Types of IT Outsourcing Models: How to Pick the Best One?

Types of IT Outsourcing Models: How to Pick the Best One?

With countless untold success stories, outsourcing is becoming the new normal in the IT industry. It is a popular choice among businesses that want to cut costs dramatically, free themselves from the burden of costly assets, or develop the ability to grow in ways that would have not been feasible with in-house resources. However, there are a lot of options available in outsourcing, making it easy to become confused when selecting the best model.

Selecting the best and most reliable IT outsourcing model for your software development needs requires an in-depth understanding of the specifications of the model. Normally, the models are classified into two: location-based and relationship-based outsourcing models. This article will look at them in detail and provide advice on how to choose the best one for your company. 

Various Outsourcing Models: An Overview

As said above, the models are divided into two categories, which include location-based and relationship-based. The location-based model is the most common one and involves outsourcing work to a third-party service provider located in a different region. 

The relationship-based model, on the other hand, involves a long-term relationship between the company and the service provider. It is clear what each term means by itself. However, let us go further and examine each of these models in more detail. 

Location-Based Outsourcing Models

An outsourcing model based on location is mainly driven by the distance between you and your outsourcing team. The closer the outsourcing team is to you, the better the communication and collaboration can be. This model can be beneficial for companies that have tight deadlines and require quick results. Moreover, it can be divided into three categories:

• Onshore outsourcing
• Nearshore outsourcing
• Offshore outsourcing

1. Onshore Outsourcing

Having your outsourcing team based in the same country as you is known as “onshore” outsourcing. When you hire services from outside the organisation but within the same country as you, it’s known as “domestic outsourcing.” It implies that there may be greater accessibility to the onshore team. 

Your coders could be in different parts of the country, but the time zone would not differ significantly. Since you both have similar experiences, communicating with an onshore team will not be difficult due to a language or cultural barrier. 

2. Nearshore Outsourcing 

When it comes to nearshore outsourcing, you are delegating your software development project to your neighbouring countries that are in your geographical proximity. When your company works with a nearshore team, the travel time difference between them should not be more than three hours. So, the team is still quite accessible on-site if necessary.

In this type, time zone differences are significantly reduced in comparison to offshore development. Also, it is cost-effective and culturally aligned compared to onshore outsourcing. That being said, depending on where you live, there is a chance that communication will be affected by linguistic differences. The labour costs may be reduced, which does not always happen with onshore development.

3. Offshore Outsourcing

According to the offshore model, the hired company has its headquarters in a different nation with a different time zone, possibly even on the opposite side of the world. It indicates that your company employs a third-party vendor to carry out tasks from another nation. This model brings a lot of benefits. It includes the ability to access a large talent pool, hire an expert team for less money, and hire technology specialists that you might not be able to find in your own country. 

The cost-effectiveness of offshore outsourcing is contingent upon the global low-cost regions that are chosen. You can also be sure that there will be accessible communication between your in-house team and your extended offshore team if you manage to get your hands on a competent project manager.                                                                                                                                    

Relationship-Based Outsourcing Models

Three relationship-based outsourcing models exist, and they are as follows:

• Staff Augmentation Model
• Dedicated Team Model 
• Project-based Model 

1. Staff Augmentation Model

Adding more IT experts to your current team is the goal of the staff augmentation model. It is the one you should choose if you do not have enough experts on your team. Depending on your needs, the actual people hired might change. By using this model, you can fill in team gaps without having to go through the full hiring process. 

This is especially useful in scenarios where you need to temporarily increase the knowledge of your internal team and do not ultimately need those specialists. The experts you hire from outside your organisation temporarily join your internal team. You maintain complete control over the process and project management, adding personnel only when needed.

2. Dedicated Team Model

“Dedicated team model” refers to a service agreement wherein clients engage the service provider to provide development specialists on an ongoing basis. In addition, you appoint an entire group of professionals from an outsourcing firm to handle assignments that you do not want to give to your staff. 

The sole distinction is that your outsourced team will not need to communicate with your in-house team because they will be working on separate projects. Instead, through the project manager or another individual with comparable duties, they will remain in contact. 

3. Project-Based Model

In contrast to previous models, the project-based model is a model based on relationships that don’t require you to be involved in the project development process except for the time between the handover and delivery. This model provides you with the least amount of control over the project. 

• The development team and project deliverables will be the responsibility of the service provider after you have selected your development company and explained all project requirements. 
• The primary benefit of this strategy is that the outsourcing company will handle the project from beginning to end, relieving you of a significant amount of work. 
• Their responsibilities include creating the development team, evaluating the sprint deliverables (the most popular among software houses), and managing the project.

How to Pick the Right One

Which model is best for your company is a question with no right or wrong answer; instead, there are a number of considerations to make in order to make an informed choice, such as:

• The first factor to consider is the clarity about your project requirements, the resources you need, the complexity of the project you need support with and others.
• Take into consideration the outsourcing partner’s industry knowledge and experience.
• The market reputation is also an essential factor when selecting your partner. Request testimonials and references from previous customers. Check the pricing options of different providers and negotiate the best deal.
• You should be clear about the budget and compare different pricing models. Get a ballpark figure for the project’s overall cost. Make sure to get everything in writing. Review the contract carefully before signing.
• Consider if the service provider can safeguard your data and intellectual property.  
• Ask about any hidden fees or charges. Ask about any guarantees or warranties. Make sure the contract includes all the services and terms agreed upon.
• Make an early decision about the kind of partnership you wish to have with your outsourcing partner. It will assist you in selecting the correct type of model for your productive project management. 

So, these are the factors you should not fail to consider when choosing your IT outsourcing models. You can use it to determine the kind of outsourcing model that best fits your requirements. Make sure to ask your partner to provide references and examples of their work. Additionally, do your research on the company and read reviews from other customers. 

Finally, ask for a detailed contract with all the terms in writing. Recall that working with the proper team when outsourcing helps you avoid making expensive mistakes. With the aid of this article, you can make an informed decision.  

Interesting Links:

IT Outsourcing Models: Types And Tips To Choose The Best One

Benefits of Outsourcing Models

Rahil Kandamplayil

Hi, my name is Rahil. I work at YUHIRO Global and I help web agencies and software companies from Europe to build developer teams in India.