

Contract - 10 tips on How to Avoid Outsourcing Failure - Blog Relevant Software

A contract that does not include a clear Scope of Work will possibly end up in a very poor outcome. Comments like “we were thinking to have that done in-house” or “we thought you were responsible for that part” indicate that roles and responsibilities have not been clearly determined. That will cause you, your vendor and worst of all, your customers pain and almost certainly extra expenses.

Furthermore, plan for an exit strategy in case your overseas partner faces internal problems that prevent them from finishing the project, or fails to deliver a product of expected quality. Secure yourself with a detailed refund policy in case of any setbacks.

And, as the Agile Manifesto says, value customer collaboration over contract negotiation.

7. Prepare your in-house team

When starting an outsourcing engagement, your company is about to adopt many changes in management and organizational structure. Your teams will be extended with the offshore team which may be working in different time zones.

Thus, you should prepare your in-house team to work efficiently with their new remote colleagues. Do it as early as possible and make sure everyone in your organization accepts this shift.

By explaining why you are adopting outsourcing strategy and communicating the potential benefits of it to your staff, you will both avoid possible resistance to the process and gain more efficiency along the way.

Hold an all-hands meeting and explain to your team the ways how they should work with the remote team: discuss possible communication models, educate about collaborative software and project management tools you are about to install, encourage your people to cooperate with the new team in a productive and friendly way.

8. Define communication model

According to Project Management Institute (PMI) study, ineffective communication is the primary contributor to project failure.

Communication is the Holy Grail of outsourcing development, and it needs to keep going beyond the initial meeting or call with your vendor. Business goals can change and evolve, and if you don’t explain what the goals are while you’re working with an outsourcing provider, the relationship won’t be productive.

First, establish communication channels with your remote team. Luckily, the digital age provides an incredibly wide variety of communication tools, like video conferencing and messengers, so don’t stick to just writing your bi-weekly emails.

Second, it is essential to schedule regular meetings with the remote team. It is always better to overcommunicate than miss out some crucial details. Weekly and daily meetings,  monthly all-hands, and regular one-on-ones are invaluable for thoughts and accomplishments sharing, getting to know about blockers and bottlenecks, and staying accountable and aligned with each other.

Third, to not lose any vital information in daily communications, follow-up every discussion with an email. That will help clear all the ambiguous details and ensure everyone knows what exactly is expected of them.

While it’s hard to clear up all the details beforehand, regular communication across multiple channels will help ensure that the scope is properly understood. To ensure the success of your outsourcing relationship you have to contribute to the communication process as much as possible.

9. Set up a proper management

To grow your business, you have to spend more time building it than working for it. Still, you will have to put some time and efforts for management of your outsourcing team.

A significant advantage is when your outsourcing company provides the project management service, but regardless of the level of competency and expertise of your contractor, they will need your guidance and instructions.

So, be prepared to take part in the management process or allocate managers who would be responsible for communication and will lead the outsourcing activities on your side. Make sure you set up reporting schedule to check the progress of your remote team, and provide your feedback. Your job is now to coach your offshore team and help them do things exactly as you want.

Pay attention, that too much supervision can make the outsourcing process inefficient. Don’t discourage your outsourcing provider from bringing their own expertise, ideas, and improvements. Your role is to explain the end result you want and listen to people’s suggestions. Micromanagement is not your option, thus, avoid “no one can do it as well as I can” syndrome.

10. Build relationships, not only software

Quite often it is easy to neglect the importance of personal relationships while applying all forces to the project execution. But the irony is that a great relationship will do far more to ensure the success of an outsourcing arrangement than the most scrupulously written contract.

Remember that personal relationships built upon trust and respect bring your remote team an additional motivation. So, put some efforts for creating a positive, engaging, and inspiring atmosphere to give your remote team some energy to go an extra mile in their work. Open door policy, when everybody feels free to approach you and express their concerns, will also help avoid conflicts, misunderstandings, and mistrust.

In order to build personal relationships, take some time to know the members of your outsourcing team, understand their motivations, show real interest in their lives, and share a little bit of yourself.

Still, while it is critical to develop empathy with each person whom you engage in communication, you should find the right balance between a casual culture and a responsible attitude to the work

Wrapping up

All in all, while there always will be obstacles and difficulties on the way to successful outsourcing,  just like in any other business, the benefits of it exceed the risks for many companies.

Well-skilled outsourcing team can ensure faster, cheaper and easier software development. Understanding the risks and having a strategy for offshore outsourcing provides the roadmap to the success of your business. By using these tips, you should be able to avoid the typical outsourcing mishaps and reap the benefits of this practice.