How to Manage Rising Software Development Cost?

For many organizations, the future of their business can be summed up in three words: software, software, software. The global enterprise application software market is expected to grow by $104.68 billion USD between 2022-2026, with a compound annual growth rate (CAGR) of 7.23%. Organizations across all sectors are leveraging software solutions to increase operational efficiency, deliver rewarding customer and employee experiences and open new revenue streams. Unfortunately, the increasing role of software solutions is accompanied by a rising cost of software development. Read on to learn why this is and how your business can get the external software development support it needs without mortgaging its future.

The demand for software development teams is not slowing down

According to the U.S. Bureau of Labor Statistics, the number of software developers, quality assurance analysts and testers in 2020 numbered 1,847,900 (in the United States alone). The projected employment number for 2030 is 2,257,400 – a 22 % increase. Though there are several reasons for this, perhaps it boils down to one overarching trend – the world is becoming increasingly digital.

The Digital 2022 Global Overview Report reveals there are 5.31 billion mobile phone users, 4.95 billion internet users and 4.62 billion people active on social media. Compared to 2021, these figures indicate a year-on-year increase of 95 million mobile phone users, 192 million internet users and 424 million social media users. Organizations across all sectors understand the power and possibility of digitalization, which explains the increased efforts to achieve digital transformations, or in the case of some companies, digital accelerations.

Statista reports that worldwide spending on digital transformations is expected to reach $1.78 trillion USD in 2022. While many of these efforts will be spearheaded internally, it is clear that for companies looking to scale quickly, help will be needed. Turning to a dedicated external development team means not just accessing talented experts, but availing of their knowledge and experience  – invaluable assets that can be transferred to your in-house engineers who work side by side your outsourcing partner.

Even though the number of software developers around the world is predicted to reach 28.7 million by 2024, there is, and will continue to be, a shortage of talent. One study warns that the shortage of 40 million skilled workers in 2020 is set to increase to 85.2 million by 2030. A scarcity of capable software developers, combined with the increasing demand for their services, only exacerbates the situation and triggers a rise in their services.

The shift to remote work has transformed the concept of ‘local talent pool’

The COVID-19 pandemic triggered a massive shift to remote work, as healthcare guidelines, government restrictions and company policies did not allow employees to continue working from the office. Two years later, as countries are cautiously re-emerging from lockdowns, it’s clear that a return to pre-pandemic working conditions is unlikely, as employees, and employers, prefer a hybrid model of work that allows for remote collaboration.

According to Slack, only 12% of the global workforce would like to return full-time to the office and just 13% prefer to work from home. The vast majority, 72%, favor a hybrid model, that is, alternatively working from home, the office and/or another location. Work location preferences have shifted, as employees have seen that they can be as efficient and productive at home as they are in the office. Beyond the ability to work effectively, employees are saving time and money by not commuting. This helps explain why organizations’ short-term remote work contingency plans have turned into long-term employment options.

While the pandemic did not invent hybrid work models, it helped to popularize them. Moreover, once most software developers, engineers, testers, programmers etc were working from home, the prospect of hiring, onboarding and collaborating with a teammate virtually did not seem like a huge challenge.  Companies, after initial trepidation, also became comfortable with remote work. A study by PricewaterhouseCoopers (PWC) shows that 83% of employers consider the shift to remote work to have been successful for their company. Mangers, like employees, want to continue with a hybrid approach, as the same PWC research shows one in five executives wants to return to the office as it was pre-pandemic.

The result? Organizations understood that their assumed talent pools were in fact much larger than they had previously thought. Not only could talent acquisition teams extend their searches to other cities, but also other countries. Furthermore, the use of asynchronous (or parallel) programming, whereby some work runs separately from the primary application thread, means that software support can be found in a different time zone.

For the last two years companies have learned how to work remotely and hire people from different parts of the world. Software Delivery Directors, Product Owners and Project Managers know how to manage people across different time zones. This may require some elasticity, but if a team embraces as Agile approach, working in a flexibly manner is par for the course.

Companies are keen to demonstrate their remote capabilities, not just because it attests to their technological prowess, but because nowadays having flexibility in a work schedule tops many peoples’ list of criteria when considering whether to stay in a job or seek out other opportunities. It also means that companies are competing against each other across continents for top-notch talents – and the successful ones are willing to pay more for quality specialists. This is another factor driving up the cost of software development.

As the fourth industrial revolution picks up steam, expect prices to continue to rise

Lest there be any doubts – the fourth industrial revolution, otherwise known as Industry 4.0, is here. Deloitte, the multinational professional services firm, sums it up nicely as “…the marriage of physical assets and advanced digital technologies – the internet of things (IoT), artificial intelligence (AI), robots, drones, autonomous vehicles, 3D printing, cloud computing, nanotechnology, and more – that communicate, analyze, and act upon information, enabling organizations, consumers, and society to be more flexible and responsive and make more intelligent, data-driven decisions.”

The move to digital economies is gaining pace every day, and while ultimately many of these measures will prove to be cost-effective, the significant investment into digitalization, automation, cloud migration, etc is a heavy burden on many organizations.

Of course, software development does not operate in a vacuum, and is as vulnerable to external market forces as any other type of business. Take for example inflation and the rising cost of living. The World Bank reports that 15 of the 34 countries classified as advanced economies by the International Monetary Fund’s World ~economic Outlook, 12-month inflation through December 2021 was above 5%. The last time there was such a widespread increase in inflation was around the year 2000.

It is not just the developed world suffering from inflation. According to the same report, 78 out of 109 emerging markets and developing economies also face inflation rates above 5%. Software development is not immune from these market forces, so understandably, inflation is also driving up costs in this sector as in every other.

What’s important to remember, though is what is included in the price. Beyond paying for the skills and ingenuity of an autonomous, dedicated development team, you’ll be gaining access to their experiences, knowledge and best practices – all intangible assets that will be passed on to your in-house specialists. Therefore, an investment in an external software partner will deliver institutional value that will enrich your organization by elevating the quality of your employees.

With software development, as in life, you get what you pay for

Given the profound importance software plays in operational efficiency, employee satisfaction, customer experience and revenue streams, the need to scale software capacity, speed up software delivery processes and get products and services to market faster has never been so important. That’s why organizations around the world turn to Software Mind, whose 20+ years of proven success, top-notch talents and expertise in leading technologies support start-ups, scale-ups, unicorns and enterprise level organizations who want to disrupt. To learn more about how our expert teams can seamlessly fit into your culture, understand your business goals and deliver software solutions, fill out the contact form.