The last few years have already been challenging due to the Covid-19 pandemic and the Russian invasion of Ukraine. But when economists began speaking about the coming global recession, then, probably, every business owner thought: “As if this is not enough.”
Period, known as a recession, business is perceived as a cataclysm because it substantially reduces economic activity. During a downturn that can last months or even years, consumer spending decreases, unemployment levels up, and many businesses stagnate. As a result, global economies encounter decreasing gross domestic product.
What does it mean for businesses? They must follow the tried-and-true blueprint to operate in a world of slower growth, inflation, and more expensive capital. In tech, Peter Drucker’s advice: “Do what you do best and outsource the rest,” is especially relevant.
So I dedicated this article to IT outsourcing – a proven way over the 2008 recession to cut costs while staying focused on core business.
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Thinking about a recession can be worrisome, especially for small and medium-sized companies. A Goldman Sachs survey says that 93% of US-based small firms are concerned about this, and 38% have already noticed a customer decline. Large corporations are also not immune to an economic recession, although they generally have a financial cushion and more spending cuts to help them weather the downturn.
A looming recession could put any entrepreneur or business owner in a situation where they have to make unpopular decisions, in particular:
While these conservative measures are well justified, don’t get hung up on them. You may find unexpected benefits by viewing a recession as an opportunity to rethink your current processes and practices.
Recessions create opportunities for companies that are flexible enough to seize them to grow, keep profits up, and even expand their market share when others are stagnant or contracting. A Harvard Business Review case about the 2008 recession reported that downturns tend to “shuffle the deck” in competition. That means the bottom 20% of any industry can become the best, and the top 20% can become the worst.
This history-based statistic means that you must innovate during a recession, or your competitors will surpass you. So if you’re going to survive a recession, сatch up on five trends you can use to your advantage.
“It is not the strongest of the species that survives, nor the most intelligent. It is the one that is most adaptable to change.” Charles Darwin
Software development outsourcing as a business model will always be relevant during economic downturns – because it works. The key here is that by using outsourcing practice, you can cut back costs for activities you don’t directly handle, save time for your core tasks, retain the right person, and still get or maintain a robust digital product. Let’s dig deeper at the potential benefits of outsourcing in a recession:
While hiring an outside team may seem counterintuitive when trying to cut costs, comparing rates shows that it’s much cheaper. For example, if your company operates in a high-cost city like London or New York, bringing in employees from a lower-cost-of-living market opens up a more affordable workforce.
Your fixed costs become variable because you don’t need to maintain any infrastructure for outsourcing activities. Businesses often need help with cash flow management, but by outsourcing savings and reinvesting the savings back into your core business, you can accelerate growth while lowering costs. In addition, it enhances investor confidence.
That transparency starts from knowing what the upfront monthly cost is. The maximum price is made clear and quantifiable. As the business owner, you can budget for that cost, which is great for cash-flow purposes. That, in turn, affects your ability to scale your business.
The bottom line is that businesses need options to stay competitive without blowing up their budget when the economy is unstable. With outsourcing, companies can hire workers when needed and cut them off when they don’t. That allows the business to take on new projects without worrying about retaining a team of full-time employees.
The companies you outsource your work to are always result-oriented. They are aware of the latest technologies and trends as they cooperate with a wide range of clients, have relevant experience, and constantly improve it.
When your employees do not have enough expertise to handle a particular process, you can outsource it! An external team can solve a problem from a perspective you never knew existed because they provide software for businesses across industries. These experts will likely add beneficial functions to your product, making it unique and compelling.
During a recession or economic hardship, layoffs of low-performing employees are inevitable. Their duties and responsibilities, in this case, are transferred to the rest of the employees.
As a short-term strategy, this approach is acceptable. But over time, it can lead to burnout and errors in the work and negates the initial benefit of downsizing. Relying on an outsourced team can save your company from these destructive side effects.
In 2008, the world had already experienced a great recession, the most prominent global economic crisis since the Great Depression. Many organizations suspended capital projects during this period, cut operating costs, and laid off workers. Then 1.8 million small businesses went bankrupt, and the market lost about 8.7 million jobs.
But there were those who emerged from the recession and were able to succeed. Look at some great examples of industry leaders who outsourced IT services to survive during the 2008 recession.
A master of business survival through recessions, Google has seized the opportunity to outsource IT services using remote teams. The reason for this choice is not only to reduce labor costs. They hire people worldwide to tap into the global talent and cover in-house employees’ vacations.
Another company that knows the importance of outsourcing for many purposes is IBM. Through specialization, the company has the best team for each department, which increases IBM’s efficiency. Even during the 2008 recession, IBM signed several outsourcing contracts, which is encouraging.
Microsoft can be called the brainchild of the Great Recession of the 1970s. Since then, the company has experienced several downturns and has survived each time, not least because the vast contract workforce complements Microsoft’s expertise or provides services beyond its in-house capabilities.
It is next among companies whose one out of three engineers is outsourced. While Apple’s products are designed in the US, along with R&D and marketing, engineering is conducted globally. The secret to the company’s resilience is that they believe in investing during downturns.
The entertainment startup has kept up even during economic downturns. Netflix switched to a partner’s infrastructure starting in 2008, and in 2016, they unplugged the last company data center. That made the company more agile because the “operational load” of managing their technology has been transferred to a third party.
Outsourcing has allowed these big players to focus on their core R&D competencies, relying on vendors for more routine and less strategic tasks. Companies that have taken risks and thrived in the darkest times should inspire you and remind you that with adversity comes opportunity. Not every company will be able to rise but know that now is the time to prove your resilience and that you are worthy of success.
The concept of outsourcing has evolved from a business strategy to a necessity, especially in digitally driven countries where it plays a significant role in business. But before you join the bandwagon and start outsourcing some of your activities, read what the provider selection process looks like and its main steps.
Determining which scope of work your company can benefit from is the first step to getting outsourcing to work correctly. You can outsource entire departments or particular sets of tasks, depending on what will bring the most value to your company and what you can afford. This is valuable information as it can help in later stages of the outsourcing process, such as cost estimation.
Once you have determined what particular tasks or processes your company can outsource, you must decide how much it will cost you financially. You can do this by comparing the cost of doing these tasks or operations internally with an outside company. When comparing prices, use the rates of several different vendors. This can help you choose the one that offers you the best value for money.
Get valuable insights on software development cost estimation by reading our latest blog post.
As soon as there is internal clarity, you need to prepare a request for proposal and get qualified contractors who can provide you with outsourcing services. Selecting the best of them, conduct a thorough comparative analysis. That is a crucial step as it determines the subsequent success of your outsourcing experience. Here are some factors to consider when looking for outsourcing companies:
Once you’ve chosen the right provider, learn about pricing models and bundling options to optimize your budget during a recession. There are three standard outsourcing models:
The decision on the engagement model can be based on various factors like the delivery time, envisioned budget, project size, expected deliverables, etc. When choosing the most appropriate engagement model for your project, carefully consider each type’s pros and cons and discuss the most suitable option with your software vendor.
Once you’ve found a competent and reliable outsourcing partner you want to work with, it’s time to draw up a contract. This step is essential because it will help protect you and the outsourcing party in case something goes wrong during the project.
Your contract should include a detailed scope of work, specifying precisely what tasks will be completed and when. It must also include provisions on intellectual property ownership and confidentiality.
On average, recessions last about ten months, which is unquestionably complex for most businesses, but more broadly, it’s a relatively short storm to weather. We’ve added a few more tips to keep your outsourcing steps proactive and forward-thinking.
If you are a pro-growth entrepreneur wondering what you need to do to recession-proof your business, we can help you.
Relevant is among the best software development companies providing worldwide outsourcing services to help tech minds innovate. We’ve been around for nine years and have grown a lot, but all that matters is what we do best – design, develop and deliver digital solutions that help move your business forward.
During the 2020 recession, we helped clients create software solutions that were a pressing need for them, and we continue to do so. Hire our developers for outsourcing services and build your dream business despite this challenging time.