Improving the development performance: the role of strategic software outsourcing

For nearly a decade, Novatics has been driving the growth of high-performance companies, offering technology consultancy with a focus on design and development of systems to enhance the capacity for delivering value, cost-efficient, high-quality software, and, of course, business outcomes.

Throughout our journey, we have had the opportunity to interact with different companies and leaderships, and we can perceive how strategic the decision to outsource or hire the support of a development consultancy can be. There are several common doubts and issues that managers face in the decision-making process. This is mainly because such a decision involves critical factors that, if not observed and well managed, can add even more risk to software projects.

Considering these risks, we decided to conduct a research and compile our experience, leadership feedback, market studies, and best practices for building a successful partnership in a software development outsourcing/nearshore strategy.

This research aims to support managers in this decision-making journey. In this study, we will provide valuable insights and practices on evaluation parameters, processes, governance, risk management, and cost benchmarking. We believe this information can be highly beneficial for leaders in choosing reliable partners.

When is outsourcing a good option?

In the challenge of driving their digital transformation journey, it is very common for leadership to encounter gaps, such as:

• The development team's capacity is fully committed and unable to meet new business demands.
• The development team has limited capacity and needs support to increase the volume of deliveries.
• The team needs to complement its know-how to meet the specific requirements of a project.

In this scenario, it is common for companies to opt for outsourcing and hiring development consultancies as an opportunity to reduce costs without compromising quality. According to Deloitte's report "Outsourcing and Shared Services 2019-2023," in 2022, companies spent over $700 billion on outsourcing. In the software development market, projections indicate an investment of approximately US$147 billion by 2027, with 60% of companies using outsourced teams.

These numbers and the post-pandemic scenario show us the following:

• Companies will continue to invest in digitalization, but there is pressure to do more with less.
• The myth of remote work has been shattered, and many governance and infrastructure boundaries have been adjusted to accommodate remote work.
• In an attempt to increase deliveries and reduce costs, managers made wrong choices regarding team expansion, either through increasing in-house teams (via direct hiring), which consequently increases management complexity and CAPEX, or by prioritizing low-cost services (with cost as the determining factor).

At the end of the day, the lesson learned is that we need to find the middle ground between cost and quality to reach the ideal partnership, where the client benefits from the technological partner's know-how to mitigate risks and accelerate deliveries, and the service provider has enough resources to manage its operation sustainably.

For example, Novatics is a consultancy specialized in software design and development, and all our consultants are fully dedicated to projects and undergo continuous training and formation processes, ensuring delivery quality, work methodology, and facilitating project knowledge management. Adding a team with expertise and a structured work methodology to support solution design or project execution enhances creativity potential, the team's delivery capacity, optimizes risk management, and reduces costs.

"Companies outsource IT in pursuit of enhanced performance. Internal departments often struggle to keep up with current technology, while providers have expertise in following trends and providing cutting-edge software and systems. They have more experience due to the variety of issues faced and can offer specialists in specific areas." Jér?me Barthélemy, published at MITSloan

The ease of consuming and scaling the services according to the project's moment or demand is another significant benefit that some outsourcing contracts offer. For instance, at Novatics, we offer a squad as a service model that facilitates the process of adjusting team sizes according to the client's needs. From the beginning, each project has a defined and planned allocation of consultants, but the client has the flexibility to modify this plan throughout the project.

However, despite all these benefits, it is essential to recognize that there are risks associated with outsourcing that companies often overlook. In the upcoming articles, I will explain more details about the benefits, contract and work models, risk management, and quality in a series of practical tips that will help you choose the ideal provider and conduct the project successfully.

Conclusion

As mentioned earlier, research indicates that outsourcing development continues to be a strategy with significant benefits. However, it is essential to highlight that choosing the right provider is a crucial factor for the success of this strategy. Moreover, the price factor cannot be the sole determinant, as it's worth remembering that the best talents in the creative technology industry come with a higher cost. In this series of posts, we will go through a set of aspects aimed at supporting the decision-making journey to choose the ideal provider.

I hope this introduction has helped to contextualize outsourcing as an essential strategy for companies looking to continue growing. Feel free to reach out to me here on LinkedIn or through our website.

Follow our newsletter to receive notifications for the next steps in our strategic outsourcing roadmap.