Software Development Outsourcing: A Complete Guide

In this comprehensive guide, we dive deep into the world of software development outsourcing.

We look at the global outsourcing market, outsourcing models, geographies, strategies, and, yes—the impact of the COVID crisis.

We’ll also walk you through the process of finding the right software development outsourcing partner and what you need to know before you commit to a provider.

Hear from Tiempo experts, who weigh in throughout the course of this series with insights based on their experiences. They’ll share best practices and honest advice about what works, what doesn’t, and how organizations can make the most out of their outsourcing strategy.

Here’s a look at the topics we’ll cover, broken down by chapter.

Chapter 1: What is Software Outsourcing?

Flat Map of the World

When you think of outsourcing, chances are your mind immediately goes to things like sweatshop labor or US manufacturing jobs shipped overseas.

While it’s been hard to shake the stigma, software outsourcing is a booming global industry that enables organizations of all sizes—in every industry—to access skilled developers and engineers.

In this first chapter, we’ll introduce the concept of outsourcing software development, its benefits, and how modern businesses are leveraging partnerships toward achieving strategic business goals. Read more.

Chapter 2: Globalization and Software Outsourcing

Wooden Block Concept of Globalization


In chapter 2, we examine the impact of globalization and outsourcing on the US economy and what it means for talent in developing countries around the world.

We’ll also discuss ethical implications like nationalism and data privacy. We’ll further look at the benefits of globalization for US firms as well as a few drawbacks like competing for talent on a global scale and the hard-to-shake stigma surrounding outsourcing in general.

Ultimately, this section focuses on some of the factors you might not initially think much about—yet wield tremendous influence over your decision-making process and strategy when you start partnering with service providers based in different parts of the world. Read more.

Chapter 3: Current State of Software Outsourcing Market

More companies are looking toward outsourcing as a solution to many of today’s most pressing tech-related challenges. Companies in every industry use software outsourcing to keep pace with innovation and evolving consumer needs, navigate emerging security threats, and become the agile, data-driven organization of the future.

In this chapter, we dig into 2021’s biggest software development trends and size up the current state of affairs. We’ll also take a look at how the global outsourcing market is changing based on a converging set of factors, including digital transformation, the rise of AI and big data, and of course, COVID. Read more.

Chapter 4: Why Do Companies Outsource Software Development?

Man and Woman Software Engineer Pair Programming

Outsourcing has become a vital lifeline for businesses staring down a growing set of obstacles. There’s the uncertainty of COVID, growing pressure to innovate at speed and scale, customers’ ever-rising expectations and evolving needs.

From digital transformation to cost savings and access to new technologies and the people who understand them, outsourcing can tackle a wide range of strategic goals.

Here’s a look at some of the drivers pushing companies to look beyond their buildings and borders.  Read more.

Chapter 5: Software Outsourcing Examples

Man and Woman Software Outsourcing Engineers Reviewing Code

In chapter 4, we looked at some of the reasons why companies decide to outsource software development. In this section, we’ll build on that theme and look at the specific ways real companies use outsourcing to achieve a wide range of goals.

We’ll share examples from our own portfolio as well as some well-known startups and tech companies that prove just how diverse and expansive outsourcing can be.  Read more.

Chapter 6: Advantages of Outsourcing Software Development

Abstract Image of the Globe

Outsourcing software development can unlock a wide range of benefits—cost-savings, access to skilled developers and engineers, and focus on core business goals.

Done right, outsourcing can accelerate digital transformation, tackle your biggest challenges, and create a ton of value for consumers. Read more.

Chapter 7: Disadvantages of Outsourcing Software Development

Globe with Nodes and Trendline

Despite its many benefits, software outsourcing does have its disadvantages. Some with the potential to cause major significant losses, reputational damage, or the fallout that comes from IP theft or regulatory non-compliance.

Here, we’ll take a closer look at some of outsourcing’s biggest “cons” and what can go wrong if you fail to do the work before making a commitment. Read more.

Chapter 8: Common Software Outsourcing Geographies

Globe Against Blurred Background

We’ve talked about some of the reasons companies outsource software development projects and looked at the pros and cons of outsourcing—many of which are directly influenced by geographic location.

That said, it’s essential to understand that top-tier outsourcing partners exist all over the world—and the location you choose comes down to weighing the pros, cons, and costs.

In this section, we’ll look at some of the world’s top outsourcing destinations from Latin America to Eastern Europe and Asia. Read more.

Chapter 9: Types of Outsourcing – Software Outsourcing Business Models

Map Showing Common Software Outsourcing Models

Outsourcing business models—insourcing, onshoring, offshoring, nearshoring, and multi-sourcing—are all based on the client’s proximity to their outsourcing team. In this chapter, we’ll define each model, outline key advantages and disadvantages, and provide some insight into how different models can work together under a single strategy. Read more.

Chapter 10: Advantages & Disadvantages of Offshore

Taj Mahal

Offshore outsourcing—a strategy that involves partnering with teams in far-off locales like India, China, or Ukraine—has an equal share of pros and cons. The most obvious advantage is the potential for significant cost savings, though it comes at the price of seamless collaboration, cultural closeness, and a shared language.

That said, with a little planning and a lot of due diligence, offshore teams can be a powerful asset for any organization. In this section, we’ll look at offshoring from both sides and discuss the best ways for working it into your big-picture business strategy. Read more.

Chapter 11: Nearshoring Benefits & Disadvantages

Church in Mexico

Nearshoring offers a similar set of benefits as offshoring—access to specialists with hard-to-find skills, cost-savings, the flexibility to scale up or down with fluctuating demand.

It also builds on those benefits—clients work with teams based in the same time zone, allowing for the real-time collaboration and communication you’d get from remote employees in the states—at a lower price point.

Given our nearshore business model, we’re the first ones to sing the praises of the outsourcing model based on our experience working with US clients. That said, organizations should have a clear sense of what a successful nearshoring partnership entails and be prepared to invest the time and resources into nurturing this relationship.

In this section, we’ll look at the pros and cons of nearshoring to paint a realistic view of what to look for in a partner and what it takes to maximize your ROI. Read more.

Chapter 12: SDLC Methodology Implications on Model Selection

Business People Looking at Kanban Board

We’ve talked about outsourcing geographies and models and examined the pros and cons associated with each approach—based on things like business goals, project complexity, and how you plan on collaborating with external developers.

Here, we introduce another critical factor in shaping your outsourcing strategy and selecting a provider: outsourcing strategy: software development lifecycle methodologies (SDLCs).

SDLCs help you define development stages and inform how you’ll manage workflows and collaborate with your outsourcing team at each phase in the development process.

We define SDLCs, explain how they work, and share some examples of methodologies you might use when working with outsourced teams. Read more.

Chapter 13: Determining the True Costs of Outsourcing

Business Person Writing in Notepad

Companies choose to outsource for many reasons—innovating at speed and scale, responding to customer demands, modernizing legacy applications, entering new markets, the list goes on.

Regardless of what’s driving this decision, all outsourcing initiatives can be traced back to the bottom line.

With that in mind, organizations need to develop a system for measuring the true costs of outsourcing—otherwise, they risk wasting time, money, and losing ground to more strategic competitors. This chapter explains how you can calculate both direct and indirect costs of outsourcing and generate the returns you were hoping for. Read more.

Chapter 14: Dedicated Teams vs. Staff Augmentation

Software Outsourcing Team

For organizations embracing outsourcing as a strategic partnership, dedicated teams often deliver the biggest returns. Dedicated teams function as an extension of your in-house team, and the relationship is more like what you’d expect from remote employees versus a contractor you use on an ad-hoc basis. Staff augmentation allows organizations to address temporary spikes in demand, fill talent gaps for one-off projects, and hire developers on a trial or experimental basis.

In this chapter, we’ll compare dedicated teams vs. staff augmentation and when it makes sense to use one over the other. Spoiler: it depends if you’re playing the long game or addressing short term problems. Read more.

Chapter 15: Recruitment Process and Selection

Interviewer Laughing With Applicant

Identifying and hiring high-performance software development teams is no easy task.

Outsourcing companies must be able to size up a candidate’s skill set, experience, values, and cultural fit based on what clients are looking for—a talent that hinges on a combination of social networking, technical know-how, market expertise, and reading people.

While every outsourcing firm is different, we’ll help demystify the recruitment process and walk you through our internal process for finding top performers and matching them with clients. Read more.

Chapter 16: Software Outsourcing Contracts

Business Person Signing Software Outsourcing Contract

Software outsourcing contracts may not be the most glamorous topic, but they’re an incredibly vital part of any organization’s strategy. One of the biggest risks associated with outsourcing development projects to a different country is they follow a different set of rules and regulations that govern data privacy, IP, and sensitive information.

There’s also a critical need to outline quality and communication expectations, workflows, and access permissions.

You’ll want to define what happens in the event that your outsourcing partner breaks the agreement. While this hopefully won’t be an issue, it’s crucial to protect yourself against all potential threats to your business and your bottom line. Read more.

Chapter 17: Best Practices for Managing Remote Teams

Person Looking at Screen Showing a Virtual Meeting

Managing remote teams comes with a unique set of challenges. Many challenges are amplified when software development teams—who typically work in close-knit, collaborative teams—go remote.

In this chapter, we’ll share some best practices for managing remote teams relevant for leaders managing their in-house teams from home and collaborating with colleagues and outsourcing partners across different cultures and time zones. Tiempo experts share insights based on their own experiences working remotely, along with which strategies and tools help—or hurt—productivity. Read more.

Chapter 18: Common Reason Software Outsourcing Engagements Fail

Rocket Ship Crashing into Ground

Outsourcing software development can be a real game-changer for companies—whether they’re trying to save money, lighten workloads, or finally kick their digital transformation initiative into high gear. Unfortunately, many companies never reap the rewards they were hoping for.

In this chapter, we’ll look at some of the reasons that outsourcing efforts fail and what you can do to avoid becoming another statistic. Hint: a lot of it comes down to planning, communication, and a laser focus on your customer. Read more.

Chapter 19: Overcoming Current Challenges in Outsourcing Software Development

Businessman Pushing Boulder Up a Hill

Outsourcing is harder than one might assume.

Newcomers often underestimate what it takes to make sure their outsourcing projects are successful. There’s a lot more to it than handing your provider some basic requirements and waiting for on-spec deliverables to magically role in at each milestone.

This chapter looks at some of the main challenges organizations face when outsourcing development projects and functions. We’ll also share some best practices for avoiding those pitfalls with some planning and forethought. Read more.

Chapter 20: Software Outsourcing Best Practices

Globe with Lines and Dots

Strategic outsourcing requires a lot more than providing a list of business requirements and regular payments.

In this section, we’ll look at the outsourcing best practices that will help you ensure that your next project is a success—including how to perform due diligence on service providers, the importance of focusing on value creation over deliverables, and why you need to make an effort to incorporate outsourced teams into your company culture. Read more.

Chapter 21: A Plan for Software Outsourcing Implementation

Man Pointing at a Business Plan

Developing the kinds of apps that align with your business objectives, generate sales, and increase customer demand—while also meeting every stakeholder’s unique needs is incredibly hard to pull off—even with top talent.

In order to reap the rewards of outsourcing, a lot has to happen behind the scenes to ensure a smooth hand-off, seamless collaboration, and alignment between all stakeholders and teams. Here, we’ll provide an implementation framework that sets the stage for success. Read more.

Chapter 22: Outsourcing Governance Framework

Team of Software Engineers

Outsourcing governance gives companies a framework for setting goals—and lays out the steps for hitting those targets and measuring success.

Governance is essential in every sector and work environment, but it becomes even more critical in the context of software outsourcing, where you’re coordinating complex projects between in-house and outsourced development teams and the decision-makers and stakeholders involved at a higher level.

This chapter breaks down the key elements to include in your software outsourcing governance framework. Read more.

Chapter 23: Questions to Ask When Outsourcing Software Development

Two Business Women Talking

Chances are, you’re already aware of the fact that you need to do your due diligence before contracting any external service provider—whether they’re providing consulting services or raw materials. If you’re new to outsourcing or software development in general, it’s hard to know what to ask prospective partners to gather the information you need to make an informed decision.

In this chapter, we’ll go over what questions you should ask to ensure that you pick the ideal partner. Read more.

Chapter 24: Selecting a Software Development Outsourcing Provider

Business Man and Woman Shaking Hands

Selecting the right outsourcing partner starts with defining your requirements. Initially, it’s not about tools and technologies. It’s about getting clear on what you hope to achieve before making contact with prospective providers. In this chapter, we’ll look at the details you should iron out internally and how to use those requirements to identify companies that align with those needs.

From there, we’ll talk about defining your selection criteria and using them to develop an unbiased scoring system all stakeholders can use to cast their votes. Read more.

Chapter 25: Maximizing the ROI of Software Outsourcing

Business Man Pointing at Charts on a Page

As companies embrace outsourcing as a means for achieving strategic goals, they also need to develop a system for measuring whether the final product led to any measurable improvements. While the metrics themselves depend on your objective, you’ll want to look at ROI from multiple angles—using both qualitative and quantitative metrics to determine whether or not you’re on the right track.

This chapter will look at how you might measure ROI based on a few common business goals and how you can use your findings to get predictable results from future outsourcing projects. Read more.

Chapter 26: Auditing Software Outsourcing Performance

Software Engineers Reviewing Code on Computer

Is your software development outsourcing strategy working or not? While looking at the hard metrics like sales, revenue, and retention rates can tell you whether your strategy is good for the bottom line, they don’t help you understand why.

An outsourcing audit measures the efficacy of your outsourcing strategy and should help you understand how the various components either create business value or undermine your success.

The goal is to identify risks, opportunities, and problems in your current strategy and make improvements that get you closer to your target objectives. In this section, we’ll explain how to run an audit and use that information to drive positive change. Read more.

Chapter 27: Software Outsourcing Team Performance Metrics

Software Engineering Team

So, we’ve talked about making sure your outsourcing investments deliver the returns you were hoping for and how to run an audit on your entire software outsourcing strategy.

Here, we’ll discuss how to measure team performance and the metrics that represent success. Read more.

Chapter 28: A Strategy for Outsourcing Enterprise Software Development

Business People Creating a Strategy for Outsourcing

In this final chapter, we wrap things up by looking at all of the moving parts that must come together to create an effective software development outsourcing strategy.

Key elements include: how you manage teams, coordinate workflows, and define the nature of your partnership and how you’ll work together.

Tiempo experts share their advice for getting the most value from outsourcing projects based on where they’re located, the type of project, and the level of collaboration between in-house and outsourced teams. They even shed some light on what types of projects should—or shouldn’t—be outsourced. Read more.

For a deeper look at software outsourcing and its pros, cons, business models, costs, and more, download the full guide.