Outsourcing: Definition and models

According to Statista, in 2019, the global outsourcing market value reached a high of 92.5 billion USD. Internationally, outsourcing is now an integral feature of business life, from IT services to the healthcare finance sector, to name but a few. To help you keep abreast of this emerging trend, here is essential knowledge about outsourcing.

1. What is outsourcing?

Outsourcing is a management approach that allows delegating to an external agent operational responsibility for processes or services previously delivered by an enterprise. According to Deloitte, simply, outsourcing is contracting out of a business function to an external supplier, involving the transfer of people, processes, and assets. This contracting out can be undertaken at either an on-shore or off-shore location, and to single-sourced or multi-sourced outsourcing partners. It is most mature in the Information Technology sector although it is increasingly developing to include a wide range of business processes such as HR, Finance, Procurement, Customer Service, and the wider back-office function.

Outsourcing IT has always been complex due to the requirement to bundle IT into ‘services’ combining hardware, software, people, and processes. These services often contain data center, end-user computing, service desk, application development and maintenance, and voice and data network packages. Traditionally, there are intricacies in transferring staff, innovating contracts, and assessing the financial impact of selling physical assets. These complications have been recently compounded by on-demand IT offerings, the evolution of offshore centers, and the advent of cloud-based offerings.

2. Outsourcing models

You can see different outsourcing models available in software project management. However, in this article, we only mention 2 typical models that may fit you the most.

Project-based model:

With the project-based IT model, you delegate the completion of an entire project to a third party. Typically clients should first explain the full requirements of the project to members of the outsourcing company, such as project managers and business analysts, and they will then be in charge of forming the development team and seeing the project through to its completion.

Pros. The project-based model takes a large bulk of the work off your hands, as the outsourcing company will be largely responsible for the development of the entire project from start to finish, from forming the development team, carrying out project management, to implementing quality control.

Cons. The method gives you limited control over your project and developers. With extra services such as project management, business analysis, and quality assurance, it can cost a lot. It also requires you to define the full specifications of your project at the beginning, which may be very hard. Moreover, misunderstandings with project requirements can result in significant mistakes that delay project completion.

The Project-based model is recommended for clients having a small, short-term project whose requirements are set in stone. Enterprises if do not need or cannot monitor the project progress too closely should also choose this model.

Team-based model

With the team-based model, you hire remote developers who will report directly to you and work for you full-time but will remain in the dedicated team provider’s office. They may form your entire development team, or collaborate with your in-house developers. This model is also considered as IT staff augmentation or IT outstaffing.

Pros. Hiring dedicated developers means you have full control over your project. It also gives you more flexibility with your project costs, since you can easily add or remove developers as your requirements change. Additionally, it does not require you to define the full set of project requirements at the beginning, and you can immediately detect and correct mistakes as they appear.

Cons. Staff augmentation requires constant communication and collaboration with your remote dedicated developers, thus when hiring from a distant country, time zone differences and language barriers may pose challenges. Though this is also true for project-based outsourcing.

The dedicated team model is recommended for clients who have a large or long-term project and want the freedom to change project requirements as they please. If you prefer close monitoring of your developers and project progress, as well as need flexibility in extending their existing development teams, team-based outsourcing may be the best choice.

Vietnam, with the software industry’s annual growth at 40%, is making a big push to turn itself into an outsourcing powerhouse. Foreign investors continue to show a high level of confidence that Vietnam will deliver on its potential. IT outsourcing services generate around $3 billion a year, according to Vinasa. CMC Global, with two consecutive times achieving Sao Khue Award for the category “IT Outsourcing Service”, has affirmed strong competence in creating technology breakthroughs, thereby providing domestic and international customers the best technology solutions.

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