IT outsourcing is on the rise – research shows that over the next four years revenue is expected to achieve a compound annual growth rate (CAGR) of 7.54% and reach a market volume of $227.40 billion US dollars by 2027. Despite this increasing interest, many companies do not know how to begin cooperation with an outsourcing vendor. Read on to learn the crucial steps you and your team need to take to ensure your partnership with an external team is a success.
Step 1: Assess your development capacity
Before any concrete steps can be taken to remedy a problem, an organization must first realize there is one. Evaluation can take many forms, but one that works best is asking yourself some tough questions:
- Are we able to speed up release cycles and achieve a faster time to market?
Gartner research reveals that only 11% of organizations meet their defined internal launch targets.
A slow time to market means less market share.
- Can we afford to spend time and money on recruiting experts?
“By 2030, there will be a global human talent shortage of more than 85 million people. Left unchecked, in 2030 that talent shortage could result in about $8.5 trillion in unrealized annual revenues.” Korn Ferry
Your goal should be to focus on your core business, not on talent acquisition.
- Do we have the capacity to scale in line with our growth strategies?
“The global market for IT Outsourcing, estimated at US $342.9 billion in the year 2020, is projected to reach a revised size of US $410.2 Billion by 2027.” Research and Markets
CTOs across all sectors need to ramp up capacity to engineer software that scales to growth strategies, which is why the IT outsourcing market is booming.
- Is it possible for us to implement new technologies on our own?
“Through 2025, organizations will increase their reliance on external consultants, as the greater urgency and accelerated pace of change widen the gap between organizations’ digital business ambitions and their internal resources and capabilities.” Gartner
Bringing in domain expertise and benefiting from knowledge sharing that results from real-world experience are proven ways to accelerate digital transformations through cloud, artificial intelligence (AI) and data science.
Step 2: Determine whether a software partner is a good fit
Nowadays, most software outsourcing companies offer a variation of the same pitch. These revolve around promises to:
– Extend in-house teams and expand IT capabilities
– Build innovative products
– Accelerate digital transformation strategies
A client’s need for software support and a vendor’s desire to get their business does not guarantee a successful partnership. It is vital to team up with a software development partner that shares your values and matches your culture since it ensures smooth onboarding, open communication, meaningful engagement and seamless cooperation.
Culture fit checklist:
Look for missionaries, not mercenaries: Research shows that 71% of executives say that employee engagement is critical to their company’s success, and companies with high employee engagement are 21% more profitable. Forbes reports that companies with highly engaged employees outperform their competitors by 147%.
Refer to case studies, testimonials, referrals: Case studies are an indicator of what cooperation looks like in practice. They verify whether a company can live up to its promises, demonstrate technical competences, highlight battle-tested methods and reveal what a partnership can achieve.
Aim for a value-driven, not task-driven, partner: Forward-thinking software development needs to adapt to changing business goals, reflect users’ expectations and integrate emerging technologies. Value-driven, or people-driven outsourcing, delivers a greater return on investment (ROI).
Prioritize transparency, honesty and openness: Being transparent, aside from helping to drive a software project, also has a clear financial benefit. LinkedIn reports that 73% of customers will even pay a higher price for products or services from companies that operate with transparency. Look for a partner that embraces transparency, shares information and is unafraid to discuss “hard topics” like unexpected delays, technical problems or flawed business logic.
After contacting a software vendor, what comes next?
Discovery call – be upfront about goals and realistic about expectations
Usually 30 minutes to one hour, this call is vital to understanding why a company has reached out:
– Learning about the application domain
– Identifying stakeholders
– Understanding target audience
– Drivers – objectives and success measurements
– Constraints – challenges to be overcome
Scope and needs (individual engineers or a team)
– Composition of team (roles, competences)
Potential evolution of this cooperation
– Short-term requirements
– Long-term ambitions
– Roadmap of features and functionalities
While the focus of the call should be on your software goals, it is also an opportunity for your potential outsourcing partner to explain their services, offer, technologies and capabilities.
You should expect to field preliminary questions about budget constraints and provide information not just about the decision-making process within your company, but also about the decision makers and stakeholders who will be involved.
A potential software outsourcing partner will also be interested in understanding your decision factors, especially regarding skills or performance of software engineers, timeline of building the team and prices, along with insights into what the decision-making process looks like.
Steps 3 and 4: Sign a non-disclosure agreement (NDA) and take part in a technical call
Signing an NDA is optional, but it’s a good practice. It encourages smooth operations and speeds up processes. It enables both sides to:
- explore more details about architecture diagrams,
- study product demos,
- share confidential documents regarding systems and platforms,
- ensure the protection of intellectual property and internal files.
A technical call is essential to better understanding what kind of team should be built and what kind of expertise is needed to achieve business goals, which can often be ill-defined. Overall, a technical call is a more detailed version of the discovery call. It enables both you and your outsourcing partner to:
- exchange documentation,
- elaborate on product goals,
- clarify the size and shape of a team (including roles and skillsets),
- propose a tentative structure (to be refined in the next stage),
- share a desired timeline and schedule,
- discuss the option of providing a minimum viable product (MVP).
Standard size and timeframe: 2-3 people for around 2-3 months
Try & buy model: Client has the option to sign a deal once the MVP is completed or, if not satisfied, pay for work at a discounted price
Step 5: Draft a cooperation proposal
Once agreement is reached on the scope, team composition, timeline and budget, it is time to prepare a cooperation proposal.
Time & material vs fixed price
Since product requirements and a project’s final aim can change frequently, more and more companies are opting for a time and material model instead of a fixed price model. A fixed price model does not encourage new directions or modifications to a product’s development; parties can only carry out work based on the perimeters laid out in the original agreement. A time and materials model supports adaptability – clients simply pay for the time developers spend on a project. It also explains why the Agile approach has been overtaking the Waterfall approach, as it encourages dealing with changing requirements and goals in real– time and it puts the emphasis on business value, not completing ill-defined tasks according to outdated requirements.
A client needs to review the cooperation proposal – maybe their plans or needs have changed. This document will drive their decision-making process and involve all decision makers and stakeholders on their side.
Step 6: Sign a Master Service Agreement & Statement of Work
Once a cooperation proposal has been accepted and all the terms and provisions are agreed on, a Master Service Agreement (MSA) and Statement of Work (SOW) can be drafted and finalized.
An experienced software outsourcing partner will be able to provide a user-friendly template for a client to complete but will also be willing to work according to a client’s form, when asked. Typically, smaller companies work on agreements provided by an outsourcer, while larger organizations develop their own, as they are more likely to have in-house legal resources.
Final versions of these documents should be reviewed by legal representatives from both sides, which may require additional amendments or minor tweaks. The timeframe can vary, depending on modifications, but usually does not last longer than two to three weeks.
To sign SOW and MSA, many organizations use electronic signature platforms – so a client is responsible for filling in information. SOW reflects the proposal agreement, and it includes information on the start date, team size (and make up: skills, seniority…), a brief description of the scope of work and the duration of a project.
Step 7: Start operational work (execution of agreements)
At this point, work can begin on establishing Ways of Working – primarily through workshops and product-related tasks.
Companies around the world and across sectors turn to Software Mind for the direct communication, scalable expertise and cost-effective approach to software development. To find out how our experts can help your organization, fill out the contact form below.
About the authorJacek Szmatka
Head of Digital Transformations and Software Consulting
An open-minded leader with over 20 years’ experience in the IT world, Jacek’s career has seen him evolve from a computer science graduate to software engineer to a co-founder and CTO of a tech start-up. Before joining Software Mind, Jacek was part of a team that developed a bioinformatics company and served as an executive board member. In his current role as Vice President of Business Development, Jacek helps leading American and European companies design and build innovative development teams from scratch. A true believer in the transformative power technology can have on our lives, Jacek maintains a keen interest in R & D, in particular with solutions that involve AI, IoT, life science and cloud technologies.