IT SOURCING

In this model, an external team is integrated into the client’s organization to work as an extension of their in-house team. In this model, the outsourced team becomes intimately familiar with the client’s technical environment, business processes, and culture, functioning as an integral part of their operation rather than an external vendor. One of the merits of this model is that you get your team of developers built according to your specific requirements. The outsourcing vendor may either allocate a strong team of senior developers or you may hire middle and junior specialists who will follow the tasks of your on-site senior engineers. Most of the responsibility is placed on the client.

When you should choose a Team Extension model:

• You want to have flexibility in scaling resources according to project requirements
• You run complex or long-time projects, where the specialized project management expertise is essential
• You want to bring technical expertise and product knowledge to your in-house team
• You aim to drive innovations and explore new ideas with the fresh perspective and diverse skills sets

The project-based outsourcing model is a business strategy where a customer entrusts an external service provider with the responsibility of completing a specific project within a defined timeframe and budget. This model is particularly effective for tasks that require specialized skills or resources that the hiring company may not possess internally. This IT outsourcing engagement model encompasses fixed quota, fixed scope of work and fixed time of project delivery. As a client, you address the provider with a business problem and your vision of how it may be resolved. A common practice is to go through the discovery phase together with the software development vendor, during which clear project business and software requirements are established and analyzed, which leads to clear understanding of the final product and deliverables. The responsibility is placed mainly on the outsourcing party, and the team reports directly to the vendor’s PM.

When you should choose a Project-Based model:

• You have a clear understanding of the Product you want to build and its goals
• You have mature Expertise on Business side, who can drive the requirements
• You want to mitigate project risks, such as delays, cost overruns, and quality issues
• You run Short-term projects / One-time projects / Non-core projects, that do not require a permanent increase in workforce

In Time & Material (“pay-as-you-go”) engagement model, the requirements are not clearly defined at the beginning. That is why it is usually applied when a project cannot be estimated in advance (especially if the scope of work is likely to change in the development process). New specifications may be created during the development process or result from the deliverables. Also, the team composition is flexible so it allows to involve IT professionals with different skill sets when needed.

As for the billing process, you and the provider agree upon an hourly rate of each developer, so a weekly/monthly charge is based on the total effort reported by each member of the team. In addition, this model is flexible in terms of allocation time of specialists, which may vary from 25% and higher depending on the project needs. Yet the main hidden risk in this model is that the client may lose focus and get carried away in the process endlessly improving the final product. Thus it’s very important to have clear objectives and stay focused on the outcome.

83% of small businesses will maintain or increase their spending on outsourced business services in 2024

The first thing that inspires Nordic companies to outsource is customer satisfaction. 87% of outsourcers claim they are satisfied with IT service providers, and only 13% express concerns. The overall positive experience makes more and more businesses hire remote tech partners.

The market for software development outsourcing continues to expand rapidly, driven by increasing demand for cost-effective and scalable solutions, technological advancements, and globalization. Based on Statista insights, the current state of the market is as follows:

• The IT outsourcing market is predicted to obtain a revenue of $512.50 billion by the end of 2024;
• An annual growth rate (CAGR 2024-2028) of 10.99% is anticipated, leading to a market volume of $777.70 billion by 2028;
• Projections indicate that the average spend per employee in the IT outsourcing market will reach US$146.10 in 2024;
• In a global context, the majority of revenue, amounting to $185.50 billion in 2024, is expected to be generated in the United States.

Key Trends Shaping Software Development Outsourcing

The market dictates the key software development outsourcing trends essential for organizations seeking to optimize their strategies and win the market competition.

Remote Work and Distributed Teams

The demand for remote work has impacted the outsourcing niche, enabling businesses to cooperate with distributed teams all around the world. Remote work offers flexibility, access to global talent pools, and cost savings on office space and infrastructure. In 2023, the technology sector stood out with the highest number of remote workers globally, with over 67% of employees worldwide working entirely or primarily remotely, as Statista claims.

Emphasis on Agile Methodologies and DevOps Practices

Agile methodologies and DevOps practices have become actively adopted in outsourcing engagements. These approaches enable teams to provide software solutions iteratively, adjust to dynamic requirements, and guarantee seamless collaboration between development and operations teams. According to the 16th State of Agile Report, 80% of organizations adopt Agile practices, establishing technology outsourcing trends.

Rising Demand for Specialized Skill Sets

The specialized skill sets within the future trends in outsourcing are particularly visible through the fast progress of automation and artificial intelligence. It has shown the value of tech skills that machines can’t easily replace, based on the Statista report. Python, on the other hand, has become one of the most widely used programming languages, bringing its benefits across a diverse range of fields. As of 2022, it was mostly employed for web development, accounting for 46%, and data analysis, covering 54% of its usage.

Increased Focus on Data Security and Compliance

With the increase in data breaches and privacy concerns, there is a growing focus on data security and compliance in software outsourcing trends. In the first quarter of 2023, global data breaches exposed 6.41 million data records, affecting millions of individuals, according to Statista. Businesses prioritize IT vendors that can implement robust security measures and adhere to regulatory requirements to mitigate risks and safeguard sensitive information. That’s why Statista claims that the revenue in the data security market will reach US$6.86 billion by 2024. Revenue is expected to surpass a CAGR of 13.01%, reaching a market volume of $11.19 billion by 2028. Besides, according to Deloitte, 22% of businesses adopt outsourcing to handle changing regulatory requirements.

Integration of AI and Machine Learning in Outsourcing Workflows

AI and machine learning are being integrated into outsourcing workflows to automate repetitive tasks, enhance productivity, and derive valuable insights from data. These technologies enable smarter decision-making, predictive analytics, and improved efficiency in software development processes. As MarketsandMarkets claims, in 2023, the global artificial intelligence market was valued at 150.2 billion, and it is projected to grow at a CAGR of 36.8% from 2023 to 2030. By 2030, the revenue forecast is expected to reach $1,345.2 billion.

Adoption of Blockchain for Secure Transactions and Smart Contracts

Blockchain technology is primarily adopted for secure transactions, transparent record-keeping, and the implementation of smart contracts. According to Statista, it currently has comprehensive applications across various industries, such as gaming, real estate, supply chain management, and healthcare, although its primary usage is found in finance. This is not unexpected, as blockchain is commonly defined as a digital public ledger distributed across numerous computers. By the end of 2024, digital currency will become one of the most widely discussed use cases of blockchain. The adoption rate of blockchain across businesses is currently estimated at 10%.

Switching to Cloud Computing

Cloud computing is a beneficial mode and one of the top IT infrastructure outsourcing trends, equipping businesses with outstanding scalability, flexibility, and cost-efficiency. Organizations leverage cloud services for hosting, storage, and computing resources, achieving faster development cycles and seamless integration with third-party tools and services. According to Statista, the global public cloud computing market is on a continual rise. It is forecasted to reach an estimated value of $679 billion by 2024, comprising a wide range of services such as business processes, platforms, infrastructure, software, management, security, and advertising delivered by public cloud service providers.